An Act to revise the internal revenue laws of the United States
PL 83-591 (H.R.8300), enacted 08/16/1954

PUBLIC LAW 591 - CHAPTER 736 
APPROVED AUGUST 16, 1954, 9:45 a. m., E. D. T. 
H. R. 8300 
Internal Revenue Code 
of 1954 
ENACTED DURING THE 
K 
SECOND SESSION OF THE EIGHTY-THIRD CONGRESS 
OF THE UNITED STATES OF AMERICA 
Begun and held at the City of Washington on 
Wednesday, January 6, 1954, 
an act 
To retdse the internal revenue laws of the United States. 
Be it enacted by the Senate and House of Representatives of the United 
States of America in Congress assembled, That (a) CITATION.— 
(1) The provisions of this Act set forth under the heading *'Inter-
nal Revenue Title" may be cited as the "Internal Revenue Code of 
1954". 
(2) The Internal Revenue Code enacted on February 10, 1939, as 
amended, may be cited as the "Internal Revenue Code of 1939". 
(b) PUBLICATION.—This Act shall be published as volume 68A of 
the United States Statutes at Large, with a comprehensive table of 
contents and an appendix; but without an index or marginal references. 
The date of enactment, bill number, public law number, and chapter 
number, shall be printed as a headnote. 
(c) CROSS REFERENCE.—For saving provisions, effective date provi-
sions, and other related provisions, see chapter 80 (sec. 7801 and 
following) of the Internal Revenue Code of 1954. 
(d) 
ENACTMENT or INTERNAL REVENUE TITLE INTO LAW.—The 
Internal Revenue Title referred to in subsection (a) (1) is as follows: 
INTERNAL REVENUE CODE OF 1964 
INTERNAL REVENUE TITLE 
SUBTITLE A. Income taxes. 
SUBTITLE B . Estate and gift taxes. 
SUBTITLE C. Employment taxes. 
SUBTITLE D . Miscellaneous excise taxes. 
SUBTITLE E . Alcohol, tobacco, and certain other excise taxes. 
SUBTITLE F . Procedure and administration. 
SUBTITLE G. The Joint Committee on Internal Revenue Taxation. 
Subtitle A—Income Taxes 
CHAPTER 1. Normal taxes and surtaxes. 
CHAPTER 2. Tax on self-employment income. 
CHAPTER 3. Withholding of tax on nonresident aliens and foreign 
corporations and tax-free covenant bonds. 
CHAPTER 4. Rules applicable to recovery of excessive profits on 
government contracts. 
CHAPTER 5. Tax on transfers to avoid income tax. 
CHAPTER 6. Consolidated returns. 
CHAPTER 
1—NORMAL 
TAXES 
AND 
SURTAXES 
SUBCHAPTER A. 
SUBCHAPTER B. 
SUBCHAPTER C. 
SUBCHAPTER D. 
SUBCHAPTER E. 
SUBCHAPTER F. 
SUBCHAPTER G. 
SUBCHAPTER H. 
SUBCHAPTER I
. 
SUBCHAPTER J
. 
SUBCHAPTER K. 
SUBCHAPTER L. 
SUBCHAPTER M . 
SUBCHAPTER N. 
SUBCHAPTER O. 
SUBCHAPTER P, 
SUBCHAPTER Q. 
SUBCHAPTER R. 
Determination of tax liability. 
Computation of taxable income. 
Corporate distributions and adjustments. 
Deferred compensation, etc. 
Accounting periods and methods of accounting. 
Exempt organizations. 
Corporations used to avoid income tax on share-
holders. 
Banking institutions. 
Natural resources. 
Estates, trusts, beneficiaries, and decedents. 
Partners and partnerships. 
Insurance companies. 
Regulated investment companies. 
Tax based on income from sources within or with-
out the United States. 
Gain or loss on disposition of property. 
Capital gains and losses. 
Readjustment of tax between years and special 
limitations. 
Election of certain partnerships and proprietor-
ships as to taxable status. 
Subchapter A—Determination of Tax Liability 
Part 
I. Tax on individuals. 
Part II. Tax on corporations. 
Part III. Changes in rates during a taxable year. 
Part IV. Credits against tax. 
PART I—TAX ON INDIVIDUALS 
Sec. 1. Tax imposed. 
Sec. 2. Tax in case of joint return or return of surviving spouse. 
Sec. 3. Optional tax if adjusted gross income is less than $5,000. 
Sec. 4. Rules for optional tax. 
Sec. 5. Cross references relating to tax on individuals. 
CH. 1 
NORMAL TAXES AND SURTAXES 
6 
SEC. 1. TAX IMPOSED. 
(a) KATES OF TAX ON INDIVIDUALS.—A tax is hereby imposed for 
each taxable year on the taxable income of every individual other 
than a head of a household to whom subsection (b) applies. The 
amount of the tax shall be determined in accordance with the following 
table: 
If the taxable income is: 
The tax is: 
Not over $2,000 
20% of the taxable income. 
Over $2,000 but not over $4,000___ 
$400, plus 22% of excess over 
$2,000. 
Over $4,000 but not over $6,000 
$840, plus 26% of excess over 
$4,000. 
Over $6,000 but not over $8,000 
$1,360, plus 30% of excess over 
$6,000. 
Over $8,000 but not over $10,000__ 
$1,960, plus 34% of excess over 
$8,000. 
Over $10,000 but not over $12,000 
$2,640, plus 38% of excess over 
$10,000. 
Over $12,000 but not over $14,000 
$3,400, plus 43% of excess over 
$12,000. 
Over $14,000 but not over $16,000 
$4,260, plus 47% of excess over 
$14,000. 
Over $16,000 but not over $18,000 
$6,200, plus 50% of excess over 
$16,000. 
Over $18,000 but not over $20,000 
$6,200, plus 53% of excess over 
$18,000. 
Over $20,000 but not over $22,000 
$7,260, plus 56% of excess over 
$20,000. 
Over $22,000 but not over $26,000 
$8,380, plus 59% of excess over 
$22,000. 
Over $26,000 but not over $32,000. 
$10,740, plus 62% of excess over 
$26,000. 
Over $32,000 but not over $38,000_ 
$14,460, plus 65% of excess over 
$32 000. 
Over $38,000 but not over $44,000.___... 
$18,360, plus 69% of excess over 
$38,000. 
Over $44,000 but not over $50,000. 
$22,500, plus 72% of excess over 
$44,000. 
Over $50,000 but not over $60,000. 
$26,820, plus 75% of excess over 
$50,000. 
Over $60,000 but not over $70,000 
$34,320, plus 78% of excess over 
$60,000. 
Over $70,000 but not over $80,000 
$42,120, plus 81% of excess over 
$70,000. 
Over $80,000 but not over $90,000 
$50,220, plus 84% of excess over 
$80,000. 
Over $90,000 but not over $100,000 
$58,620, plus 87% of excess over 
$90,000. 
Over $100,000 but not over $150,000 
$67,320, plus 89% of excess over 
$100,000. 
Over $150,000 but not over $200,000 
$111,820, plus 90% of excess over 
$150,000. 
Over $200,000 
$156,820, plus 91 % of excess over 
$200,000. 
§l(a) 
INTERNAL REVENUE CODE OF 
1954 
(b) RATES OF TAX ON HEADS OF HOUSEHOLDS.— 
(1) RATES OF TAX.—A tax is hereby imposed for each taxable 
year on the taxable income of every individual who is the head of 
a household. The amount of the tax shall be determined in accord-
ance with the following table: 
If the taxable income is: 
Tlie tax is: 
Not over $2,000 
20% of the taxable income. 
Over $2,000 but not over $4,000 
$400, plus 21% of excess over 
$2,000. 
Over $4,000 but not over $6,000 
$820, plus 24% of excess over 
$4,000. 
Over $6,000 but not over $8,000 
$1,300, plus 26% of excess over 
$6,000. 
Over $8,000 but not over $10,000 
Over $10,000 but not over $12,000---
Over $12,000 but not over $14,000-.-
Over $14,000 but not over $16,000--. 
Over $16,000 but not over $18,000--. 
Over $18,000 but not over $20,000--. 
Over $20,000 but not over $22,000-.. 
Over $22,000 but not over $24,000-_. 
Over $24,000 but not over $28,000-.. 
Over $28,000 but not over $32,000--. 
Over $32,000 but not over $38,000..-
Over $38,000 but not over $44,000- _ . 
Over $44,000 but not over $50,000-.-
Over $50,000 but not over $60,000--. 
Over $60,000 but not over $70,000-.-
Over $70,000 but not over $80,000- . . 
Over $80,000 but not over $90,000- . . 
Over $90,000 but not over $100,000. -
Over $100,000 but not over $150,000- . 
Over $150,000 but not over $200,000. . 
Over $200,000 but not over $300,000. _ 
$1,820, plus 30% of excess over 
$8,000. 
$2,420, plus 32% of excess over 
$10,000. 
$3,060, plus 36% of excess over 
$12,000. 
$3,780, plus 39% of excess over 
$14,000. 
$4,560, plus 42% of excess over 
$16,000. 
$5,400, plus 43% of excess over 
$18,000. 
$6,260, plus 47% of excess over 
$20,000. 
$7,200, plus 49% of excess over 
$22 000 
$8,180, plus 52% of excess over 
$24,000. 
$10,260, plus 54% of excess over 
$28,000. 
$12,420, plus 58% of excess over 
$32 000 
$15,900, plus 62% of excess over 
$38,000. 
$19,620, plus 66% of excess over 
$44,000. 
$23,580, plus 68% of excess over 
$50,000. 
$30,380, plus 71% of excess over 
$60,000. 
$37,480, plus 74% of excess over 
$70,000. 
$44,880, plus 76% of excess over 
$80,000. 
$52,480, plus 80% of excess over 
$90,000. 
$60,480, plus 83% of excess over 
$100,000. 
$101,980, plus 87% of excess over 
$150,000. 
$145,480, plus 90% of excess over 
$200,000. 
Over $300,000 
. 
. . . . 
$235,480, plus 91% of excess over 
$300,000. 
(2) D E F I N I T I O N O F HEAD O F H O U S E H O L D . — F o r purposes of this 
subtitle, an individual shall be considered a head of a household if, 
and only if, such individual is not married at the close of his taxable 
year, is not a surviving spouse (as defined in section 2 (b)), and 
either— 
§l(b) 
CH. 1—NORMAL TAXES AND SURTAXES 
7 
(A) maintains as his home a household which constitutes for 
such taxable year the principal place of abode, as a member of 
such household, of— 
(i) a son, stepson, daughter, or stepdaughter of the tax-
payer, or a descendant of a son or daughter of the taxpayer, 
but if such son, stepson, daughter, stepdaughter, or descendant 
is married at the close of the taxpayer's taxable year, only if 
the taxpayer is entitled to a deduction for the taxable year for 
such person under section 151, or 
(ii) any other person who is a dependent of the taxpayer, 
if the taxpayer is entitled to a deduction for the taxable year 
for such person under section 151, or 
(B) maintains a household which constitutes for such taxable 
year the principal place of abode of the father or mother of the 
taxpayer, if the taxpayer is entitled to a deduction for the taxable 
year for such father or mother under section 151. 
For purposes of this paragraph and of section 2 (b) (1) (B), an 
individual shall be considered as maintaining a household only if 
over half of the cost of maintaining the household during the taxable 
year is furnished by such individual, 
(3) DETEEMINATION 
OF STATUS.—For purposes of this sub-
section— 
(A) a legally adopted child of a person shall be considered a 
child of such person by blood; 
(B) an individual who is legally separated from his spouse 
under a decree of divorce or of separate maintenance shall not be 
considered as married; 
(C) a taxpayer shall be considered as not married at the close 
of his taxable year if at any time during the taxable year his 
spouse is a nonresident alien; and 
(D) a taxpayer shall be considered as married at the close of 
his taxable year if his spouse (other than a spouse described in 
subparagraph (C)) died during the taxable year. 
(4) LIMITATIONS.—Notwithstanding paragraph (2), for purposes 
of this subtitle a taxpayer shall not be considered to be a head of 
a household— 
(A) if at any time during the taxable year he is a nonresident 
alien; or 
(B) by reason of an individual who would not be a dependent 
for the taxable year but for— 
(i) paragraph (9) of section 152 (a), 
(ii) paragraph (10) of section 152 (a), or 
(iii) subsection (c) of section 152. 
(c) SPECIAL RULES.—The tax imposed by subsection (a), and the 
tax imposed by paragraph (1) of subsection (b), consists of— 
(1) a normal tax of 3 percent of the taxable income, and 
(2) a surtax equal to (A) the amount determined in accordance 
with the table in subsection (a) or paragraph (1) of subsection (b), 
minus (B) the normal tax. 
The tax shall in no event exceed 87 percent of the taxable income for 
the taxable year. 
(d) CROSS REFERENCE.— 
For definition of taxable income, see section 63. 
§l(d) 
8 
INTERNAL REVENUE CODE OF 1954 
SEC. 2. TAX IN CASE OF JOINT RETURN OR RETURN OF SURVIVING 
SPOUSE. 
(a) RATE OF TAX.—In the case of a joint return of a husband and 
wife under section 6013, the tax imposed by section 1 shall be twice the 
tax which would be imposed if the taxable income were cut in half. 
For purposes of this subsection and section 3, a return of a surviving 
spouse (as defined in subsection (b)) shall be treated as a joint return 
of a husband and wife under section 6013. 
(b) DEFINITION OF SURVIVING SPOUSE.— 
(1) I N GENERAL.—For purposes of subsection (a), the term 
"surviving spouse" means a taxpayer— 
(A) whose spouse died during either of his two taxable years 
immediately preceding the taxable year, and 
(B) who maintains as his home a household which constitutes 
for the taxable year the principal place of abode (as a member of 
such household) of a dependent (i) who (within the meaning of 
section 152) is a son, stepson, daughter, or stepdaughter of the 
taxpayer, and (ii) with respect to whom the taxpayer is entitled 
to a deduction for the taxable year under section 151. 
(2) LIMITATIONS.—Notwithstanding paragraph (1), for purposes 
of subsection (a) a taxpayer shall not be considered to be a surviving 
spouse— 
(A) if the taxpayer has remarried at any time before the close 
of the taxable year, or 
(B) unless, for the taxpayer's taxable year during which his 
spouse died, a joint return could have been made under the 
provisions of section 6013 (without regard to subsection (a) (3) 
thereof) or under the corresponding provisions of the Internal 
Revenue Code of 1939. 
SEC. 3. OPTIONAL 
TAX IF ADJUSTED 
GROSS INCOME IS LESS 
THAN $5,000. 
In lieu of the tax imposed by section 1, there is hereby imposed for 
each taxable year, on the taxable income of each individual whose 
adjusted gross income for such year is less than $5,000 and who has 
elected for such year to pay the tax imposed by this section, the tax 
shown in the following table: 
§2(a) 
C H . 1—NORMAL TAXES AND SURTAXES 
If adjusted 
gross in-
come is— 
At 
least 
$0 
675 
700 
725 
750 
775 
800 
825 
850 
875 
900 
925 
950 
975 
1,000 
1,025 
1,050 
1,075 
1,100 
1,125 
1,150 
1,175 
1,200 
1,225 
1,250 
1,275 
1,300 
1,325 
1,350 
1,375 
1,400 
1,425 
1,450 
1,475 
1,500 
1,525 
1,550 
1,575 
1,600 
1,625 
1,650 
1,675 
1,700 
1,725 
1,750 
1,775 
1,800 
1,825 
1,850 
1,875 
1,900 
1,925 
1,950 
1,975 
2,000 
2,025 
2,050 
But 
less 
than 
$675 
700 
725 
750 
775 
800 
825 
850 
875 
900 
925 
950 
975 
1,000 
1,025 
1,050 
1,075 
1,100 
1,125 
1,150 
1,175 
1,200 
1,225 
1,250 
1,275 
1,300 
1,325 
1,350 
1,375 
1,400 
1,425 
1,450 
1,475 
1,500 
1,525 
1,550 
1,575 
1,600 
1,625 
1,650 
1,675 
1,700 
1,725 
1.750 
1,775 
1,800 
1,825 
1,850 
1,875 
1,900 
1,925 
1,950 
1,975 
2,000 
2,025 
2,050 
2,075 
2,075 2,100 
2,100 
2,125 
2,150 
2,175 
2,200 
2,225 
2,250 
2,275 
2,300 
2,125 
2,150 
2,175 
2,200 
2,225 
2, 250 
And the n u m -
ber ol 
1 
tior 
2 
T h e 
$0 
4 
8 
13 
17 
22 
26 
31 
35 
40 
44 
49 
53 
58 
62 
67 
71 
76 
80 
85 
89 
94 
98 
103 
107 
112 
l i e 
121 
125 
130 
134 
139 
143 
148 
152 
167 
161 
166 
170 
175 
179 
184 
188 
193 
197 
202 
206 
211 
215 
220 
224 
229 
233 
238 
242 
247 
251 
256 
260 
265 
269 
274 
278 
283 
2, 275(287 
2, 300 292 
2,325 296 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
1 
5 
10 
14 
19 
23 
28 
32 
37 
41 
46 
50 
55 
59 
64 
68 
73 
77 
82 
86 
91 
95 
100 
104 
109 
113 
118 
122 
127 
131 
136 
140 
145 
149 
154 
158 
163 
167 
172 
176 
ezemp-
s i s — 
3 
^"'" 
more 
tax is— 
$0 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
2 
0 
7 
0 
11 
0 
16 
0 
20 
0 
25 
0 
29 
0 
U 
0 
38 
0 
43 
0 
47 
0 
52 
0 
56 
0 
If adjusted 
gross in-
come is— 
At 
least 
$2,325 
2,350 
2,375 
2,400 
2,425 
2,450 
2,475 
2,500 
2,525 
2,55C 
2,575 
2,60C 
2,625 
2,650 
2,675 
2,700 
2,725 
2,750 
2, 77S 
2,800 
2,825 
2,850 
2,875 
2,900 
2,925 
2,950 
2,975 
3,000 
3,050 
3,100 
3,150 
3,200 
3,250 
3,300 
3,350 
3,400 
3,450 
3,500 
3,550 
3,600 
3,650 
3,700 
3,750 
3,800 
3,850 
3,900 
3,950 
4,000 
4,050 
4,100 
4,150 
4,200 
4,250 
4,300 
4,350 
4.400 
4,450 
4,500 
4,550 
4,600 
4,650 
4,700 
4,750 
4,800 
4,850 
4,900 
4,950 
But 
less 
than 
$2,350 
2,375 
2,400 
2,425 
2,450 
2,475 
2, 50C 
2,52J 
2,550 
2,57£ 
2,60C 
2,62£ 
2,650 
2,67£ 
2,70C 
2,72S 
2,750 
2, 77£ 
2,80C 
2,825 
2,850 
2,875 
2,900 
2,925 
2,950 
2,97£ 
3,000 
3,050 
3,100 
3,150 
3,200 
3,250 
3,300 
3,350 
3,400 
3,450 
3,600 
3,560 
3,600 
3,650 
3,700 
3,750 
3,800 
3,850 
3,900 
3, 950 
4,000 
4,050 
4,100 
4,150 
4,200 
4, 250 
4,300 
4,350 
4,400 
4,450 
4,600 
4,550 
4,600 
4, 660 
4,700 
4,750 
4,800 
4,850 
4,900 
4,950 
5,000 
1 
And tax-
payer is 
single or 
married 
filing 
sepa-
rately 
And 
tax-
payer 
is head 
of 
house-
hold 
And the number of exemptions is— 
And tax-
payer is 
single or 
married 
filing 
sepa-
rately 
2 
And 
tax-
payer 
is head 
of 
house-
hold 
And 
a 
joint 
re-
turn 
is 
filed 
And tax-
payer is 
single or 
married 
filing 
sepa-
rately 
3 
And 
tax-
payer 
is head 
of 
house-
hold 
And 
a 
joint 
re-
turn 
is 
filed 
4 
5 
6 7 
8 or 
moro 
T h e tax is— 
$301 
305 
310 
314 
319 
323 
328 
332 
337 
341 
346 
350 
355 
359 
364 
368 
373 
377 
382 
386 
391 
395 
400 
405 
410 
415 
420 
427 
437 
447 
457 
467 
476 
486 
496 
506 
516 
626 
536 
546 
556 
566 
575 
586 
596 
605 
616 
626 
635 
646 
656 
665 
674 
684 
694 
704 
714 
724 
734 
744 
754 
764 
773 
783 
793 
803 
813 
$301 
305 
310 
314 
319 
323 
328 
332 
337 
341 
346 
350 
355 
369 
364 
368 
373 
377 
382 
386 
391 
395 
400 
404 
409 
414 
419 
426 
435 
445 
464 
464 
473 
482 
492 
601 
611 
520 
530 
539 
649 
668 
567 
677 
586 
596 
605 
616 
624 
634 
643 
653 
662 
671 
681 
690 
700 
709 
719 
728 
738 
747 
766 
766 
775 
785 
794 
$181 
185 
190 
194 
199 
203 
208 
212 
217 
221 
226 
230 
235 
239 
244 
248 
263 
267 
262 
266 
271 
275 
280 
284 
289 
293 
298 
305 
314 
323 
332 
341 
350 
359 
368 
377 
386 
396 
404 
414 
424 
434 
443 
453 
463 
473 
483 
493 
503 
513 
523 
533 
542 
552 
562 
572 
582 
592 
602 
612 
622 
632 
641 
651 
661 
671 
681 
$181 
185 
190 
194 
199 
203 
208 
212 
217 
221 
226 
230 
235 
239 
244 
248 
253 
267 
262 
266 
271 
275 
280 
284 
289 
293 
298 
306 
314 
323 
332 
341 
350 
359 
368 
377 
386 
395 
404 
413 
423 
432 
441 
451 
460 
470 
479 
489 
498 
508 
617 
527 
636 
546 
556 
664 
574 
683 
693 
602 
612 
621 
630 
640 
649 
659 
668 
$181 
185 
190 
194 
199 
203 
208 
212 
217 
221 
226 
230 
235 
239 
244 
248 
263 
267 
262 
266 
271 
275 
280 
284 
289 
293 
298 
305 
314 
323 
332 
341 
350 
359 
368 
377 
386 
396 
404 
413 
422 
431 
440 
449 
458 
467 
476 
485 
494 
503 
512 
521 
530 
539 
548 
557 
566 
575 
584 
593 
602 
611 
620 
629 
633 
647 
656 
$61 
66 
70 
74 
79 
83 
88 
92 
97 
101 
106 
110 
115 
119 
124 
128 
133 
137 
142 
146 
151 
155 
160 
164 
169 
173 
178 
185 
194 
203 
212 
221 
230 
239 
248 
267 
266 
275 
284 
293 
302 
311 
320 
329 
338 
347 
356 
365 
374 
383 
392 
401 
410 
420 
430 
440 
450 
460 
470 
480 
490 
500 
509 
519 
529 
539 
649 
$61 
65 
70 
74 
79 
83 
88 
92 
97 
101 
106 
110 
115 
119 
124 
128 
133 
137 
142 
146 
151 
166 
160 
164 
169 
173 
178 
185 
. 
194 
203 
212 
221 
230 
239 
248 
257 
266 
275 
284 
293 
302 
311 
320 
329 
338 
347 
356 
366 
374 
383 
392 
401 
410 
419 
429 
438 
448 
457 
467 
476 
486 
496 
604 
514 
623 
633 
542 
$61 
65 
70 
74 
79 
83 
88 
92 
97 
101 
106 
110 
115 
119 
124 
128 
133 
137 
142 
146 
151 
155 
160 
164 
169 
173 
178 
185 
194 
203 
212 
221 
230 
239 
248 
257 
266 
275 
284 
293 
302 
311 
320 
329 
338 
347 
356 
365 
374 
383 
392 
401 
410 
419 
428 
437 
446 
455 
464 
473 
482 
491 
600 
509 
518 
527 
536 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
4 
8 
13 
17 
22 
26 
31 
35 
40 
44 
49 
53 
58 
65 
74 
83 
92 
101 
110 
119 
128 
137 
146 
165 
164 
173 
182 
191 
200 
209 
218 
227 
236 
245 
254 
263 
272 
281 
290 
299 
308 
317 
326 
335 
344 
353 
362 
371 
380 
389 
398 
407 
416 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
8 
17 
26 
36 
44 
53 
62 
71 
80 
89 
98 
107 
116 
125 
134 
143 
152 
161 
170 
179 
188 
197 
206 
215 
224 
233 
242 
251 
260 
269 
278 
287 
296 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
5 
14 
23 
32 
41 
60 
69 
68 
77 
86 
95 
104 
113 
122 
131 
140 
149 
158 
167 
176 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
2 
11 
20 
29 
38 
47 
56 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
49012 o—54-
§3 
10 
INTERNAL REVENUE CODE OF 1954 
SEC. 4. RULES FOR OPTIONAL TAX. 
(a) NUMBER OF EXEMPTIONS,—For purposes of the table in section 
3, the term "number of exemptions" means the number of the exemp-
tions allowed under section 151 as deductions in computing taxable 
income. 
(b) MANNER OF ELECTION.—The election referred to in section 3 
shall be made in the manner provided in regulations prescribed by 
the Secretary or his delegate. 
(c) HUSBAND OR W I F E FILING SEPARATE RETURN.—A husband or 
wife may not elect to pay the optional tax imposed by section 3 if the 
tax of the other spouse is determined under section 1 on the basis of 
taxable income computed without regard to the standard deduction. 
For purposes of the preceding sentence, determination of marital 
status shall be made under section 143. 
(d) CERTAIN OTHER TAXPAYERS INELIGIBLE.—Section 3 shall not 
apply t o ^ 
(1) a nonresident alien individual; 
(2) a citizen of the United States entitled to the benefits of 
section 931 (relating to income from sources within possessions of 
the United States); 
(3) an individual making a return under section 443 (a) (1) for 
a period of less than 12 months on account of a change in his 
accounting period; or 
(4) an estate or trust. 
(e) TAXABLE INCOME COMPUTED WITH STANDARD DEDUCTION.— 
Whenever it is necessary to determine the taxable income of a tax-
payer who made the election referred to in section 3, the taxable 
income shall be determined under section 63 (b) (relating to definition 
of taxable income for individuals electing standard deduction). 
(f) CROSS REFERENCES.— 
(1) For other applicable rules (including rules as to the change of an 
election under section 3), see section 144. 
(2) For disallowance of certain credits against tax, see section 36. 
SEC. 5. CROSS REFERENCES RELATING TO TAX ON INDIVIDUALS. 
(a) OTHER RATES OF T A X ON INDIVIDUALS, ETC.— 
(1) For rates of tax on nonresident aliens, see section 871. 
(2) For doubling of tax on citizens of certain foreign countries, see 
section 891. 
(3) For alternative tax in case of capital gain, see section 1201 (b). 
(4) For rate of withholding in the case of nonresident aliens, see 
section 1441. 
(b) SPECIAL LIMITATIONS ON T A X . — 
(1) For limitation on tax attributable to receipt of lump sum under 
annuity, endowment, or life insurance contract, see section 72 (e) (3). 
(2) For limitation on surtax attributable to sales of oil or gas proper-
ties, see section 632. 
(3) For limitation on tax in case of income of members of Armed 
Forces on death, see section 692. 
(4) For limitation on tax with respect to compensation for long-term 
services, see section 1301. 
(5) For limitation on tax with respect to income from artistic work or 
inventions, see section 1302. 
(6) For limitation on tax in case of back pay, see section 1303. 
§4 
CH. 1 
NORMAL TAXES AND SURTAXES 
11 
(7) For computation of tax where taxpayer restores substantial 
amount held under claim of right, see section 1341, 
(8) For limitation on surtax attributable to claims against the United 
States involving acquisitions of property, see section 1347. 
PART II—TAX ON CORPORATIONS 
Sec. 11. Tax imposed. 
Sec. 12. Cross references relating to tax on corporations, 
SEC. 11. TAX IMPOSED. 
(a) CORPORATIONS IN GENERAL.—A tax is hereby imposed for each 
taxable year on the taxable income of every corporation. 
The tax 
shall consist of a normal tax computed under subsection (b) and a 
surtax computed under subsection (c). 
(b) NORMAL TAX.— 
(1) TAXABLE YEARS BEGINNING BEFORE APRIL i, 1955.—In the 
case of a taxable year beginning before April 1, 1955, the normal 
tax is equal to 30 percent of the taxable income. 
(2) TAXABLE YEARS BEGINNING AFTER MARCH 31, 1955.—In the 
case of a taxable year beginning after March 31, 1955, the normal 
tax is equal to 25 percent of the taxable income. 
(c) SURTAX.—The surtax is equal to 22 percent of the amount by 
which the taxable income (computed without regard to the deduction, 
if any, provided in section 242 for partially tax-exempt interest) 
exceeds $25,000. 
(d) EXCEPTIONS.—Subsection (a) shall not apply to a corporation 
subject to a tax imposed by— 
(1) section 594 (relating to mutual savings banlcs conducting 
life insurance business), 
(2) subchapter L (sec. 801 and following, relating to insurance 
companies), 
(3) subchapter M (sec. 851 and following, relating to regulated 
investment companies), or 
(4) section 881 (a) (relating to foreign corporations not engaged 
in business in United States). 
SEC. 12. CROSS REFERENCES RELATING TO TAX ON CORPORATIONS. 
(1) For tax on the unrelated business income of certain charitable 
and other corporations exempt from tax under this chapter, see section 
511. 
(2) For accumulated earnings tax and personal holding company 
tax, see parts I and II of subchapter G (sec. 531 and following). 
(3) For doubling of tax on corporations of certain foreign countries, 
see section 891. 
(4) For alternative tax in case of capital gains, see section 1201 (a). 
(5) For rate of withholding in case of foreign corporations, see section 
1442. 
(6) For withholding of tax on tax-free covenant bonds, see section 
1451. 
(7) For limitation on the $25,000 exemption from surtax provided in 
section 11 (c), see section 1551. 
(8) For additional tax for corporations filing consolidated returns, 
see section 1503. 
§ 12(8) 
12 
INTERNAL REVENUE CODE OF 1954 
PART 
III—CHANGES IN RATES DURING A TAXABLE YEAR 
Sec. 21. Effect of changes. 
SEC. 21. EFFECT OF CHANGES. 
(a) GENERAL RULE.—If any rate of tax imposed by this chapter 
changes, and if the taxable year includes the effective date of the 
change (unless that date is the first day of the taxable year), then— 
(1) tentative taxes shall be computed by applying the rate for 
the period before the effective date of the change, and the rate for 
the period on and after such date, to the taxable income for the 
entire taxable year; and 
(2) the tax for such taxable year shall be the sum of that pro-
portion of each tentative tax which the number of days in each 
period bears to the number of days in the entire taxable year. 
(b) REPEAL OF TAX.—For purposes of subsection (a)— 
(1) if a tax is repealed, the repeal shall be considered a change of 
rate; and 
(2) the rate for the period after the repeal shall be zero. 
(c) EFFECTIVE DATE OF CHANGE.—For purposes of subsections (a) 
and (b)— 
(1) if the rate changes for taxable years "beginning after" or 
"ending after" a certain date, the following day shall be considered 
the effective date of the change; and 
(2) if a rate changes for taxable years "beginning on or after" a 
certain date, that date shall be considered the effective date of the 
change. 
(d) 
TAXABLE YEARS BEGINNING BEFORE JANUARY 1, 1954, 
AND 
ENDING AFTER DECEMBER 31, 1953.—In the case of a taxable year 
beginning before January 1, 1954, and ending after December 31, 
1953— 
(1) subsection (a) of this section does not apply; and 
(2) in the application of subsection (j) of section 108 of the 
Internal Revenue Code of 1939, the provisions of such code referred 
to in such subsection shall be considered as continuing in effect as 
if this subtitle had not been enacted. 
PART IV—CREDITS AGAINST TAX 
Sec. 31. Tax withheld on wages. 
Sec. 32. Tax withheld at source on nonresident aliens and foreign 
corporations and on tax-free covenant bonds. 
Sec. 33. Taxes of foreign countries and possessions of the United 
States. 
Sec. 34. Dividends received by individuals. 
Sec. 35. Partially tax-exempt interest received by individuals, 
i 
Sec. 36. Credits not allowed to individuals paying optional tax or 
taking standard deduction. 
Sec. 37. Retirement income. 
Sec. 38. Overpayments of tax. 
SEC. 31. TAX WITHHELD ON WAGES. 
(a) WAGE WITHHOLDING FOR INCOME TAX PURPOSES.— 
(1) I N GENERAL.—The amount withheld under section 3402 as 
tax on the wages of any individual shall be allowed to the recipient 
of the income as a credit against the tax imposed by this subtitle. 
§ 21 
CH. 1—NORMAL TAXES AND SURTAXES 
13 
(2) YEAR OF CREDIT.—The amount so withheld durmg any 
calendar year shall be allowed as a credit for the taxable year 
beginning in such calendar year. 
If more than one taxable year 
begins in a calendar year, such amount shall be allowed as a credit 
for the last taxable year so beginning, 
(b) CREDIT FOR SPECIAL REFUNDS OF SOCIAL SECURITY T A X . — 
(1) I N GENERAL.—The Secretary or his delegate may prescribe 
regulations providing for the crediting against the tax imposed by 
this subtitle of the amount determined by the taxpayer or the 
Secretar^r (or his delegate) to be allowable under section 6413 (c) 
as a special refund of tax imposed on wages. The amount allowed 
as a credit under such regulations shall, for purposes of this subtitle, 
be considered an amount withheld at source as tax under section 
3402. 
(2) YEAR OF CREDIT.—Any amount to which paragraph (1) 
applies shall be allowed as a credit for the taxable year beginning 
in the calendar year during which the wages were received. 
If more 
than one taxable year begins in the calendar year, such amount 
shall be allowed as a credit for the last taxable year so beginning. 
SEC. 32. TAX WITHHELD AT SOURCE ON NONRESIDENT ALIENS 
AND 
FOREIGN 
CORPORATIONS 
AND ON 
TAX-FREE 
COVENANT BONDS. 
There shall be allowed as credits against the tax imposed by this 
chapter— 
(1) the amount of tax withheld at source under subchapter A of 
chapter 3 (relating to withholding of tax on nonresident aliens and 
on foreign corporations), and 
(2) the amount of tax withheld at source under subchapter B of 
chapter 3 (relating to interest on tax-free covenant bonds). 
SEC. 33. TAXES OF FOREIGN COUNTRIES AND POSSESSIONS OF 
THE UNITED STATES. 
The amount of taxes imposed by foreign countries and possessions 
of the United States shall be allowed as a credit against the tax im-
posed by this chapter to the extent provided in section 901. 
SEC. 34. DIVIDENDS RECEIVED BY INDIVIDUALS. 
(a) GENERAL RULE.—Effective with respect to taxable years ending 
after July 31, 1954, there shall be allowed to an individual, as a credit 
against the tax imposed by this subtitle for the taxable year, an amount 
equal to 4 percep.t of the dividends which are received after July 31, 
1954, from domestic corporations and are included in gross income. 
(b) LIMITATION ON AMOUNT OF CREDIT.—The credit allowed by 
subsection (a) shall not exceed whichever of the following is the lesser: 
(1) the amount of the tax imposed by this chapter for the taxable 
year, reduced by the credit allowable under section 33 (relating to 
foreign tax credit); or 
(2) the following percent of the taxable income for the taxable 
year: 
(A) 2 percent, in the case of a taxable year ending before 
January 1, 1955. 
(B) 4 percent, in the case of a taxable year ending after 
December 31, 1954. 
§ 34(b)(2)(B) 
14 
INTERNAL REVENUE CODE OF 1954 
(c) No CREDIT ALLOWED FOR DIVIDENDS FROM CERTAIN COR-
PORATIONS.—Subsection (a) shall not apply to any dividend from— 
(1) an insurance company subject to a tax imposed by part I or 
II of subchapter L (sec. 801 and following); 
(2) a corporation organized under the China Trade Act, 1922 
(see sec. 941); or 
(3) a corporation which, for the taxable year of the corporation 
in which the distribution is made, or for the next preceding taxable 
year of the corporation, is— 
(A) a corporation exempt from tax under section 501 (relating 
to certain charitable, etc., organizations) or section 521 (relat-
ing to farmers' cooperative associations); or 
(B) a corporation to which section 931 (relating to income 
from sources within possessions of the United States) applies. 
(d) SPECIAL RULES FOR CERTAIN DISTRIBUTIONS.—For purposes 
of subsection (a)— 
(1) Any amount allowed as a deduction under section 591 (relat-
ing to deduction for dividends paid by mutual savings banks, etc.) 
shall not be treated as a dividend. 
(2) A dividend received from a regulated investment company 
shall be subject to the limitations prescribed in section 854. 
(e) CERTAIN NONRESIDENT ALIENS INELIGIBLE FOR CREDIT.—No 
credit shall be allowed under subsection (a) to a nonresident alien 
individual with respect to whom a tax is imposed for the taxable year 
under section 87i (a). 
(f) CROSS REFERENCES.— 
(1) For exclusion of certain dividends from gross income, see section 
116. 
(2) For special rules relating to the credit provided by subsection (a), 
see sections 642 (trusts and estates), 702 (partnerships), and 584 (com-
mon trust funds). 
(3) For disallowance of credit where tax is computed by Secretary or 
his delegate, see section 6014. 
SEC. 35. PARTIALLY TAX-EXEMPT INTEREST RECEIVED BY INDI-
VIDUALS. 
(a) I N GENERAL.—There shall be allowed to an individual, as a 
credit against the tax imposed by this subtitle for the taxable year, 
an amount equal to 3 percent of the amount received as interest on 
obligations of the United States or on obligations of corporations 
organized under Act of Congress which are instrumentalities of the 
United States, but only if— 
(1) such interest is included in gross income; and 
(2) such interest is exempt from normal tax under the Act 
authorizing the issuance of such obligations. 
(b) LIMITATION ON AMOUNT OF CREDIT.—The credit allowed by 
subsection (a) shall not exceed whichever of the following is the lesser: 
(1) the amount of the tax imposed by this chapter for the taxable 
year, reduced by the sum of the credits allowable under sections 33 
and 34; or 
(2) 3 percent of the taxable income for the taxable year. 
(c) CROSS REFERENCE.— 
For reduction of credit under this section on account of amortizable 
bond premium, see section 171. 
§ 34(c) 
CH. 1 
NORMAL TAXES AND SURTAXES 
15 
SEC. 36. CREDITS NOT ALLOWED TO INDIVIDUALS PAYING OPTIONAL 
TAX OR TAKING STANDARD 
DEDUCTION. 
If an individual elects to pay the optional tax imposed by section 3, 
or if he elects under section 144 to take the standard deduction, the 
credits provided by sections 32, 33, and 35 shall not be allowed. 
SEC. 37. RETIREMENT 
INCOME. 
(a) GENERAL R U L E . ^ I U the case of an individual who has received 
earned income before the beginning of the taxable year, there shall 
be allowed as a credit against the tax imposed by this chapter for 
the taxable year an amount equal to the amount received by such 
individual as retirement income (as defined in subsection (c) and as 
limited by subsection (d)), multiplied by the rate provided in section 1 
for the first $2,000 of taxable income; but this credit shall not exceed 
such tax reduced by the credits allowable under section 32 (2) (relat-
ing to tax withheld at source on tax-free covenant bonds), section 33 
(relating to foreign tax credit), section 34 (relating to credit for divi-
dends received by individuals), and section 35 (relating to partially 
tax exempt interest). 
(b) INDIVIDUAL WHO HAS RECEIVED EARNED INCOME.—For pur-
poses of subsection (a), an individual shall be considered to have 
received earned income if he has received, in each of any 10 calendar 
years before the taxable year, earned income (as defined in subsec-
tion (g)) in excess of $600. 
A widow or widower whose spouse had 
received such earned income shall be considered to have received 
earned income. 
(c) RETIREMENT INCOME.—For purposes of subsection (a), the term 
"retirement income" means— 
(1) in the case of an individual who has attained the age of 65 
before the close of the taxable year, income from— 
(A) pensions and annuities, 
(B) interest, 
(C) rents, and 
• 
(D) dividends, or 
(2) in the case of an individual who has not attained the age of 
65 before the close of the taxable year, income from pensions and 
annuities under a public retirement system (as defined in subsec-
tion (f)), 
to the extent included in gross income without reference to this 
section, but only to the extent such income does not represent com-
pensation for personal services rendered during the taxable year. 
(d) LIMITATION ON RETIREMENT INCOME.—For purposes of sub-
section (a), the amount of retirement income shall not exceed $1,200 
less— 
(1) in the case of any individual, any amount received by the 
individual as a pension or annuity— 
(A) under title II of the Social Security Act, 
(B) under the Railroad Retirement Acts of 1935 or 1937, or 
(C) otherwise excluded from gross income, and 
(2) in the case of any individual who has not attained the age of 
75 before the close of the taxable year, any amount of earned 
income (as defined in subsection (g)) in excess of $900 received by 
the individual in the taxable year. 
§ 37(d)(2) 
le 
INTERNAL REVENUE CODE OF 
1954 
(e) RULE FOR APPLICATION OF SUBSECTION (d) (1),—Subsection 
(d) (1) shall not apply to any amount excluded from gross income 
under section 72 (relating to annuities), 101 (relating to life insurance 
proceeds), 104 (relating to compensation for injuries or sickness), 105 
(relating to amounts received under accident and health plans), 402 
(relating to taxability of beneficiary of employees' trust), or 403 
(relating to taxation of employee annuities). 
(f) PUBLIC RETIREMENT SYSTEM DEFINED.—For purposes of sub-
section (c) (2), the term ''public retirement system" means a pension, 
annuity, retirement, or similar fund or system established by the 
United States, a State, a Territory, a possession of the United States, 
any political subdivision of any of the foregoing, or the District of 
Columbia; except that such term does not include a fund or system 
established by the United States for members of the Armed Forces of 
the United States. 
(g) EARNED INCOME DEFINED.—For purposes of subsections (b) 
and (d) (2), the term "earned income" has the meaning assigned to 
such term in section 911 (b), except that such term does not include 
any amount received as a pension or annuity. 
(h) NONRESIDENT ALIEN INELIGIBLE FOR CREDIT.—No credit shall 
be allowed under subsection (a) to any nonresident alien, 
(i) CROSS REFERENCE.— 
For disallowance of credit where tax is computed by Secretary or his 
delegate, see section 6014 (a). 
SEC. 38. OVERPAYMENTS OF TAX. 
For credit against the tax imposed by this subtitle for overpayments 
of tax, see section 6401. 
§ 37(e) 
CH. 1—NORMAL TAXES AND SURTAXES 
17 
Subchapter B—Computation of Taxable Income 
Part 
I. Definition of gross income, adjusted gross income, and 
taxable income. 
Part 
II. Items specifically included in gross income. 
Part 
III. Items specifically excluded from gross income. 
Part 
IV. Standard deduction for individuals. 
Part 
V. Deductions for personal exemptions. 
Part 
VI. Itemized deductions for individuals and corporations. 
Part VII. Additional itemized deductions for individuals. 
Part VIII. Special deductions for corporations. 
Part 
IX. Items not deductible. 
PART I—DEFINITION OF GROSS INCOME, ADJUSTED 
GROSS INCOME, AND TAXABLE INCOME 
Sec. 61. Gross income defined. 
See. 62. Adjusted gross income defined. 
Sec. 63. Taxable income defined. 
SEC. 61. GROSS INCOME DEFINED. 
(a) GENERAL DEFINITION.—Except as otherwise provided in this 
subtitle, gross income means all income from whatever source derived, 
including (but not limited to) the following items: 
(1) Compensation for services, including fees, commissions, and 
similar items; 
(2) Gross income derived from business; 
(3) Gains derived from dealings in property; 
(4) Interest; 
(5) Kents; 
(6) Royalties; 
(7) Dividends; 
(8) Alimony and separate maintenance payments; 
(9) Annuities; 
(10) Income from life insurance and endowment contracts; 
(11) Pensions; 
(12) Income from discharge of indebtedness; 
(13) Distributive share of partnership gross income; 
(14) Income in respect of a decedent; and 
(15) Income from an interest in an estate or trust. 
(b) 
CROSS REFERENCES.— 
For items specifically included in gross income, see part II (sec. 
71 and following). 
For items specifically excluded from gross income, 
see part III (sec. 101 and following). 
SEC. 62. ADJUSTED GROSS INCOME DEFINED. 
For purposes of this subtitle, the term "adjusted gross income" 
means, in the case of an individual, gross income minus the following 
deductions: 
(1) TRADE AND BUSINESS DEDUCTIONS.—The deductions allowed 
by this chapter (other than by part VII of this subchapter) which 
are attributable to a trade or business carried on by the taxpayer, 
§ 62(1) 
18 
INTERNAL REVENUE CODE OF 1954 
if such trade or business does not consist of the performance of 
services by the taxpayer as an employee. 
(2) TRADE AND BUSINESS DEDUCTIONS OF EMPLOYEES.— 
(A) REIMBURSED EXPENSES.—The deductions allowed by part 
VI (sec. 161 and following) which consist of expenses paid or 
incurred by the taxpayer, in connection with the performance 
by him of services as an employee, under a reimbursement or 
other expense allowance arrangement with his employer. 
(B) EXPENSES FOR TRAVEL AWAY FROM HOME.—The deduc-
tions allowed by part VI (sec. 161 and following) which consist of 
expenses of travel, meals, and lodging while away from home, 
paid or incurred by the taxpayer in connection with the perform-
ance by him of services as an employee. 
(C) TRANSPORTATION EXPENSES.—The deductions allowed by 
part VI (sec. 161 and following) which consist of expenses, of 
transportation paid or incurred by the taxpayer in connection 
with the performance by him of services as an employee. 
(D) OUTSIDE SALESMEN,—The deductions allowed by part VI 
(sec. 161 and following) which are attributable to a trade or busi-
ness carried on by the taxpayer, if such trade or business consists 
of the performance of services by the taxpayer as an employee 
and if such trade or business is to solicit, away from the employer's 
place of business, business for the employer. 
(3) LONG-TERM CAPITAL GAINS.—The deduction allowed by sec-
tion 1202. 
(4) LOSSES FROM SALE OR EXCHANGE OF PROPERTY.—The deduc-
tions allowed by part VI (sec. 161 and following) as losses from the 
sale or exchange of property. 
(5) DEDUCTIONS ATTRIBUTABLE TO RENTS AND ROYALTIES.—The 
deductions allowed by part VI (sec. 161 and following), by sec-
tion 212 (relating to expenses for production of income), and by 
section 611 (relating to depletion) which are attributable to property 
held for the production of rents or royalties. 
(6) CERTAIN DEDUCTIONS OF LIFE TENANTS AND INCOME BENE-
FICIARIES OF PROPERTY.—In the case of a life tenant of property, or 
an income beneficiary of property held in trust, or an heir, legatee, 
or devisee of an estate, the deduction for depreciation allowed by 
section 167 and the deduction allowed by section 611. 
Nothing in this section shall permit the same item to be deducted 
more than once. 
SEC. 63. TAXABLE INCOME DEFINED. 
(a) GENERAL RULE.—Except as provided in subsection (b), for 
purposes of this subtitle the term "taxable income" means gross in-
come, minus the deductions allowed by this chapter, other than the 
standard deduction allowed by part IV (sec. 141 and following). 
(b) INDIVIDUALS ELECTING STANDARD DEDUCTION.—In the case 
of an individual electing under section 144 to use the standard 
deduction provided in part IV (sec. 141 and following), for purposes 
of this subtitle the term "taxable income" means adjusted gross 
income, minus— 
(1) such standard deduction, and 
(2) the deductions for personal exemptions provided in section 
151. 
§62(1) 
CH. 1—NORMAL TAXES AND SURTAXES 
19 
PART II—ITEMS SPECIFICALLY INCLUDED IN 
GROSS INCOME 
Sec. 71. Alimony and separate maintenance payments. 
Sec. 72. Annuities; certain proceeds of endowment and life insurance 
contracts. 
Sec. 73. Services of child. 
Sec. 74. Prizes and awards. 
Sec. 75. Dealers in tax-exempt securities. 
Sec. 76. Mortgages made or obligations issued by joint-stock land 
banks. 
Sec. 77. Commodity credit loans. 
SEC. 71. ALIMONY AND SEPARATE MAINTENANCE 
PAYMENTS. 
(a) GENERAL RULE.— 
(1) DECREE 
OF DIVORCE OR SEPARATE 
MAINTENANCE.—If 
a 
wife is divorced or legally separated from her husband under a 
decree of divorce or of separate maintenance, the wife's gross income 
includes periodic payments (whether or not made at regular inter-
vals) received after such decree in discharge of (or attributable to 
property transferred, in trust or otherwise, in discharge of) a legal 
obligation which, because of the marital or family relationship, is 
imposed on or incurred by the husband under the decree or under a 
written instrument incident to such divorce or separation. 
(2) WRITTEN SEPARATION AGREEMENT.—If a wife is separated 
from her husband and there is a written separation agreement 
executed after the date of the enactment of this title, the wife's 
gross income includes periodic payments (whether or not made at 
regular intervals) received after such agreement is executed which 
are made under such agreement and because of the marital or 
family relationship (or which are attributable to property trans-
ferred, in trust or otherwise, under such agreement and because 
of such relationship). 
This paragraph shall not apply if the hus-
band and wife make a single return jointly. 
(3) DECREE FOR SUPPORT.—If a wife is separated from her hus-
band, the wife's gross income includes periodic payments (whether 
or not made at regular intervals) received by her after the date of 
the enactment of this title from her husband under a decree entered 
after March 1, 1954, requiring the husband to make the payments 
for her support or maintenance. 
This paragraph shall not apply 
if the husband and wife make a single return jointly. 
(b) PAYMENTS TO SUPPORT MINOR CHILDREN.—Subsection 
(a) 
shall not apply to that part of any payment which the terms of the 
decree, instrument, or agreement fix, in terms of an amount of money 
or a part of the payment, as a sum which is payable for the support 
of minor children of the husband. 
For purposes of the preceding 
sentence, if any payment is less than the amount specified in the 
decree, instrument, or agreement, then so much of such payment as 
does not exceed the sum payable for support shall be considered a 
payment for such support. 
(c) PRINCIPAL SUM PAID IN INSTALLMENTS.— 
(1) GENERAL RULE.—For purposes of subsection (a), installment 
payments discharging a part of an obligation the principal sum of 
which is, either in terms of money or property, specified in the 
§71(0(1) 
20 
INTERNAL REVENUE CODE OF 1954 
decree, instrument, or agreement shall not be treated as periodic 
payments. 
(2) WHERE PERIOD FOR PAYMENT IS MORE THAN lo YEARS.—-If, 
by the terms of the decree, instrument, or agreement, the principal 
sum referred to in paragraph (1) is to be paid or may be paid over a 
period ending more than 10 years from the date of such decree, 
instrument, or agreement, then (notwithstanding paragraph (1)) 
the installment payments shall be treated as periodic payments for 
purposes of subsection (a), but (in the case of any one taxable year 
of the wife) only to the extent of 10 percent of the principal sum. 
For purposes of the preceding sentence, the part of any principal 
sum which is allocable to a period after the taxable year of the wife 
in which it is received shall be treated as an installment payment 
for the taxable year in which it is received. 
(d) RULE FOR HUSBAND IN CASE OF TRANSFERRED PROPERTY.— 
The husband's gross income does not include amounts received which, 
under subsection (a), are (1) includible in the gross income of the 
wife, and (2) attributable to transferred property. 
(e) CROSS REFERENCES.— 
(1) For definitions of "husband" and "wife", see section 7701 (a) (17). 
(2) For deduction by husband of periodic payments not attributable 
to transferred property, see section 215. 
(3) For taxable status of income of an estate or trust in case of 
divorce, etc., see section 682. 
SEC. 72. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT AND 
LIFE INSURANCE CONTRACTS. 
(a) GENERAL R U L E FOR ANNUITIES.—Except as otherwise provided 
in this chapter, gross income includes any amount received as an 
annuity (whether for a period certain or during one or more lives) 
under an annuity, endowment, or life insurance contract. 
(b) EXCLUSION RATIO.—Gross income does not include that part 
of any amount received as an annuity under an annuity, endowment, 
or life insurance contract which bears the same ratio to such amount 
as the investment in the contract (as of the annuity starting date) 
bears to the expected return under the contract (as of such date). 
This subsection shall not apply to any amount to which subsection 
(d) (1) (relating to certain employee annuities) applies. 
(c) DEFINITIONS.— 
(1) INVESTMENT IN THE CONTRACT.—For purposes of subsection 
(b), the investment in the contract as of the annuity starting date 
is— 
(A) the aggi'egate amount of premiums or other consideration 
paid for the contract, minus 
(B) the aggregate amount received under the contract before 
such date, to the extent that such amount was excludable from 
gross income under this subtitle or prior income tax laws. 
(2) ADJUSTMENT IN INVESTMENT WHERE 
THERE IS REFUND 
FEATURE.—If— 
(A) the expected return under the contract depends in whole 
or in part on the life expectancy of one or more individuals; 
(B) the contract provides for payments to be made to a 
beneficiary (or to the estate of an annuitant) on or after the 
death of the annuitant or annuitants; and 
§ 71(c)(1) 
CH. 1—NORMAL TAXES AND SURTAXES 
21 
(C) such payments are in the nature of a refund of the con-
sideration paid, 
then the value (computed without discount for interest) of such 
payments on the annuity starting date shall be subtracted from 
the amount determined under paragraph (1). 
Such value shall be 
computed in accordance with actuarial tables prescribed by the 
Secretary or his delegate. 
For purposes of this paragraph and of 
subsection (e) (2) (A), the term "refund of the consideration paid" 
includes amounts payable after the death of an annuitant by reason 
of a provision in the contract for a life annuity with minimum 
period of payments certain, but (if part of the consideration was 
contributed by an employer) does not include that part of any pay-
ment to a beneficiary (or to the estate of the annuitant) which is 
not attributable to the consideration paid by the employee for the 
contract as determined under paragraph (1) (A). 
(3) EXPECTED RETURN.—For purposes of subsection (b), the 
expected return under the contract shall be determined as follows: 
(A) LIFE EXPECTANCY,—If the expected return under the con-
tract, for the period on and after the annuity starting date, de-
pends in whole or in part on the life expectancy of one or more 
individuals, the expected return shall be computed with reference 
to actuarial tables prescribed by the Secretary or his delegate. 
(B) INSTALLMENT PAYMENTS.—If subparagraph (A) does not 
apply, the expected return is the aggregate of the amounts re-
ceivable under the contract as an annuity. 
(4) ANNUITY STARTING DATE.—For purposes of this section, the 
annuity starting date in the case of any contract is the first day of 
the first period for which an amount is received as an annuity under 
the contraict; except that if such date was before January 1, 1954, 
then the annuity starting date is January 1, 1954. 
(d) EMPLOYEES' ANNUITIES.— 
(1) EMPLOYEE'S CONTRIBUTIONS RECOVERABLE IN 3 YEARS.— 
Where— 
(A) part of the consideration for an annuity, endowment, or 
life insurance contract is contributed by the employer, and 
(B) during the 3-year period beginning on the date (whether 
or not before January 1, 1954) on which an amount is first 
received under the contract as an annuity, the aggregate amount 
receivable by the employee under the terms of the contract is 
equal to or greater than the consideration for the contract con-
tributed by the employee, 
then all amounts received as an annuity under the contract shall be 
excluded from gross income until there has been so excluded (under 
this paragraph and prior income tax laws) an amount equal to the 
consideration for the contract contributed by the employee. 
There-
after all amounts so received under the contract shall be included in 
gross income. 
(2) SPECIAL RULES FOR APPLICATION OF PARAGRAPH (i).—For 
purposes of paragraph (1), if the employee died before any amount 
was received as an annuity under the contract, the words "receivable 
by the employee" shall be read as "receivable by a beneficiary of 
the employee". 
. 
172(d)(2) 
22 
INTERNAL REVENUE CODE OF 1954 
(
3
) 
CROSS REFERENCE.— 
For certain rules for determining whether amounts contributed by 
employer are includible in the gross income of the employee, see part I 
of subchapter D (sec. 401 and following, relating to pension, profit-
sharing, and stock bonus plans, etc.)> 
(e) AMOUNTS N O T RECEIVED AS ANNUITIES.— 
(1) GENERAL RULE.—If any amount is received under an annuity, 
endowment, or life insurance contract, if such amount is not received 
as an annuity, and if no other provision of this subtitle appUes, then 
such amount— 
(A) if received on or after the annuity starting date, shall be 
included in gross income; or 
(B) if subparagraph (A) does not apply, shall be included in 
gross income, but only to the extent that it (when added to 
amounts previously received under the contract which were ex-
cludable from gross income under this subtitle or prior income 
tax laws) exceeds the aggregate premiums or other consideration 
paid. 
For purposes of this section, any amount received which is in the 
nature of a dividend or similar distribution shaU be treated as an 
amount not received as an annuity. 
(2) SPECIAL RULES FOR APPLICATION OF PARAGRAPH (i).—For 
purposes of paragraph (1), the following shall be treated as amounts 
not received as an annuity: 
(A) any amount received, whether in a single sum or otherwise, 
under a contract in full discharge of the obligation under the 
contract which is in the nature of a refund of the consideration 
paid for the contract; and 
(B) any amount received under a contract on its surrender, 
redemption, or maturity. 
In the case of any amount to which the preceding sentence applies, 
the rule of paragraph (1) (B) shall apply (and the rule of paragraph 
(1) (A) shall not apply). 
(3) LIMIT ON TAX ATTRIBUTABLE TO RECEIPT OF LUMP SUM.—If a 
lump sum is received under an annuity, endowment, or life insur-
ance contract, and the part which is includible in gross income is 
determined under paragraph (1), then the tax attributable to the 
inclusion of such part in gross income for the taxable year shall 
not be greater than the aggregate of the taxes attributable to such 
part had it been included in the gross income of the taxpayer 
ratably over the taxable year in which received and the preceding 
2 taxable years. 
(f) SPECIAL RULES FOR COMPUTING EMPLOYEES' CONTRIBUTIONS.— 
In computing, for purposes of subsection (c) (1) (A), the aggregate 
amount of premiums or other consideration paid for the contract, for 
purposes of subsection (d) (1), the consideration for the contract 
contributed by the employee, and for purposes of subsection (e) (1) 
(B), the aggregate premiums or other consideration paid, amounts 
contributed by the employer shall be included, but only to the extent 
that— 
(1) such amounts were includible in the gross income of the 
employee under this subtitle or prior income tax laws; or 
§ 72(d)(3) 
CH. 1—NORMAL TAXES AND SURTAXES 
23 
(2) if such amounts had been paid directly to the employee at 
the time they were contributed, they would not have been includible 
in the gross income of the employee under the law applicable at 
the time of such contribution. 
(g) RULES FOR TRANSFEREE WHERE TRANSFER WAS FOR VALUE.— 
Where any contract (or any interest therein) is transferred (by as-
signment or otherwise) for a valuable consideration, to the extent that 
the contract (or interest therein) does not, in the hands of the trans-
feree, have a basis which is determined by reference to the basis in, 
the hands of the transferor, then— 
(1) for purposes of this section, only the actual value of such 
consideration, plus the amount of the premiums and other con-
sideration paid by the transferee after the transfer, shall be taken 
into account in computing the aggregate amount of the premiums 
or other consideration paid for the contract; 
(2) for purposes of subsection (c) (1) (B), there shall be taken 
into account only the aggregate amount received under the contract 
by the transferee before the annuity starting date, to the extent that 
such amount was excludable from gross income under this subtitle 
or prior income tax laws; and 
(3) the annuity starting date is January 1, 1954, or the first day 
of the first period for which the transferee received an amount 
under the contract as an annuity, whichever is the later. 
For purposes of this subsection, the term "transferee" includes a 
beneficiary of, or the estate of, the transferee. 
(h) OPTION TO RECEIVE ANNUITY IN LIEU OF LUMP SUM.—If— 
(1) a contract provides for payment of a lump sum in full dis-
charge of an obligation under the contract, subject to an option to 
receive an annuity in lieu of such lump sum; 
(2) the option is exercised within 60 days after the day on which 
such lump sum first became payable; and 
(3) part or all of such lump sum would (but for this subsection) 
be includible in gross income by reason of subsection (e) (1), 
then, for purposes of this subtitle, no part of such lump sum shall be 
considered as includible in gross income at the time such lump sum 
first became payable. 
(i) JOINT AND SURVIVOR ANNUITIES WHERE FIRST ANNUITANT 
DIED IN 1951, 1952, OR 1953.—Where an annuitant died after Decem-
ber 31, 1950, and before January 1, 1954, and the basis of a surviving 
annuitant's interest in the joint and survivor annuity contract was 
determinable under section 113 (a) (5) of the Internal Revenue Code 
of 1939, then— 
(1) subsection (d) shall not apply with respect to such contract; 
(2) for purposes of this section, the aggregate amount of premi-
ums or other consideration paid for the contract is the basis of the 
contract determined under such section 113 (a) (5); 
(3) for purposes of subsection (c) (1) (B), there shall be taken 
into account only the aggregate amount received by the surviving 
annuitant under the contract before the annuity starting date, to 
the extent that such amount was excludable from gross income 
under this subtitle or prior income tax laws; and 
72(i)(3) 
24 
INTERNAL REVENUE CODE OF 1954 
(4) the annuity starting date is January 1, 1954, or the first 
day of the first period for which the surviving annuitant received 
an amount under the contract as an annuity, whichever is the later, 
(j) INTEREST.—Notwithstanding any other provision of this section, 
if any amount is held under an agreement to pay interest thereon, the 
interest payments shall be included in gross income, 
(k) PAYMENTS IN DISCHARGE OF ALIMONY.— 
(1) I N GENERAL.—^This section shall not apply to so much of 
any payment under an annuity, endowment, or life insurance 
contract (or any interest therein) as is includible in the gross 
income of the wife under section 71 or section 682 (relating to 
income of an estate or trust in case of divorce, etc.). 
(2) CROSS REFERENCE.— 
For definition of "wife", see section 7701 (a) (17). 
(1) FACE-AMOUNT CERTIFICATES.—For purposes of this section, the 
term "endowment contract" includes a face-amount certificate, as de-
fined in section 2 (a) (15) of the Investment Company Act of 1940 
(15 U. S. C , sec. 80a-2), issued after December 31, 1954. 
(m) CROSS REFERENCE.— 
For limitation on adjustments to basis of annuity contracts sold, see 
section 1021. 
SEC. 73. SERVICES OF CHILD. 
(a) TREATMENT OF AMOUNTS RECEIVED.—Amounts received in re-
spect of the services of a child shall be included in his gross income 
and not in the gross income of the parent, even though such amounts 
are not received by the child. 
(b) TREATMENT OF EXPENDITURES.—All expenditures by the parent 
or the child attributable to amounts which are includible in the gross 
income of the child (and not of the parent) solely by reason of sub-
section (a) shall be treated as paid or incurred by the child. 
(c) PARENT DEFINED.—For purposes of this section, the term 
"parent" includes an individual who is entitled to the services of a 
child by reason of having parental rights and duties in respect of the 
child. 
(d) CROSS REFERENCE.— 
For assessment of tax against parent in certain cases, see section 
6201 (c). 
SEC. 74. PRIZES AND AWARDS. 
(a) GENERAL RULE.—Except as provided in subsection (b) and in 
section 117 (relating to scholarships and fellowship grants), gross 
income includes amounts received as prizes and awards. 
(b) EXCEPTION.—Gross income does not include amounts received 
as prizes and awards made primarily in recognition of religious, 
charitable, scientific, educational, artistic, literary, or civic achieve-
ment, but only if— 
(1) the recipient was selected without any action on his part to 
enter the contest or proceeding; and 
(2) the recipient is not required to render substantial future 
services as a condition to receiving the prize or award. 
§72(1) (4) 
CH. 1—NORMAL TAXES AND SURTAXES 
25 
SEC. 75. DEALERS IN TAX-EXEMPT 
SECURITIES. 
(a) ADJUSTMENT FOR BOND PREMIUM.—In computing the gross 
income of a taxpayer who holds during the taxable year a short-term 
municipal bond (as defined in subsection (b) (1)) primarily for sale to 
customers in the ordinary course of his trade or business— 
(1) if the gross income of the taxpayer from such trade or business 
is computed by the use of inventories and his inventories are valued 
on any basis other than cost, the cost of securities sold (as defined 
in subsection (b) (2)) during such year shall be reduced by an 
amount equal to the amortizable bond premium which would be 
disallowed as a deduction for such year by section 171 (a) (2) (re-
lating to deduction for amortizable bond premium) if the definition 
in section 171 (d) of the term "bond" did not exclude such short-
term municipal bond; or 
(2) if the gross income of the taxpayer from such trade or business 
is computed without the use of inventories, or by use of inventories 
valued at cost, and the short-term municipal bond is sold or other-
wise disposed of during such year, the adjusted basis (computed 
without regard to this paragraph) of the short-term municipal bond 
shall be reduced by the amount of the adjustment which would be 
required under section 1016 (a) (5) (relating to adjustment to basis 
for amortizable bond premium) if the definition in section 171 (d) 
of the term "bond" did not exclude such short-term municipal bond. 
(b) DEFINITIONS.—For purposes of subsection (a)— 
(1) The term "short-term municipal bond" means any obligation 
issued by a government or political subdivision thereof if the interest 
on such obligation is excludable from gross income; but such term 
does not include such an obligation if— 
(A) it is sold or otherwise disposed of by the taxpayer within 
30 days after the date of its acquisition by him, or 
(B) its earliest maturity or call date is a date more than 5 years 
VJ 
from the date on which it was acquired by the taxpayer. 
(2) The term "cost of securities sold" means the amount ascer-
tained by subtracting the inventory value of the closing inventory 
of a taxable year from the sum of— 
(A) the inventory value of the opening inventory for such year, 
and 
(B) the cost of securities and other property purchased during 
such year which would properly be included in the inventory of 
the taxpayer if on hand at the close of the taxable year. 
SEC. 76. MORTGAGES MADE OR OBLIGATIONS 
ISSUED BY JOINT-
STOCK LAND BANKS. 
All income (except interest) derived from mortgages made, or obli-
gations issued, after May 28, 1938, by a joint-stock land bank shall 
(notwithstanding section 26 of the Federal Farm Loan Act; 12 U. S. C. 
931-3) be included in gross income. 
SEC. 77. COMMODITY CREDIT LOANS. 
(a) ELECTION TO INCLUDE LOANS IN INCOME.—Amounts received 
as loans from the Commodity Credit Corporation shall, at the election 
of the taxpayer, be considered as income and shall be included in gross 
income for the taxable year in which received. 
§ 77(a) 
49012°—54 
5 
26 
INTERNAL REVENUE CODE OF 
1954 
(b) EFFECT OF ELECTION ON ADJUSTMENTS FOE SUBSEQUENT 
YEARS.—If a taxpayer exercises the election provided for in subsec-
tion (a) for any taxable year, then the method of computing income so 
adopted shall be adhered to with respect to all subsequent taxable 
years unless with the approval of the Secretary or his delegate a change 
to a different method is authorized. 
PART III—ITEMS SPECIFICALLY EXCLUDED FROM GROSS 
INCOME 
Sec. 101. Certain death payments. 
Sec. 102. Gifts and inheritances. 
Sec. 103. Interest on certain governmental obligations. 
Sec. 104. Compensation for injuries or sickness. 
Sec. 105. Amounts received under accident and health plans. 
Sec. 106. Contributions by employer to accident and health plans. 
Sec. 107. Rental value of parsonages. 
Sec. 108. Income from discharge of indebtedness. 
Sec. 109. Improvements by lessee on lessor's property. 
Sec. 110. Income taxes paid by lessee corporation. 
Sec. 111. Recovery of bad debts, prior taxes, and delinquency 
amounts. 
Sec. 112. Certain combat pay of members of the Armed Forces. 
Sec. 113. Mustering-out payments for members of the Armed 
Forces. 
Sec. 114. Sports programs conducted for the American National 
Red Cross. 
Sec. 115. Income of States, municipalities, etc. 
Sec. 116. Partial exclusion of dividends received by individuals. 
Sec. 117. Scholarships and fellowship grants. 
Sec. 118. Contributions to the capital of a corporation. 
Sec. 119. Meals or lodging furnished for convenience of employer. 
Sec. 120. Statutory subsistence allowance received by police. 
Sec. 121. Cross references to other Acts. 
SEC. 101. CERTAIN DEATH BENEFITS. 
(a) PROCEEDS OP LIFE INSURANCE CONTRACTS PAYABLE BY REASON 
OF DEATH.— 
(1) GENERAL RULE.—Except as otherwise provided in paragraph 
(2) and in subsection (d), gross income does not include amounts 
received (whether in a single sum or otherwise) under a life insurance 
contract, if such amounts are paid by reason of the death of the 
insured. 
(2) TRANSFER FOR VALUABLE CONSIDERATION.—In the case of a 
transfer for a valuable consideration, by assignment or otherwise, 
of a life insurance contract or any interest therein, the amount 
excluded from gross income by paragraph (1) shall not exceed an 
amount equal to the sum of the actual value of such consideration 
and the premiums and other amounts subsequently paid by the 
transferee. 
The preceding sentence shall not apply in the case of 
such a transfer— 
(A) if such contract or interest therein has a basis for deter-
mining gain or loss in the hands of a transferee determined in 
whole or in part by reference to such basis of such contract or 
interest therein in the hands of the transferor, or 
(B) if such transfer is to the insured, to a partner of the insured, 
to a partnership in which the insured is a partner, or to a cor-
poration in which the insured is a shareholder or officer. 
§ 77(b) 
C H . 1—NORMAL TAXES AND SURTAXES 
27 
(b) EMPLOYEES' DEATH BENEFITS.— 
(1) GENERAL RULE.—Gross income does not include amounts 
received (whether in a single sum or otherwise) by the beneficiaries 
or the estate of an employee, if such amounts are paid by or on 
behalf of an employer and are paid by reason of the death of the 
employee. 
(2) SPECIAL RULES FOR PARAGRAPH (i).— 
(A) $5,000 LIMITATION.—The aggregate amounts excludable 
under paragraph (1) with respect to the death of any employee 
shall not exceed $5,000. 
(B) NONFORFEITABLE RIGHTS.—Paragraph (1) shall not apply 
to amounts with respect to which the employee possessed, im-
mediately before his death, a nonforfeitable right to receive the 
amounts while living (other than total distributions payable, as 
defined in section 402 (a) (3), which are paid to a distributee, 
by a stock bonus, pension, or profit-sharing trust described in 
section 401 (a) which is exempt from tax under section 501 (a), 
or under an annuity contract under a plan which meets the 
requirements of paragraphs (3), (4), (5), and (6) of section 401 
(a), within one taxable year of the distributee by reason of the 
employee's death). 
(C) JOINT AND SURVIVOR ANNUITIES.—Paragraph ^ (1) shall 
not apply to amounts received by a surviving annuitant under a 
jQ 
joint and survivor's annuity contract after the first day of the 
first period for which an amount was received as an annuity by 
the employee (or would have been received if the employee had 
-rn 
lived). 
(D) OTHER ANNUITIES.—In the case of any amount to which 
section 72 (relating to annuities, etc.) applies, the amount which 
is excludable under paragraph (1) (as modified by the preceding 
subparagraphs of this paragraph) shall be determined by refer-
ence to the value of such amount as of the day on which the 
employee died. 
Any amount so excludable under paragraph (1) 
shall, for purposes of section 72, be treated as additional con-
sideration paid by the employee. 
(c) INTEREST.—If any amount excluded from gross income by 
subsection (a) or (b) is held under an agreement to pay interest 
thereon, the interest payments shall be included in gross income. 
(d) PAYMENT OF L I F E INSURANCE PROCEEDS AT A DATE LATER 
THAN DEATH.— 
r 
(1) GENERAL RULE.—The amounts held by an insurer with 
respect to any beneficiary shall be prorated (in accordance with 
such regulations as may be prescribed by the Secretary or his dele-
gate) over the period or periods with respect to which such payments 
are to be made. 
There shall be excluded from the gross income of 
such beneficiary in the taxable year received— 
(A) any amount determined by such proration, and 
(B) in the case of the surviving spouse of the insured, that 
portion of the excess of the amounts received under one or more 
agreements specified in paragraph (2) (A) (whether or not pay-
ment of any part of such amounts is guaranteed by the insurer) 
'. 
over the amount determined in subparagraph (A) of this para-
_ 
§ 101(d)(1)(B) 
28 
INTERNAL REVENUE CODE OF 1954 
graph which is not greater than $1,000 with respect to any 
insured. 
Gross income includes, to the extent not excluded by the preceding 
sentence, amounts received under agreements to which this sub-
section applies. 
(2) AMOUNT HELD BY AN INSURER.—An amount held by an in-
surer with respect to any beneficiary shall mean an amount to which 
subsection (a) applies which is— 
(A) held by any insurer under an agreement provided for in 
the life insurance contract, whether as an option or otherwise, 
to pay such amount on a date or dates later than the death of 
the insured, and 
(B) is equal to the value of such agreement to such beneficiary 
(i) as of the date of death of the insured (as if any option 
exercised under the life insurance contract were exercised at 
such time), and 
(ii) as discounted on the basis of the interest rate and 
mortality tables used by the insurer in calculating payments 
under the agreement. 
(3) SURVIVING SPOUSE.—For purposes of this subsection, the 
term "surviving spouse" means the spouse of the insured as of the 
date o£ death, including a spouse legally separated but not under a 
decree of absolute divorce. 
(4) APPLICATION 
OF SUBSECTION.—This subsection shall not 
apply to any amount to which subsection (c) is applicable. 
(e) ALIMONY, ETC.. PAYMENTS.— 
(1) I N GENERAL.—This section shall not apply to so much of any 
payment as is includible in the gross income of the wife under section 
71 (relating to alimony) or section 682 (relating to income of an 
estate or trust in case of divorce, etc.). 
(2) CROSS REFERENCE.— 
For definition of "wife", see section 7701 (a) (17). 
(f) EFFECTIVE DATE OF SECTION.—This section shall apply only to 
amounts received by reason of the death of an insured or an employee 
occurring after the date of enactment of this title. 
Section 22 (b) (1) 
of the Internal Revenue Code of 1939 shall apply to amounts received 
by reason of the death of an insured or an employee occurring on or 
before such date. 
SEC. 102. GIFTS AND INHERITANCES. 
(a) GENERAL RULE.—Gross income does not include the value of 
property acquired by gift, bequest, devise, or inheritance. 
(b) INCOME.—Subsection (a) shall not exclude from gross income— 
(1) the income from any property referred to in subsection (a); or 
(2) where the gift, bequest, devise, or inheritance is of income 
from property, the amount of such income. 
Where, under the terms of the gift, bequest, devise, or inheritance, 
the payment, crediting, or distribution thereof is to be made at 
intervals, then, to the extent that it is paid or credited or to be dis-
tributed out of income from property, it shall be treated for purposes 
of paragraph (2) as a gift, bequest, devise, or inheritance of income 
from property. 
Any amount included in the gross income of a 
§ 101(d)(1)(B) 
CH. 1—NORMAL TAXES AND SURTAXES 
29 
beneficiary under subchapter J shall be treated for purposes of para-
graph (2) as a gift, bequest, devise, or inheritance of income from 
property. 
SEC. 103. INTEREST ON CERTAIN GOVERNMENTAL OBLIGATIONS. 
(a) G E N E R A L R U L E . — G r o s s income does not include interest on— 
(1) the obligations of a State, a Territory, or a possession of the 
United States, or any political subdivision of any of the foregoing, 
or of the District of Columbia; 
(2) the obligations of the United States; or 
(3) the obligations of a corporation organized under Act of 
Congress, if such corporation is an instrumentality of the United 
States and if under the respective Acts authorizing the issue of 
the obligations the interest is wholly exempt from the taxes imposed 
by this subtitle. 
(b) EXCEPTION.—Subsection (a) (2) shall not apply to interest on 
obligations of the United States issued after September 1, 1917 (other 
than postal savings certificates of deposit, to the extent they represent 
deposits made before March 1, 1941), unless under the respective Acts 
authorizing the issuance thereof such interest is wholly exempt from 
the taxes imposed by this subtitle. 
(c) 
C R O S S 
R E F E R E N C E S . — 
For provisions relating to the taxable status of— 
'^ 
(1) Bonds and certificates of indebtedness authorized by the First 
1^ 
, 
Liberty Bond Act, see sections 1 and 6 of that Act (40 Stat. 35, 36; 31 
U. S. C. 746, 755); 
(2) Bonds issued to restore or maintain the gold reserve, see section 
2 of the Act of March 14, 1900 (31 Stat. 46; 31 U. S. C. 408); 
r-'. 
(3) Bonds, notes, certificates of indebtedness, and Treasury bills 
authorized by the Second Liberty Bond Act, see sections 4, 5 (b) and 
(d), 7 18 (b), and 22 (d) of that Act, as amended (40 Stat. 290; 46 
Stat. 20, 775; 40 Stat. 291, 1310; 55 Stat. 8; 31 U. S. C. 752a, 754, 747, 
753, 757c); 
go ;j 
(4) Bonds, notes, and certificates of indebtedness of the United 
States and bonds of the War Finance Corporation owned by certain 
nonresidents, see section 3 of the Fourth Liberty Bond Act, as amended 
i<' 
(40 Stat. 1311, § 4; 31 U. S. C. 750); 
(5) Certificates of indebtedness issued after February 4, 1910, see 
section 2 of the Act of that date (36 Stat. 192; 31 U. S. C. 769); 
(6) Consols of 1930, see section 11 of the Act of March 14, 1900 (31 
Stat. 48; 31 U. S. C. 751); 
~- 
(7) Obligations and evidences of ownership issued by the United 
States or any of its agencies or instrumentalities on or after March 28, 
1942, see section 4 of the Public Debt Act of 1941, as amended (c. 147, 
61 Stat. 180; 31 U. S. C. 742a); 
(8) Commodity Credit Corporation obligations, see section 5 of the 
J 
Act of March 8, 1938 (52 Stat, 108; 15 U. S. C. 713a-5); 
%• 
(9) Debentures issued by Federal Housing Administrator, see sec-
tions 204 (d) and 207 (i) of the National Housing Act, as amended 
(52 Stat. 14, 20; 12 U. S. C. 1710, 1713); 
(10) Debentures issued to mortgagees by United States Maritime 
~t: 
Commission, see section 1105 (c) of the Merchant Marine Act, 1936, 
as amended (52 Stat. 972; 46 U. S. C. 1275); 
-5 
(11) Federal Deposit Insurance Corporation obligations, see section 
sr 
15 of the Federal Deposit Insurance Act (64 Stat. 890; 12 U. S. C. 
1825); 
(12) Federal Home Loan Bank obligations, see section 13 of the 
Federal Home Loan Bank Act, as amended (49 Stat. 295, § 8; 12 U. S. C. 
1433); 
§ 103(c) (12) 
30 
INTERNAL REVENUE CODE OF 1954 
(13) Federal savings and loan association loans, see section 5 (h) of 
the Home Owners' Loan Act of 1933, as amended (48 Stat. 133; 12 
U. S. C. 1464); 
(14) Federal Savings and Loan Insurance Corporation obligations, 
see section 402 (e) of the National Housing Act (48 Stat. 1257; 12 
U. S. C. 1725); 
(15) Home Owners' Loan Corporation bonds, see section 4 (c) of the 
Home Owners' Loan Act of 1933, as amended (48 Stat. 644, c. 168; 
12 U. S. C. 1463); 
(16) Obligations of Central Bank for Cooperatives, production credit 
corporations, production credit associations, and banks for cooperatives, 
see section 63 of the Farm Credit Act of 1933 (48 Stat. 267; 12 U. S. C. 
1138c); 
(17) Panama Canal bonds, see section 1 of the Act of December 21, 
1904 (34 Stat. 5; 31 U. S. C. 743), section 8 of the Act of June 28, 1902 
(32 Stat. 484; 31 U. S. C. 744), and section 39 of the Tariff Act of 1909 
(36 Stat. 117; 31 U. S. C. 745); 
(18) Philippine bonds, etc., issued before the independence of the 
Philippines, see section 9 of the Philippine Independence Act (48 Stat. 
463; 48 U. S. C. 1239); 
(19) Postal savings bonds, see section 10 of the Act of June 25, 1910 
(36 Stat. 817; 39 U. S. C. 760); 
(20) Puerto Rican bonds, see section 3 of the Act of March 2, 1917, 
as amended (50 Stat. 844; 48 U. S. C. 745); 
(21) Treasury notes issued to retire national bank notes, see section 
18 of the Federal Reserve Act (38 Stat. 268; 12 U. S. C. 447); 
(22) United States Housing Authority obligations, see sections 5 (e) 
and 20 (b) of the United States Housing Act of 1937 (50 Stat. 890, 898; 
42 U. S. C. 1405, 1420); 
(23) Virgin Islands insular and municipal bonds, see section 1 of 
the Act of October 27, 1949 (63 Stat. 940; 48 U. S. C. 1403). 
SEC. 104. COMPENSATION FOR INJURIES OR SICKNESS. 
(a) I N GENERAL.—Except in the case of amounts attributable to 
(and not in excess of) deductions allowed under section 213 (relating 
to medical, etc., expenses) for any prior taxable year, gross income 
does not include— 
(1) amounts received under workmen's compensation acts as 
compensation for personal injuries or sickness; 
(2) the amount of any damages received (whether by suit or 
agreement) on account of personal injuries or sickness; 
(3) amounts received through accident or health insurance for 
personal injuries or sickness (other than amounts received by an 
employee, to the extent such amounts (A) are attributable to con-
tributions by the employer which were not includible in the gross 
income of the employee, or (B) are paid by the employer); and 
(4) amounts received as a pension, annuity, or similar allowance 
for personal injuries or sickness resulting from active service in the 
armed forces of any country or in the Coast and Geodetic Survey 
or the Public Health Service. 
(b) 
CROSS REFERENCES.— 
(1) For exclusion from employee's gross income of employer con-
tributions to accident and health plans, see section 106. 
(2) For exclusion of part of disability retirement pay from the appli-
cation of subsection (a) (4) of this section, see section 402 (h) of the 
Career Compensation Act of 1949 (37 U. S. C. 272 (h)). 
SEC. 105. AMOUNTS 
RECEIVED 
UNDER 
ACCIDENT AND HEALTH 
PLANS. 
(a) A M O U N T S 
ATTRIBUTABLE 
TO E M P L O Y E R 
C O N T R I B U T I O N S . — 
Except as otherwise provided in this section, amounts received by an 
§ 103(c) (13) 
CH. 1 
NORMAL TAXES AND SURTAXES 
31 
employee through accident or health insurance for personal injuries or 
sickness shall be included in gross income to the extent such amounts 
(1) are attributable to contributions by the employer which were not 
includible in the gross income of the employee, or (2) are paid by the 
employer. 
(b) AMOUNTS EXPENDED FOR MEDICAL CARE.—Except in the case 
of amounts attributable to (and not in excess of) deductions allowed 
under section 213 (relating to medical, etc., expenses) for any prior 
taxable year, gross income does not include amounts referred to in 
subsection (a) if such amounts are paid, directly or indirectly, to the 
taxpayer to reimburse the taxpayer for expenses incurred by him for 
the medical care (as defined in section 213 (e)) of the taxpayer, his 
spouse, and his dependents (as defined in section 152). 
(c) PAYMENTS UNRELATED TO ABSENCE FROM WORK.—Gross in-
come does not include amounts referred to in subsection (a) to the 
extent such amounts— 
(1) constitute payment for the permanent loss or loss of use 
of a member or function of the body, or the permanent disfigure-
ment, of the taxpayer, his spouse, or a dependent (as defined in 
section 152), and 
(2) are computed with reference to the nature of the injury 
without regard to the period the employee is absent from work. 
(d) WAGE CONTINUATION PLANS.—Gross income does not include 
amounts referred to in subsection (a) if such amounts constitute wages 
or payments in lieu of wages for a period during which the employee is 
absent from work on account of personal injuries or sickness; but this 
subsection shall not apply to the extent that such amounts exceed a 
weekly rate of $100. In the case of a period during which the em-
ployee is absent from work on account of sickness, the preceding 
sentence shall not apply to amounts attributable to the first 7 calendar 
days in such period unless the employee is hospitalized on account of 
sickness for at least one day during such period. 
If such amounts 
are not paid on the basis of a weekly pay period, the Secretary or his 
delegate shall by regulations prescribe the method of determining the 
weekly rate at which such amounts are paid. 
(e) ACCIDENT AND HEALTH PLANS.—For purposes of this section 
and section 104— 
(1) amounts received under an accident or health plan for 
employees, and 
(2) amounts received from a sickness and disability fund for 
employees maintained under the law of a State, a Territory, or the 
District of Columbia, 
shall be treated as amounts received through accident or health 
insurance. 
(f) RULES FOR APPLICATION OF SECTION 213.—For purposes of 
section 213 (a) (relating to medical, dental, etc., expenses) amounts 
excluded from gross income under subsection (c) or (d) shall not be 
considered as compensation (by insurance or otherwise) for expenses 
paid for medical care. 
§ 105(f) 
32 
INTERNAL REVENUE CODE OF 1954 
SEC. 106. CONTRIBUTIONS BY EMPLOYER TO ACCIDENT AND HEALTH 
PLANS. 
Gross income does not include contributions by the employer to 
accident or health plans for compensation (through insurance or 
otherwise) to his employees for personal injuries or sickness. 
SEC. 107. RENTAL VALUE OF PARSONAGES. 
In the case of a minister of the gospel, gross income does not 
include— 
(1) the rental value of a home furnished to him as part of his 
compensation; or 
(2) the rental allowance paid to him as part of his compensation, 
to the extent used by him to rent or provide a home. 
SEC. 108. INCOME FROM DISCHARGE OF INDEBTEDNESS. 
(a) SPECIAL R U L E OF EXCLUSION.—No amount shall be included 
in gross income by reason of the discharge, in whole or in part, within 
the taxable year, of any indebtedness for which the taxpayer is liable, 
or subject to which the taxpayer holds property, if— 
(1) the indebtedness was incurred or assumed— 
(A) by a corporation, or 
(B) by an individual in connection with property used in his 
trade or business, and 
(2) such taxpayer makes and files a consent to the regulations 
prescribed under section 1017 (relating to adjustment of basis) 
then in effect at such time and in such manner as the Secretary or 
his delegate by regulations prescribes. 
In such case, the amount of any income of such taxpayer attributable 
to any unamortized premium (computed as of the first day of the 
taxable year in which such discharge occurred) with respect to such 
indebtedness shall not be included in gross income, and the amount of 
the deduction attributable to any unamortized discount (computed 
as of the first day of the taxable year in which such discharge occurred) 
with respect to such indebtedness shall not be allowed as a deduction. 
(b) RAILROAD CORPORATIONS.—No amount shall be included in 
gross income by reason of the discharge, cancellation, or modification, 
in whole or in part, within the taxable year, of any indebtedness of a 
railroad corporation, as defined in section 77 (m) of the Bankruptcy 
Act (11 U. S. C. 205 (m)), if such discharge, cancellation, or modifica-
tion is effected pursuant to an order of a court in a receivership 
proceeding or in a proceeding under section 77 of the Bankruptcy 
Act. 
In such cases, the amount of any income of the taxpayer 
attributable to any unamortized premium (computed as of the first 
day of the taxable year in which such discharge occurred) with 
respect to such indebtedness shall not be included in gross income, 
and the amount of the deduction attributable to any unamortized 
discount (computed as of the first day of the taxable year in which 
such discharge occurred) with respect to such indebtedness shall not 
be allowed as a deduction. 
Subsection (a) of this section shall not 
apply with respect to any discharge of indebtedness to which this 
subsection applies. 
This subsection shall not apply to any discharge 
occurring in a taxable year beginning after December 31, 1955. 
§106 
CH. 1—NORMAL TAXES AND SURTAXES 
33 
SEC. 109. IMPROVEMENTS BY LESSEE ON LESSOR'S PROPERTY. 
Gross income does not include income (other than rent) derived by 
a lessor of real property on the termination of a lease, representing the 
value of such property attributable to buildings erected or other im-
provements made by the lessee. 
SEC. 110. INCOME TAXES PAID BY LESSEE 
CORPORATION. 
If— 
(1) a lease was entered into before January 1, 1954, 
(2) both lessee and lessor are corporations, and 
(3) under the lease, the lessee is obligated to pay, or to reimburse 
the lessor for, any part of the tax imposed by this subtitle on the 
lessor with respect to the rentals derived by the lessor from the 
lessee, 
then gross income of the lessor does not include such payment or reim-
bursement, and no deduction for such payment or reimbursement shall 
be allowed to the lessee. 
For purposes of the preceding sentence, 
a lease shall be considered to have been entered into before Jan-
uary 1, 1954, if it is a renewal or continuance of a lease entered into 
before such date and if such renewal or continuance was made in 
accordance with an option contained in the lease on December 31, 
1953. 
SEC. 111. RECOVERY 
OF BAD DEBTS, PRIOR TAXES, AND DELIN-
QUENCY AMOUNTS. 
(a) GENERAL RULE.—Gross income does not include income attrib-
utable to the recovery during the taxable year of a bad debt, prior 
tax, or delinquency amount, to the extent of the amount of the re-
covery exclusion with respect to such debt, tax, or amount. 
(b) DEFINITIONS.—For purposes of subsection (a)— 
(1) BAD DEBT.—The term "bad debt" means a debt on account 
of the worthlessness or partial worthlessness of which a deduction 
was allowed for a prior taxable year. 
(2) PRIOR TAX.—The term "prior tax" means a tax on account 
of which a deduction or credit was allowed for a prior taxable year. 
(3) DELINQUENCY AMOUNT.—The term "delinquency amount" 
means an amount paid or accrued on account of which a deduction 
or credit was allowed for a prior taxable year and which is attrib-
utable to failure to file return with respect to a tax, or pay a tax, 
within the time required by the law under which the tax is imposed, 
or to failure to file return with respect to a tax or pay a tax. 
(4) RECOVERY 
EXCLUSION.—The term "recovery 
exclusion", 
with respect to a bad debt, prior tax, or delinquency amount, means 
the amount, determined in accordance with regulations prescribed 
by the Secretary or his delegate, of the deductions or credits allowed, 
on account of such bad debt, prior tax, or delinquency amount, 
which did not result in a reduction of the taxpayer's tax under this 
subtitle (not including the accumulated earnings tax imposed by 
section 531 or the tax on personal holding companies imposed 
by section 541) or corresponding provisions of prior income tax laws 
(other than subchapter E of chapter 2 of the Internal Revenue Code 
of 1939, relating to World War II excess profits tax), reduced by the 
amount excludable in previous taxable years with respect to such 
debt, tax, or amount under this section. 
§ 111(b)(4) 
34 
INTERNAL REVENUE CODE OF 1954 ' 
(c) SPECIAL KULES FOR ACCUMULATED EARNINGS TAX AND FOR 
PERSONAL HOLDING COMPANY TAX.—In applying subsections (a) 
and (b) for the purpose of determining the accumulated earnings tax 
under section 531 or the tax under section 541 (relating to personal 
holding companies)— 
(1) a recovery exclusion allowed for purposes of this subtitle 
(other than section 531 or section 541) shall be allowed whether or 
not the bad debt, prior tax, or delinquency amount resulted in a 
reduction of the tax under section 531 or the tax under section 
541 for the prior taxable year; and 
(2) where a bad debt, prior tax, or delinquency amount was not 
allowable as a deduction or credit for the prior taxable year for 
purposes of this subtitle other than of section 531 or section 541 
but was allowable for the same taxable year under section 531 or 
section 541, then a recovery exclusion shall be allowable if such 
bad debt, prior tax, or delinquency amount did not result in a re-
duction of the tax under section 531 or the tax under section 541. 
SEC. 112. CERTAIN COMBAT PAY OF MEMBERS OF THE ARMED 
FORCES. 
(a) ENLISTED PERSONNEL.—Gross income does not include com-
pensation received for active service as a member below the grade of 
commissioned officer in the Armed Forces of the United States for any 
month during any part of which such member— 
(1) served in a combat zone during an induction period, or 
(2) was hospitalized as a result of wounds, disease, or injury 
incurred while serving in a combat zone during an induction period; 
but this paragraph shall not apply for any month during any part 
of which there are no combatant activities in any combat zone as 
determined under subsection (c) (3) of this section. 
(b) COMMISSIONED OFFICERS.—Gross income does not include so 
much of the compensation as does not exceed $200 received for active 
service as a commissioned officer in the Armed Forces of the United 
States for any month during any part of which such officer— 
(1) served in a combat zone during an induction period, or 
(2) was hospitalized as a result of wounds, disease, or injury 
incurred while serving in a combat zone during an induction period; 
but this paragraph shall not apply for any month during any part 
of which there are no combatant activities in any combat zone as 
determined under subsection (c) (3) of this section. 
(c) DEFINITIONS.—For purposes of this section— 
(1) The term "commissioned officer" does not include a com-
missioned warrant officer. 
(2) The term "combat zone" means any area which the President 
of the United States by Executive Order designates, for purposes 
of this section or corresponding provisions of prior income tax laws, 
as an area in which Armed Forces of the United States are or have 
(after June 24, 1950) engaged in combat. 
(3) Service is performed in a combat zone only if performed on or 
after the date designated by the President by Executive Order as 
the date of the commencing of combatant activities in such zone, 
and on or before the date designated by the President by Executive 
Order as the date of the termination of combatant activities in 
§111(0 
CH. 1—NORMAL TAXES AND SURTAXES 
35 
such zone; except that June 25, 1950, shall be considered the date 
of the commencing of combatant activities in the combat zone 
designated in Executive Order 10195. 
(4) The term "compensation" does not include pensions and 
retirement pay. 
(5) The term "induction period" means any period during 
which, under laws heretofore or hereafter enacted relating to the 
induction of individuals for training and service in the Armed 
Forces of the United States, individuals (other than individuals 
liable for induction by reason of a prior deferment) are liable for 
induction for such training and service. 
SEC. 113. MUSTERING-OUT 
PAYMENTS 
FOR 
MEMBERS 
OF 
THE 
ARMED FORCES. 
Gross income does not include amounts received during the taxable 
year as mustering-out payments with respect to service in the Armed 
Forces of the United States. 
SEC. 114. SPORTS 
PROGRAMS 
CONDUCTED FOR 
THE 
AMERICAN 
NATIONAL RED CROSS. 
(a) GENERAL RULE.—In the case of a taxpayer which is a corpo-
ration primarily engaged in the furnishing of sports programs, gross 
income does not include amounts received as proceeds from a sports 
program conducted by the taxpayer if— 
(1) the taxpayer agrees in writing with the American National 
Red Cross to conduct such sports program exclusively for the 
benefit of the American National Red Cross; 
(2) the taxpayer turns over to the American National Red 
Cross the proceeds from such sports program, minus the expenses 
paid or incurred by the taxpayer— 
(A) which would not have been so paid or incurred but for such 
sports program, and 
(B) which would be allowable as a deduction under section 162 
(relating to trade or business expenses) but for subsection (b) of 
this section; and 
(3) the facilities used for such program are not regularly used 
during the taxable year for the conduct of sports programs to 
' which this subsection applies. 
For purposes of this subsection, the term "proceeds from such sports 
program" includes all amounts paid for admission to the sports pro-
gram, plus all proceeds received by the taxpayer from such program 
or activities carried on in connection therewith. 
(b) TREATMENT OF EXPENSES.—Expenses described in subsection 
(a) (2) shall be allowed as a deduction under section 162 only to the 
extent that such expenses exceed the amount excluded from gross 
income by subsection (a) of this section. 
SEC. 115. INCOME OF STATES, MUNICIPALITIES, ETC. 
(a) GENERAL RULE.—Gross income does not include— 
(1) income derived from any public utility or the exercise of 
any essential governmental function and accruing to a State or 
Territory, or any political subdivision thereof, or the District of 
Columbia; or 
(2) income accruing to the government of any possession of the 
United States, or any political subdivision thereof, 
§ 115(a)(2) 
36 
INTERNAL REVENUE CODE OF 1954 
(b) CONTRACTS MADE BEFORE SEPTEMBER 8, 1916, 
RELATING TO 
PUBLIC UTILITIES.—Where a State or Territory, or any political 
subdivision thereof, or the District of Columbia, before September 8, 
1916, entered in good faith into a contract with any person, the 
object and purpose of which was to acquire, construct, operate, or 
maintain a public utility— 
(1) I f -
(A) hj the terms of such contract the tax imposed by this 
subtitle is to be paid out of the proceeds from the operation 
of such public utility before any division of such proceeds 
between the person and the State, Territory, political subdivi-
sion, or the District of Columbia, and 
(B) a part of such proceeds for the taxable year would (but 
for the imposition of the tax imposed by this subtitle) accrue 
directly to or for the use of such State, Territory, political sub-
division, or the District of Columbia, 
then a tax on the taxable income from the operation of such public 
utility shall be levied, assessed, collected, and paid in the manner 
and at the rates prescribed in this subtitle, but there shall be 
refunded to such State, Territory, political subdivision, or the 
District of Columbia (under regulations prescribed by the Secre-
tary or his delegate) an amount which bears the same relation to 
the amount of the tax as the amount which (but for the imposition 
of the tax imposed by this subtitle) would have accrued directly to 
or for the use of such State, Territory, political subdivision, or the 
District of Columbia, bears to the amount of the taxable income 
from the operation of such public utility for such taxable year. 
(2) If by the terms of such contract no part of the proceeds from 
the operation of the public utility for the taxable year would, 
irrespective of the tax imposed by this subtitle, accrue directly to 
or for the use of such State, Territory, political subdivision, or the 
District of Columbia, then the tax on the taxable income of such 
person from the operation of such public utility shall be levied, 
assessed, collected, and paid in the manner and at the rates pre-
scribed in this subtitle, 
(c) CONTRACTS M A D E 
BEFORE 
MAY 
29, 
1928, 
RELATING TO 
BRIDGE ACQUISITIONS,—Where a State or political subdivision thereof, 
pursuant to a contract entered into before May 29, 1928, to which it 
is not a party, is to acquire a bridge— 
(1) 
I f -
(A) by the terms of such contract the tax imposed by this sub-
title is to be paid out of the proceeds from the operation of such 
bridge before any division of such proceeds, and 
(B) a part of such proceeds for the taxable year would (but 
for the imposition of the tax imposed by this subtitle) accrue 
directly to or for the use of or would be applied for the benefit 
of such State or political subdivision, 
then a tax on the taxable income from the operation of such bridge 
shall be levied, assessed, collected, and paid in the manner and at the 
rates prescribed in this subtitle, but there shall be refunded to such 
State or political subdivision (under regulations to be prescribed 
by the Secretary or his delegate) an amount which bears the same 
§ 115(b) 
CH. 1—NORMAL TAXES AND SURTAXES 
37 
relation to the amount of the tax as the amount which (but for the 
imposition of the tax imposed by this subtitle) would have accrued 
directly to or for the use of or would be applied for the benefit of 
such State or political subdivision bears to the amount of the taxable 
income from the operation of such bridge for such taxable year. 
No such refund shall be made unless the entire amount of the refund 
is to be applied in part payment for the acquisition of such bridge. 
: 
(2) If by the terms of such contract no part of the proceeds from 
the operation of the bridge for the taxable year would, irrespective 
of the tax imposed by this subtitle, accrue directly to or for the use 
of or be applied for the benefit of such State or political subdivision, 
then the tax on the taxable income from the operation of such 
bridge shall be levied, assessed, collected, and paid in the manner 
and at the rates prescribed in this subtitle. 
SEC. 116. PARTIAL EXCLUSION OF DIVIDENDS RECEIVED BY INDI-
VIDUALS. 
(a) EXCLUSION FROM GROSS INCOME,^—Effective with respect to any 
taxable year ending after July 31, 1954, gross income does not include 
amounts received by an individual as dividends from domestic cor-
porations, to the extent that the dividends do not exceed $50. If the 
dividends received in a taxable year exceed $50, the exclusion provided 
by the preceding sentence shall apply to the dividends first received 
in such year. 
(b) CERTAIN DIVIDENDS EXCLUDED.^—Subsection (a) shall not apply 
to any dividend from— 
(1) an insurance company subject to a tax imposed by part I or II 
of subchapter L (sec. 801 and following); 
(2) a corporation organized under the China Trade Act, 1922 
(see sec. 941); or 
(3) a corporation which, for the taxable year of the corporation 
in which the distribution is made, or for the next preceding taxable 
year of the corporation, is— 
(A) a corporation exempt from tax under section 501 (relating 
to certain charitable, etc., organizations) or section 521 (relating 
to farmers' cooperative associations); or 
(B) a corporation to which section 931 (relating to income from 
sources within possessions of the United States) applies. 
(c) SPECIAL RULES FOR CERTAIN DISTRIBUTIONS.^—For purposes of 
subsection (a)— 
(1) Any amount allowed as a deduction under section 591 (relat-
ing to deduction for dividends paid by mutual savings banks, etc.) 
shall not be treated as a dividend. 
(2) A dividend received from a regulated investment company 
shall be subject to the limitations prescribed in section 854. 
(d) CERTAIN NONRESIDENT ALIENS INELIGIBLE FOR EXCLUSION.— 
Subsection (a) does not apply to a nonresident alien individual with 
respect to whom a tax is imposed for the taxable year under section 
871 (a). 
§ 116(d) 
38 
INTERNAL REVENUE CODE OF 1964 
SEC. 117. SCHOLARSHIPS AND FELLOWSHIP GRANTS. 
(a) GENERAL RULE.—In the case of an individual, gross income 
does not include— 
(1) any amount received— 
(A) as a scholarship at an educational institution (as defined 
in section 151 (e) (4)), or 
(B) as a fellowship grant, 
including the value of contributed services and accommodations; 
and 
(2) any amount received to cover expenses for— 
(A) travel, 
(B) research, 
(C) clerical help, or 
(D) equipment, 
which are incident to such a scholarship or to a fellowship grant, but 
only to the extent that the amount is so expended by the recipient. 
(b) LIMITATIONS.^— 
(1) INDIVIDUALS WHO ARE CANDIDATES FOR DEGREES.—In the 
case of an individual who is a candidate for a degree at an educa-
tional institution (as defined in section 151 (e) (4)), subsection (a) 
shall not apply to that portion of any amount received which repre-
sents payment for teaching, research, or other services in the nature 
of part-time employment required as a condition to receiving the 
scholarship or the fellowship grant. 
If teaching, research, or other 
services are required of all candidates (whether or not recipients of 
scholarships or fellowship grants) for a particular degree as a con-
dition to receiving such degree, such teaching, research, or other 
services shall not be regarded as part-time employment within the 
meaning of this paragraph. 
(2) INDIVIDUALS WHO ARE NOT CANDIDATES FOR DEGREES.—In 
the case of an individual who is not a candidate for a degree at 
an educational institution (as defined in section 151 (e) (4)), 
subsection (a) shall apply only if the condition in subparagraph (A) 
is satisfied and then only within the limitations provided in sub-
paragraph (B). 
(A) CONDITIONS FOR EXCLUSION.—The grantor of the scholar-
ship or fellowship grant is an organization described in section 
501 (c) (3) which is exempt from tax under section 501 (a), the 
United States, or an instrumentality or agency thereof, or a 
State, a Territory, or a possession of the United States, or any 
political subdivision thereof, or the District of Columbia. 
(B) EXTENT OF EXCLUSION.—The amount of the scholarship 
or fellowship grant excluded under subsection (a) (1) in any 
taxable year shall be limited to an amount equal to $300 times 
the number of months for which the recipient received amounts 
under the scholarship or fellowship grant during such taxable 
year, except that no exclusion shall be allowed under subsection 
(a) after the recipient has been entitled to exclude under this 
section for a period of 36 months (whether or not consecutive) 
amounts received as a scholarship or fellowship grant while not 
a candidate for a degree at an educational institution (as defined 
in section 151 (e) (4)). 
§ 117 
CH. 1—NORMAL TAXES AND SURTAXES 
39 
SEC. 118. CONTRIBUTIONS TO THE CAPITAL OF A CORPORATION. 
(a) GENERAL RULE.—In the case of a corporation, gross income 
does not include any contribution to the capital of the taxpayer. 
(b) 
CROSS REFERENCE.— 
For basis of property acquired by a corporation through a contribution 
to its capital, see section 362. 
SEC. 119. MEALS OR LODGING FURNISHED FOR THE CONVENIENCE 
OF THE EMPLOYER. 
There shall be excluded from gross income of an employee the value 
of any meals or lodging furnished to him by his employer for the 
convenience of the employer, but only if— 
(1) in the case of meals, the meals are furnished on the business 
premises of the employer, or 
(2) in the case of lodging, the employee is required to accept such 
lodging on the business premises of his employer as a condition 
of his employment. 
In determining whether meals or lodging are furnished for the con-
venience of the employer, the provisions of an employment contract 
or of a State statute fixing terms of employment shall not be determi-
native of whether the meals or lodging are intended as compensation. 
SEC. 120. STATUTORY 
SUBSISTENCE 
ALLOWANCE 
RECEIVED 
BY 
POLICE. 
(a) GENERAL RULE.—Gross income does not include any amount 
received as a statutory subsistence allowance by an individual who is 
employed as a police official by a State, a Territory, or a possession of 
the United States, by any political subdivision of any of the foregoing, 
or by the District of Columbia. 
(b) LIMITATIONS.— 
(1) Amounts to which subsection (a) applies shall not exceed $5 
per day. 
(2) If any individual receives a subsistence allowance to which 
subsection (a) applies, no deduction shall be allowed under any other 
provision of this chapter for expenses in respect of which he has 
received such allowance, except to the extent that such expenses 
exceed the amount excludable under subsection (a) and the excess is 
' 
otherwise allowable as a deduction under this chapter. 
SEC. 121. CROSS REFERENCES TO OTHER ACTS. 
(a) For exemption of— 
- 
(1) Adjustments of indebtedness under wage earners' plans, see 
section 679 of the Bankruptcy Act (52 Stat. 938; 11 U. S. C. 1079); 
(2) Allowances and expenditures to meet losses sustained by persons 
serving the United States abroad, due to appreciation of foreign cur-
rencies, see the Acts of March 6,1934 (48 Stat. 466; 5 U. S. C. 118c) and 
April 25, 1938 (52 Stat. 221; 5 U. S. C. 118c-l); 
(3) Amounts credited to the Maritime Administration under section 
9 (b) (6) of the Merchant Ship Sales Act of 1946, see section 9 (c) (1) 
of that Act (60 Stat. 48; 50 U. S. C. App. 1742); 
(4) Benefits under World War Adjusted Compensation Act, see 
section 308 of that Act, as amended (43 Stat. 125; 44 Stat. 827, § 3; 
38 U. S. C. 618); 
(5) Benefits under World War Veterans' Act, 1924, see section 3 of 
the Act of August 12, 1935 (49 Stat. 609; 38 U. S. C. 454a); 
i 
(6) Dividends and interest derived from certain preferred stock by 
Reconstruction Finance Corporation, see section 304 of the Act of 
March 9, 1933, as amended (49 Stat. 1185; 12 U. S. C. 51d); 
§ 121(a)(6) 
40 
INTERNAL REVENUE CODE OF 1954 
(7) Earnings of ship contractors deposited in special reserve funds, 
see section 607 (h) of the Merchant Marine Act, 1936, as amended 
(52 Stat. 961, § 28; 46 U. S. C. 1177); 
(8) Income derived from Federal Reserve banks, including capital 
stocl( and surplus, see section 7 of the Federal Reserve Act (38 Stat. 
258; 12 U. S. C. 531); 
(9) Income derived from Ogdensburg bridge across Saint Lawrence 
River, see section 4 of the Act of June 14, 1933, as amended (54 Stat. 
259, § 2); 
(10) Income deri/ed from Owensboro bridge across Ohio River and 
nearby ferries, see section 4 of the Act of August 14, 1937 (50 Stat. 643); 
(11) Income derived from Saint Clair River bridge and ferries, see 
section 4 of the Act of June 25, 1930, as amended (48 Stat. 140, § 1); 
(12) Leave compensation payments under section 6 of Armed Forces 
Leave Act of 1946, see section 7 of that Act (60 Stat. 967; 37 U. S. C. 36); 
(13) Mustering-out payments made to or on account of veterans 
under the Mustering-Out Payment Act of 1944, see section 5 (a) of that 
Act (58 Stat. 10; 38 U. S. C. 691e); 
(14) Railroad retirement annuities and pensions, see section 12 of 
the Railroad Retirement Act of 1935, as amended (50 Stat. 316; 45 
U. S. C. 2281); 
(15) Railroad unemployment benefits, see section 2 (e) of the Railroad 
Unemployment Insurance Act, as amended (52 Stat. 1097; 53 Stat. 845, 
§ 9; 45 U. S. C. 352); 
(16) Special pensions of persons on Army and Navy medal of honor 
roll, see section 3 of the Act of April 27,1916 (39 Stat. 54; 38 U. S. C. 393); 
(17) Gain derived from the sale or other disposition of Treasury Bills, 
issued after June 17, 1930, under the Second Liberty Bond Act, as 
amended, see Act of June 17,1930 (C. 512, 46 Stat. 775; 31 U. S. C. 754). 
(b) For extension of military income-tax-exemption benefits to com-
missioned ofiicers of Public Health Service in certain circumstances, 
see section 212 of the Public Health Service Act (58 Stat. 689; 42 
U. S. C. 213). 
PART IV—STANDARD DEDUCTION FOR INDIVIDUALS 
Sec. 141. Standard deduction. 
Sec. 142. Individuals not eligible for standard deduction. 
Sec. 143. Determination of marital status. 
Sec. 144. Election of standard deduction. 
Sec. 145. Cross reference. 
SEC. 141. STANDARD DEDUCTION. 
The standard deduction referred to in section 63 (b) (defining tax-
able income in case of individual electing standard deduction) shall be 
an amount equal to 10 percent of the adjusted gross income or $1,000, 
whichever is the lesser, except that in the case of a separate return by 
a married individual the standard deduction shall not exceed $500. 
SEC. 142. INDIVIDUALS NOT ELIGIBLE FOR STANDARD DEDUCTION. 
(a) HUSBAND AND WIFE.—The standard deduction shall not be 
allowed to a husband or wife if the tax of the other spouse is determined 
under section 1 on the basis of the taxable income computed without 
regard to the standard deduction. 
(b) CERTAIN OTHER TAXPAYERS INELIGIBLE.—The standard de-
duction shall not be allowed in computing the taxable income of— 
(1) a nonresident alien individual; 
(2) a citizen of the United States entitled to the benefits of section 
931 (relating to income from sources within possessions of the United 
States); 
§ 121(a)(7) 
CH. 1—NORMAL TAXES AND SURTAXES 
41 
(3) an individual making a return under section 443 (a) (1) for a 
period of less than 12 months on account of a change in his annual 
accounting period; or 
(4) an estate or trust, common trust fund, or partnership. 
SEC. 143. DETERMINATION OF MARITAL STATUS. 
For purposes of this part— 
(1) The determination of whether an individual is married shall 
be made as of the close of his taxable year; except that if his spouse 
dies during his taxable year such determination shall be made as 
of the time of such death; and 
(2) An individual legally separated from his spouse under a 
decree of divorce or of separate maintenance shall not be considered 
as married. 
SEC. 144. ELECTION OF STANDARD DEDUCTION. 
(a) METHOD AND EFFECT OF ELECTION.— 
(1) If the adjusted gross income shown on the return is $5,000 
or more, the standard deduction shall be allowed if the taxpayer 
so elects in his return, and the Secretary or his delegate shall by 
regulations prescribe the manner of signifying such election in the 
return. 
If the adjusted gross income shown on the return is $5,000 
or more, but the correct adjusted gross income is less than $5,000, 
then an election by the taxpayer under the preceding sentence to 
take the standard deduction shall be considered as his election to 
pay the tax imposed by section 3 (relating to tax based on tax 
table); and his failure to make under the preceding sentence an 
election to take the standard deduction shall be considered his 
election not to pay the tax imposed by section 3, 
(2) If the adjusted gross income shown on the return is less than 
$5,000, the standard deduction shall be allowed only if the tax-
payer elects, in the manner provided in section 4, to pay the tax 
imposed by section 3. 
If the adjusted gross income shown on the 
return is less than $5,000, but the correct adjusted gross income is 
$5,000 or more, then an election by the taxpayer to pay the tax 
imposed by section 3 shall be considered as his election to take the 
standard deduction; and his failure to elect to pay the tax imposed 
by section 3 shall be considered his election not to take the standard 
deduction, 
(3) If the taxpayer on making his return fails to signify, in the 
manner provided by paragraph (1) or (2), his election to take the 
standard deduction or to pay the tax imposed by section 3, as the 
case may be, such failure shall be considered his election not to 
take the standard deduction. 
(b) CHANGE OF ELECTION.—Under regulations prescribed by the 
Secretary or his delegate, a change of an election for any taxable year 
to take, or not to take, the standard deduction, or to pay, or not to 
pay, the tax under section 3, may be made after the filing of the return 
for such year. 
If the spouse of the taxpayer filed a separate return 
for any taxable year corresponding, for purposes of section 142 (a), to 
the taxable year of the taxpayer, the change shall not be allowed 
unless, in accordance with such regulations— 
(1) the spouse makes a change of election with respect to the 
standard deduction for the taxable year covered in such separate 
§ 144(b)(1) 
49012°—54 
6 
42 
INTERNAL REVENUE CODE OF 1954 
return, consistent with the change of election sought by the tax-
payer, and 
(2) the taxpayer and his spouse consent in writing to the assess-
ment, within such period as may be agreed on with the Secretary 
or his delegate, of any deficiency, to the extent attributable to such 
change of election, even though at the time of the filing of such 
consent the assessment of such deficiency would otherwise be pre-
vented by the operation of any law or rule of law. 
This subsection shall not apply if the tax liability of the taxpayer's 
spouse, for the taxable year corresponding (for purposes of section 
142 (a)) to the taxable year of the taxpayer, has been compromised 
under section 7122. 
SEC. 145. CROSS REFERENCE. 
For disallowance of certain credits against the tax in the case of 
individuals electing the standard deduction, see section 36. 
PART V—DEDUCTIONS FOR PERSONAL EXEMPTIONS 
Sec. 151, Allowance of deductions for personal exemptions. 
Sec. 152. Dependent defined. 
Sec. 153. Determination of marital status. 
Sec. 154. Gross references. 
SEC. 151. ALLOWANCE 
OF DEDUCTIONS 
FOR PERSONAL 
EXEMP-
TIONS. 
(a) ALLOWANCE OF DEDUCTIONS.—In the case of an individual, the 
exemptions provided by this section shall be allowed as deductions in 
computing taxable income. 
(b) TAXPAYER AND SPOUSE.—An exemption of $600 for the tax-
payer; and an additional exemption of $600 for the spouse of the tax-
payer if a separate return is made by the taxpayer, and if the spouse, 
for the calendar year in which the taxable year of the taxpayer begins, 
has no gross income and is not the dependent of another taxpayer. 
(c) ADDITIONAL EXEMPTION FOR TAXPAYER OR SPOUSE AGED 65 
OR M O R E . — 
(1) FOR TAXPAYER.—An additional exemption of $600 for the 
taxpayer if he has attained the age of 65 before the close of his tax-
able year. 
(2) FOR SPOUSE.—An additional exemption of $600 for the 
spouse of the taxpayer if a separate return is made by the taxpayer, 
and if the spouse has attained the age of 65 before the close of such 
taxable year, and, for the calendar year in which the taxable year 
of the taxpayer begins, has no gross income and is not the depend-
ent of another taxpayer. 
(d) ADDITIONAL EXEMPTION 
FOR BLINDNESS OF TAXPAYER OR 
SPOUSE.— 
(1) FOR TAXPAYER.—An additional exemption of $600 for the 
taxpayer if he is blind at the close of his taxable year. 
(2) FOR SPOUSE.—An additional exemption of $600 for the spouse 
of the taxpayer if a separate return is made by the taxpayer, and 
if the spouse is blind and, for the calendar year in which the tax-
able year of the taxpayer begins, has no gross income and is not the 
dependent of another taxpayer. 
For purposes of this paragraph, 
the determination of whether the spouse is blind shall be made 
§ 144(b)(1) 
CH. 1 
NORMAL TAXES AND SURTAXES 
43 
as of the close of the taxable year of the taxpayer; except that 
if the spouse dies during such taxable year such determination shall 
be made as of the time of such death. 
(3) BLINDNESS DEFINED.—For purposes of this subsection, an 
individual is blind only if his central visual acuity does not exceed 
20/200 in the better eye with correcting lenses, o r if his visual 
acuity is greater than 20/200 but is accompanied by a limitation in 
the fields of vision such that the widest diameter of the visual field 
subtends an angle no greater than 20 degrees, 
(e) ADDITIONAL EXEMPTION FOR DEPENDENTS.— 
(1) I N GENERAL.—An exemption of $600 for each dependent (as 
defined in section 152)— 
(A) whose gross income for the calendar year in which the tax-
able year of the taxpayer begins is less than $600, or 
(B) who is a child of the taxpayer and who (i) has not attained 
the age of 19 at the close of the calendar year in which the tax-
able year of the taxpayer begins, or (ii) is a student. 
(2) EXEMPTION DENIED IN CASE OF CERTAIN MARRIED DEPEND-
ENTS.—No exemption shall be allowed under this subsection for 
any dependent who has made a joint return with his spouse under 
section 6013 for the taxable year beginning in the calendar year in 
which the taxable year of the taxpayer begins. 
(3) CHILD DEFINED.—For purposes of paragraph (1) (B), the 
term "child" means an individual who (within the meaning of sec-
tion 152) is a son, stepson, daughter, or stepdaughter of the tax-
payer. 
(4) STUDENT AND EDUCATIONAL INSTITUTION 
DEFINED.—For 
purposes of paragraph (1) (B) (ii), the term "student" means an 
individual who during each of 5 calendar months during the calendar 
year in which the taxable year of the taxpayer begins— 
(A) is a full-time student at an educational institution; or 
(B) is pursuing a full-time course of institutional on-farm 
training under the supervision of an accredited agent of an 
educational institution or of a State or political subdivision of a 
State. 
For purposes of this paragraph, the term "educational institution" 
means only an educational institution which normally maintains a 
regular faculty and curriculum and normally has a regularly 
organized body of students in attendance at the place where its 
educational activities are carried on. 
SEC. 152. DEPENDENT DEFINED. 
(a) GENERAL DEFINITION.—For purposes of this subtitle, the 
term "dependent" means any of the following individuals over half 
of whose support, for the calendar year in which the taxable year of 
the taxpayer begins, was received from the taxpayer (or is treated 
under subsection (c) as received from the taxpayer): 
(1) A son or daughter of the taxpayer, or a descendant of either, 
(2) A stepson or stepdaughter of the taxpayer, 
(3) A brother, sister, stepbrother, or stepsister of the taxpayer, 
(4) The father or mother of the taxpayer, or an ancestor of either, 
(5) A stepfather or stepmother of the taxpayer, 
(6) A son or daughter of a brother or sister of the taxpayer, 
§ 152(a)(6) 
44 
INTERNAL REVENUE CODE OF 1954 
(7) A brother or sister of the father or mother of the taxpayer, 
(8) A son-in-law, daughter-in-law, father-in-law, mother-in-law, 
brother-in-law, or sister-in-law of the taxpayer, 
(9) An individual who, for the taxable year of the taxpayer, has 
as his principal place of abode the home of the taxpayer and is a 
member o^the taxpayer's household, or 
(10) An individual who— 
(A) is a descendant of a brother or sister of the father or mother 
of the taxpayer, 
(B) for the taxable year of the taxpayer receives institutional 
care required by reason of a physical or mental disability, and 
(C) before receiving such institutional care, was a member of 
the same household as the taxpayer. 
(b) RULES RELATING TO GENERAL DEFINITION.—For purposes of 
this section— 
(1) The terms "brother" and "sister" include a brother or sister 
by the halfblood. 
(2) In determining whether any of the relationships specified in 
subsection (a) or paragraph (1) of this subsection exists, a legally 
adopted child of an individual shall be treated as a child of such 
individual by blood. 
(3) The term "dependent" does not include any individual who is 
not a citizen of the United States unless such individual is a 
resident of the United States, of a country contiguous to the United 
States, of the Canal Zone, or of the Republic of Panama. The pre-
ceding sentence shall not exclude from the definition of "dependent" 
any child of the taxpayer born to him, or legally adopted by him, in 
the Philippine Islands before July 5, 1946, if the child is a resident of 
the Republic of the Philippines, and if the taxpayer was a member of 
the Armed Forces of the United States at the time the child was 
born to him or legally adopted by him. 
(4) A payment to a wife which is includible in the gross income 
of the wife under section 71 or 682 shall not be treated as a payment 
by her husband for the support of any dependent. 
(c) MULTIPLE SUPPORT AGREEMENTS.—For purposes of subsection 
(a), over half of the support of an individual for a calendar year shall 
be treated as received from the taxpayer if— 
(1) no one person contributed over half of such support; 
(2) over half of such support was received from persons each of 
whom, but for the fact that he did not contribute over half of such 
support, would have been entitled to claim such individual as a 
dependent for a taxable year beginning in such calendar year; 
(3) the taxpayer contributed over 10 percent of such support; and 
(4) each person described in paragraph (2) (other than the tax-
payer) who contributed over 10 percent of such support files a 
written declaration (in such manner and form as the Secretary or 
his delegate may by regulations prescribe) that he will not claim 
such individual as a dependent for any taxable year beginning in 
such calendar year. 
(d) SPECIAL SUPPORT TEST IN CASE OF STUDENTS.—For purposes 
of subsection (a), in the case of any individual who is— 
i;j \>a! •' 
' 
sol; "lo ftnK A {i'^) 
§ 152(a)(7) 
' 
CH. 1—NORMAL TAXES AND SURTAXES 
45 
(1) a son, stepson, daughter, or stepdaughter of the taxpayer 
(within the meaning of this section), and 
(2) a student (within the meaning of section 151 (e) (4)), 
amounts received as scholarships for study at an educational institu-
tion (as defined in section 151 (e) (4)) shall not be taken into account 
in determining whether such individual received more than half of his 
support from the taxpayer. 
SEC. 153. DETERMINATION OF MARITAL STATUS. 
For purposes of this part— 
(1) The determination of whether an individual is married shall 
be made as of the close of his taxable year; except that if his spouse 
dies during his taxable year such determination shall be made as 
of the time of such death; and 
(2) An individual legally separated from his spouse under a 
decree of divorce or of separate maintenance shall not be considered 
as married. 
SEC. 154. CROSS REFERENCES. 
(1) For definitions of "husband" and "wife", as used in section 
152 (b) (4), see section 7701 (a) (17). 
(2) For deductions of estates and trusts, in lieu of the exemptions 
under section 151, see section 642 (b). 
(3) For exemptions of nonresident aliens, see section 873 (d). 
(4) For exemptions of citizens deriving income mainly from sources 
within possessions of the United States, see section 931 (e). 
PART VI—ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND 
CORPORATIONS 
, , 
Sec. 161. Allowance of deductions. 
Sec. 162. Trade or business expenses. 
Sec. 163. Interest. 
'•3 
Sec. 164. Taxes. 
Sec. 165. Losses. 
Sec. 166. Bad debts. 
Sec. 167. Depreciation. 
Sec. 168. Amortization of emergency facilities. 
Sec. 169. Amortization of grain-storage facilities. 
Sec. 170. Charitable, etc., contributions and gifts. 
Sec. 171. Amortizabie bond premium. 
See. 172. Net operating loss deduction. 
Sec. 173. Circulation expenditures. 
Sec. 174. Research and experimental expenditures. 
Sec. 175. Soil and water conservation expenditures. 
SEC. 161. ALLOWANCE OF DEDUCTIONS. 
In computing taxable income under section 63 (a), there shall be 
allowed as deductions the items specified in this part, subject to the 
exceptions provided in part IX (sec. 261 and following, relating to 
items not deductible). 
SEC. 162. TRADE OR BUSINESS EXPENSES. 
(a) I N GENERAL.—There shall be allowed as a deduction all the 
ordinary and necessary expenses paid or incurred diu*ing the taxable 
year in carrying on any trade or business, including— 
(1) a reasonable allowance for salaries or other compensation for 
personal services actually rendered; 
§ 162(a)(1) 
46 
INTERNAL REVENUE CODE OF 1954 
(2) traveling expenses (including the entire amount expended for 
meals and lodging) while away from home in the pursuit of a trade 
or business; and 
(3) rentals or other payments required to be made as a condition 
to the continued use or possession, for purposes of the trade or busi-
ness, of property to which the taxpayer has not taken or is not 
taking title or in which he has no equity. 
For purposes of the preceding sentence, the place of residence of a 
Member of Congress (including any Delegate and Kesident Commis-
sioner) within the State, congressional district. Territory, or possession 
which he represents in Congress shall be considered his home, but 
amounts expended by such Members within each taxable year for 
living expenses shall not be deductible for income tax purposes in 
excess of $3,000. 
(b) CHARITABLE CONTRIBUTIONS AND GIFTS EXCEPTED.—No de-
duction shall be allowed under subsection (a) for any contribution or 
gift which would be allowable as a deduction under section 170 were 
it not for the percentage limitations, or the requirements as to the time 
of payment, set forth in such section. 
(c) CROSS REFERENCE.— 
' 
For special rule relating to expenses in connection with subdividing 
real property for sale, see section 1237. 
SEC. 163. INTEREST. 
(a) GENERAL RULE.—There shall be allowed as a deduction all 
interest paid or accrued within the taxable year on indebtedness. 
(b) INSTALLMENT PURCHASES WHERE INTEREST CHARGE I S N O T 
SEPARATELY STATED.— 
(1) GENERAL RULE.—If personal property is purchased under a 
contract— 
(A) which provides that payment of part or all of the purchase 
price is to be made in installments, and 
(B) in which carrying charges are separately stated but the 
interest charge cannot be ascertained, 
then the payments made during the taxable year under the contract 
shall be treated for purposes of this section as if they included 
interest equal to 6 percent of the average unpaid balance under 
the contract during the taxable year. For purposes of the preceding 
sentence, the average unpaid balance is the sum of the unpaid 
balance outstanding on the first day of each month beginning dur-
ing the taxable year, divided by 12. 
(2) LIMITATION.—In the case of any contract to which para-
graph (1) applies, the amount treated as interest for any taxable 
year shall not exceed the aggregate carrying charges which are 
properly attributable to such taxable year. 
(c) CROSS REFERENCES.— 
(1) For disallowance of certain amounts paid in connection with 
insurance, endowment, or annuity contracts, see section 264. 
(2) For disallowance of deduction for interest relating to tax-exempt 
income, see section 265 (2). 
(3) For disallowance of deduction for carrying charges chargeable 
to capital account, see section 266. 
(4) For disallowance of interest with respect to transactions between 
related taxpayers, see section 267. 
1162(a)(2) 
CH. 1—NORMAL TAXES AND SURTAXES 
47 
SEC. 164. TAXES. 
(a) GENERAL RULE.—Except as otherwise provided in this section, 
there shall be allowed as a deduction taxes paid or accrued within the 
taxable year. 
(b) DEDUCTION DENIED IN CASE OP CERTAIN TAXES.—No deduc-
tion shall be allowed for the following taxes: 
(1) Federal income taxes, including— 
(A) the tax imposed by section 3101 (relating to the tax on em-
ployees under the Federal Insurance Contributions Act); 
(B) the taxes imposed by sections 3201 and 3211 (relating to 
the taxes on railroad employees and railroad employee representa-
tives) ; and 
(C) the tax withheld at source on wages under section 3402, 
and corresponding provisions of prior revenue laws. 
(2) Federal war profits and excess profits taxes. 
(3) Federal import duties, and Federal excise and stamp taxes 
(not described in paragraph (1), (2), (4), or (5)); but this paragraph 
shall not prevent such duties and taxes from being deducted under 
section 162 (relating to trade or business expenses) or section 212 
(relating to expenses for the production of income). 
(4) Estate, inheritance, legacy, succession, and gift taxes. 
(5) Taxes assessed against local benefits of a kind tending to 
increase the value of the property assessed; but this paragraph shall 
not prevent— 
(A) the deduction of so much of such taxes as is properly 
allocable to maintenance or interest charges; or 
(B) the deduction of taxes levied by a special taxing district 
if— 
(i) the district covers the whole of at least one county; 
(ii) at least 1,000 persons are subject to the taxes levied by 
the district; and 
(iii) the district levies its assessments annually at a uniform 
rate on the same assessed value of real property, including 
improvements, as is used for purposes of the real property tax 
' : 
generally. 
(6) Income, war profits, and excess profits taxes imposed by the 
authority of any foreign country or possession of the United States, 
if the taxpayer chooses to take to any extent the benefits of section 
901 (relating to the foreign tax credit). 
(7) Taxes on real property, to the extent that subsection (d) 
requires such taxes to be treated as imposed on another taxpayer. 
(c) CERTAIN RETAIL SALES TAXES AND GASOLINE TAXES.— 
(1) GENERAL RULE.—In the case of any State or local sales tax, 
if the amount of the tax is separately stated, then, to the extent that 
the amount so stated is paid by the consumer (otherwise than in 
connection with the consumer's trade or business) to his seller, such 
amount shall be allowed as a deduction to the consumer as if it 
constituted a tax imposed on, and paid by, such consumer. 
(2) DEEINITIGN.—For purposes of paragraph (1), the term 
"State or local sales tax" means a tax imposed by a State, a Terri-
tory, a possession of the United States, or a political subdivision 
of any of the foregoing, or by the District of Columbia, which tax— 
1164(c)(2) 
48 
INTERNAL REVENUE CODE OF 1954 
(A) is imposed on persons engaged in selling tangible personal 
property at retail (or on persons selling gasoline or other motor 
vehicle fuels at wholesale or retail) and is a stated sum per unit 
of property sold or is measured either by the gross sales price 
or by the gross receipts from the sale; or 
(B) is imposed on persons engaged in furnishing services at 
retail and is measured by the gross receipts for furnishing such 
services. 
(d) APPOETIONMENT OP TAXES ON REAL PROPERTY BETWEEN 
SELLER AND PURCHASER.— 
(1) GENERAL RULE.—For purposes of subsection (a), if real 
property is sold during any real property tax year, then— 
(A) so much of the real property tax as is properly allocable 
to that part of such year which ends on the day before the date 
of the sale shall be treated as a tax imposed on the seller, and 
(B) so much of such tax as is properly allocable to that part 
of such year which begins on the date of the sale shall be treated 
as a tax imposed on the purchaser. 
(2) SPECIAL RULES.— 
(A) In the case of any sale of real property, if— 
(i) a taxpayer may not, by reason of his method of account-
ing, deduct any amount for taxes unless paid, and 
(ii) the other party to the sale is (under the law imposing the 
real property tax) liable for the real property tax for the real 
property tax year, 
then for purposes of subsection (a) the taxpayer shall be treated 
as having paid, on the date of the sale, so much of such tax as, 
under paragraph (1) of this subsection, is treated as imposed on 
the taxpayer. 
For purposes of the preceding sentence, if neither 
party is liable for the tax, then the party holding the property 
at the time the tax becomes a lien on the property shall be 
considered liable for the real property tax for the real property 
tax year. 
(B) Paragraph (1) shall apply to taxable years ending after 
December 31, 1953, but only in the case of sales after December 
31, 1953. 
(C) Paragraph (1) shall not apply to any real property tax, to 
the extent that such tax was allowable as a deduction under the 
Internal Revenue Code of 1939 to the seller for a taxable year 
which ended before January 1, 1954. 
(D) In the case of any sale of real property, if the taxpayer's 
taxable income for the taxable year during which the sale occurs 
is computed under an accrual method of accounting, and if no 
election under section 461 (c) (relating to the accrual of real 
property taxes) applies, then, for purposes of subsection (a), that 
portion of such tax which— 
(i) is treated, under paragraph (1) of this subsection, as 
imposed on the taxpayer, and 
(ii) may not, by reason of the taxpayer's method of account-
ing, be deducted by the taxpayer for any taxable year, 
shall be treated as having accrued on the date of the sale. 
§ 164(c)(2)(A) 
. 
CH. 1 
NORMAL TAXES AND SURTAXES 
49 
(e) TAXES OF SHAREHOLDER PAID BY CORPORATION.—Where a 
corporation pays a tax imposed on a shareholder on his interest as a 
shareholder, and where the shareholder does not reimburse the 
corporation, then— 
(1) the deduction allowed by subsection (a) shall be allowed to 
the corporation; and 
(2) no deduction shall be allowed the shareholder for such tax. 
(f) CROSS REFERENCE.— 
For provisions disallowing any deduction for the payment of the 
tax imposed by subchapter B of chapter 3 (relating to tax-free covenant 
bonds) see section 1451 (f). 
SEC. 165. LOSSES. 
(a) GENERAL RULE.—There shall be allowed as a deduction any 
loss sustained during the taxable year and not compensated for by 
insurance or otherwise. 
(b) AMOUNT OF DEDUCTION.—For purposes of subsection (a), the 
basis for determining the amount of the deduction for any loss shall 
be the adjusted basis provided in section 1011 for determining the loss 
from the sale or other disposition of property. 
(c) LIMITATION ON LOSSES OF INDIVIDUALS.—In the case of an 
individual, the deduction under subsection (a) shall be limited to— 
(1) losses incurred in a trade or business; 
(2) losses incurred in any transaction entered into for profit, 
though not connected with a trade or business; and 
(3) losses of property not connected with a trade or business, if 
such losses arise from fire, storm, shipwreck, or other casualty, or 
from theft. 
No loss described in this paragraph shall be allowed 
if, at the time of the filing of the return, such loss has been claimed 
for estate tax purposes in the estate tax return. 
(d) WAGERING LOSSES.—Losses from wagering transactions shall 
be allowed only to the extent of the gains from such transactions. 
(e) THEFT LOSSES.—For purposes of subsection (a), any loss arising 
from theft shall be treated as sustained during the taxable year in 
which the taxpayer discovers such loss. 
(f) CAPITAL LOSSES.—Losses from sales or exchanges of capital as-
sets shall be allowed only to the extent allowed in sections 1211 and 1212. 
(g) WORTHLESS SECURITIES,— 
(1) GENERAL RULE.—If any security which is a capital asset be-
comes worthless during the taxable year, the loss resulting there-
from shall, for purposes of this subtitle, be treated as a loss from the 
sale or exchange, on the last day of the taxable year, of a capital 
asset. 
(2) SECURITY DEFINED.—For purposes of this subsection, the 
term "security" means— 
(A) a share of stock in a corporation; 
(B) a right to subscribe for, or to receive, a share of stock in a 
corporation; or 
(C) a bond, debenture, note, or certificate, or other evidence 
jf, 
of indebtedness, issued by a corporation or by a government or 
political subdivision thereof, with interest coupons or in registered 
/ 
form. 
§ 165(g)(2)(C) 
50 
INTERNAL REVENUE CODE OF 1954 
(3) SECURITIES IN AFFILIATED CORPORATION.—For purposes of 
paragraph (1), any security in a corporation affiliated with a tax-
payer which is a domestic corporation shall not be treated as a 
capital asset. 
For purposes of the preceding sentence, a corporation 
shall be treated as affiliated with the taxpayer only if— 
(A) at least 95 percent of each class of its stock is owned di-
rectly by the taxpayer, and 
(B) more than 90 percent of the aggregate of its gross receipts 
for all taxable years has been from sources other than royalties, 
rents (except rents derived from rental from properties to em-
ployees of the corporation in the ordinary course of its operating 
business), dividends, interest (except interest received on de-
ferred purchase price of operating assets sold), annuities, and 
gains from sales or exchanges of stocks and securities. 
In computing gross receipts for purposes of the preceding sentence, 
gross receipts from sales or exchanges of stocks and securities shall 
be taken into account only to the extent of gains therefrom, 
(h) CROSS REFERENCES.— 
(1) For special rule for banks with respect to worthless securities; 
see section 582. 
(2) For disallowance of deduction for worthlessness of securities to 
which subsection (g) (2) (C) applies, if issued by a political party or 
similar organization, see section 271. 
SEC. 166. BAD DEBTS. 
(a) GENERAL R U L E . — 
(1) WHOLLY WORTHLESS DEBTS.—There shall be allowed as a 
deduction any debt which becomes worthless within the taxable 
year. 
(2) PARTIALLY WORTHLESS DEBTS.—When satisfied that a debt 
is recoverable only in part, the Secretary or his delegate may allow 
such debt, in an amount not in excess of the part charged off within 
the taxable year, as a deduction. 
(b) AMOUNT OF DEDUCTION.—For purposes of subsection (a), the 
basis for determining the amount of the deduction for any bad debt 
shall be the adjusted basis provided in section 1011 for determining the 
loss from the sale or other disposition of property. 
(c) RESERVE FOR BAD DEBTS.—In lieu of any deduction under 
subsection (a), there shall be allowed (in the discretion of the Secretary 
or his delegate) a deduction for a reasonable addition to a reserve for 
bad debts. 
(d) NONBUSINESS DEBTS.— 
(1) GENERAL RULE.—In the case of a taxpayer other than a 
corporation— 
(A) subsections (a) and (c) shall not apply to any nonbusiness 
debt; and 
(B) where any nonbusiness debt becomes worthless within the 
taxable year, the loss resulting therefrom shall be considered a 
loss from the sale or exchange, during the taxable year, of a capital 
asset held for not more than 6 months. 
(2) NONBUSINESS DEBT DEFINED.—For purposes of paragraph 
(1), the term "nonbusiness debt" means a debt other than— 
(A) a debt created or acquired (as the case may be) in con-
nection with a taxpayer's trade or business; or 
§ 165(g)(3) 
CH. 1 
NORMAL TAXES AND SURTAXES 
51 
(B) a debt the loss from the worthlessness of which is incurred 
in the taxpayer's trade or business. 
(e) WORTHLESS SECURITIES.—This section shall not apply to a 
debt which is evidenced by a security as defined in section 165 (g) 
(2) (C). 
(f) GUARANTOR OP CERTAIN 
NONCORPORATE OBLIGATIONS.—A 
payment by the taxpayer (other than a corporation) in discharge of 
part or all of his obligation as a guarantor, endorser, or indemnitor of 
a noncorporate obligation the proceeds of which were used in the 
trade or business of the borrower shall be treated as a debt becoming 
worthless within such taxable year for purposes of this section (except 
that subsection (d) shall not apply), but only if the obligation of the 
borrower to the person to whom such payment was made was worth-
less (without regard to such guaranty, endorsement, or indemnity) at 
the time of such payment. 
(g) CROSS REFERENCES.— 
(1) For disallowance of deduction for worthlessness of debts owed by 
political parties and similar organizations, see section 271. 
(2) For special rule for banks with respect to worthless securities, see 
section 582. 
(3) For special rule for bad debt reserves of certain mutual savings 
banks, domestic building and loan associations, and cooperative banks, 
see section 593. 
SEC. 167. DEPRECIATION. 
(a) GENERAL RULE.—There shall be allowed as a depreciation 
deduction a reasonable allowance for the exhaustion, wear and tear 
(including a reasonable allowance for obsolescence)— 
(1) of property used in the trade or business, or 
(2) of property held for the production of income. 
(b) U S E OF CERTAIN METHODS AND RATES.—For taxable years 
ending after December 31, 1953, the term "reasonable allowance" as 
used in subsection (a) shall include (but shall not be limited to) an 
allowance computed in accordance with regulations prescribed by the 
Secretary or his delegate, under any of the following methods: 
(1) the straight line method, 
(2) the declining balance method, using a rate not exceeding 
twice the rate which would have been used had the annual allow-
ance been computed under the method described in paragraph (1), 
(3) the sum of the years-digits method, and 
(4) any other consistent method productive of an annual allow-
ance which, when added to all allowances for the period commencing 
with the taxpayer's use of the property and including the taxable 
year, does not, during the first two-thirds of the useful life of the 
property, exceed the total of such allowances which would have 
been used had such allowances been computed under the method 
described in paragraph (2). 
Nothing in this subsection shall be construed to Hmit or reduce an 
allowance otherwise allowable under subsection (a). 
(c) LIMITATIONS ON U S E OF CERTAIN METHODS AND RATES.—• 
Paragraphs (2), (3), and (4) of subsection (b) shall apply only in the 
case of property (other than intangible property) described in sub-
section (a) with a useful life of 3 years or more— 
§ 167(c) 
52 
INTERNAL REVENUE CODE OF 
1954 
(1) the construction, reconstruction, or erection of which is com-
pleted after December 31, 1953, and then only to that portion of 
the basis which is properly attributable to such construction, recon-
struction, or erection after December 31, 1953, or 
(2) acquired after December 31, 1953, if the original use of such 
property commences with the taxpayer and commences after such 
date. 
(d) AGREEMENT AS TO USEFUL L I F E ON WHICH DEPRECIATION 
RATE I S BASED.—Where, under regulations prescribed by the Secretary 
or his delegate, the taxpayer and the Secretary or his delegate have, 
after the date of enactment of this title, entered into an agreement in 
writing specifically dealing with the useful life and rate of depreciation 
of any property, the rate so agreed upon shall be binding on both 
the taxpayer and the Secretary in the absence of facts or circumstances 
not taken into consideration in the adoption of such agreement. 
The responsibility of establishing the existence of such facts and 
circumstances shall rest with the party initiating the modification. 
Any change in the agreed rate and useful life specified in the agreement 
shall not be effective for ta;xable years before the taxable year in which 
notice in writing by registered mail is served by the party to the agree-
ment initiating such change. 
(e) CHANGE IN METHOD.—In the absence of an agreement under 
subsection (d) containing a provision to the contrary, a taxpayer may 
at any time elect in accordance with regulations prescribed by the 
Secretary or his delegate to change from the method of depreciation 
described in subsection (b) (2) to the method described in subsection 
(b) (1). 
(f) BASIS FOR DEPRECIATION.—The basis on which exhaustion, 
wear and tear, and obsolescence are to be allowed in respect of any 
property shall be the adjusted basis provided in section 1011 for the 
purpose of determining the gain on the sale or other disposition of 
such property. 
(g) L I F E TENANTS AND BENEFICIARIES OF TRUSTS AND ESTATES.— 
In the case of property held by one person for life with remainder to 
another person, the deduction shall be computed as if the life tenant 
were the absolute owner of the property and shall be allowed to the 
life tenant. 
In the case of property held in trust, the allowable deduc-
tion shall be apportioned between the income beneficiaries and the 
trustee in accordance with the pertinent provisions of the instrument 
creating the trust, or, in the absence of such provisions, on the basis 
of the trust income allocable to each. In the case of an estate, the al-
lowable deduction shall be apportioned between the estate and the 
heirs, legatees, and devisees on the basis of the income of the estate al-
locable to each. 
(h) DEPRECIATION OF IMPROVEMENTS IN THE CASE OF M I N E S , 
ETC.— 
For additional rule applicable to depreciation of improvements in the 
case of mines, oil and gas wells, other natural deposits, and timber, see 
section 611. 
SEC. 168. AMORTIZATION OF EMERGENCY FACILITIES. 
(a) GENERAL RULE.—Every person, at his election, shall be en-
titled to a deduction with respect to the amortization of the adjusted 
§ 167(c)(1) 
^ 
CH. 1—NORMAL TAXES AND SURTAXES 
53 
basis (for determining gain) of any emergency facility (as defined 
in subsection (d)), based on a period of 60 months. 
Such amor-
tization deduction shall be an amount, with respect to each month 
of such period within the taxable year, equal to the adjusted basis of 
the facility at the end of such month divided by the number of months 
(including the month for which the deduction is computed) remaining 
in the period. 
Such adjusted basis at the end of the month shall 
be computed without regard to the amortization deduction for such 
month. 
The amortization deduction above provided with respect to 
any month shall, except to the extent provided in subsection (f), be 
in lieu of the depreciation deduction with respect to such facility for 
such month provided by section 167. The 60-month period shall 
begin as to any emergency facility, at the election of the taxpayer, 
with the month following the month in which the facility was com-
pleted or acquired, or with the succeeding taxable year. 
(b) ELECTION OF AMORTIZATION.—The election of the taxpayer to 
take the amortization deduction and to begin the 60-month period 
with the month following the month in which the facility was com-
pleted or acquired, or with the taxable year succeeding the taxable 
year in which such facility was completed or acquired, shall be made 
by filing with the Secretary or his delegate, in such manner, in such 
form, and within such time, as the Secretary or his delegate may by 
regulations prescribe, a statement of such election. 
(c) TERMINATION 
OF AMORTIZATION 
DEDUCTION.—A 
taxpayer 
which has elected under subsection (b) to take the amortization 
deduction provided in subsection (a) may, at any time after making 
such election, discontinue the amortization deduction with respect to 
the remainder of the amortization period, such discontinuance to be-
gin as of the beginning of any month specified by the taxpayer in a 
notice in writing filed with the Secretary or his delegate before the 
beginning of such month. 
The depreciation deduction provided under 
section 167 shall be allowed, beginning with the first month as to which 
the amortization deduction does not apply, and the taxpayer shall 
not be entitled to any further amortization deduction with respect to 
such emergency facility. 
(d) DEFINITIONS.— 
(1) EMERGENCY FACILITY.—For purposes of this section, the 
term "emergency facility" means any facility, land, building, ma-
chinery, or equipment, or any part thereof, the construction, recon-
struction, erection, installation, or acquisition of which was com-
pleted after December 31, 1949, and with respect to which a certifi-
cate under subsection (e) has been made. In no event shall an 
amortization deduction be allowed in respect of any emergency 
facility for any taxable year unless a certificate in respect thereof 
under this paragraph shall have been made before the filing of the 
taxpayer's return for such taxable year. 
(2) EMERGENCY PERIOD.—For purposes of this section, the term 
"emergency period" means the period beginning January 1, 1950, 
and ending on the date on which the President proclaims that the 
utilization of a substantial portion of the emergency facilities with 
respect to which certifications under subsection (e) have been made 
is no longer required in the interest of national defense. 
§ 168(d)(2) 
54 
INTERNAL REVENUE CODE OF 1954 
/ 
(e) DETERMINATION OF ADJUSTED BASIS OF EMERGENCY FACIL-
ITY.—In determining, for purposes of subsection (a) or (g), the 
adjusted basis of an emergency facility— 
(1) There shall be included only so much of the amount of the 
adjusted basis of such facility (computed without regard to this 
section) as is properly attributable to such construction, recon-
struction, erection, installation, or acquisition after December 31, 
1949, as the certifying authority, designated by the President by 
Executive Order, has certified as necessary in the interest of na-
tional defense during the emergency period, and only such portion 
of such amount as such authority has certified as attributable to 
defense purposes. 
Such certification shall be under such regula-
tions as may be prescribed from time to time by such certifying 
authority with the approval of the President. 
An application for 
a certificate must be filed at such time and in such manner as may 
be prescribed by such certifying authority under such regulations, 
but in no event shall such certificate have any effect unless an 
application therefor is filed before March 24, 1951, or before the 
expiration of 6 months after the beginning of such construction, 
reconstruction, erection, or installation or the date of such acqui-
sition, whichever is later. 
(2) After the completion or acquisition of any emergency facility 
with respect to which a certificate under paragraph (1) has been 
made, any expenditure (attributable to such facility and to the 
period after such completion or acquisition) which does not repre-
sent construction, reconstruction, erection, installation, or acqui-
sition included in such certificate, but with respect to which a 
separate certificate is made under paragraph (1), shall not be 
applied in adjustment of the basis of such facility, but a separate 
basis shall be computed therefor pursuant to paragraph (1) as if it 
were a new and separate emergency facility. 
(f) DEPRECIATION DEDUCTION.—If the adjusted 
basis of 
the 
emergency facility (computed without regard to this section) is in 
excess of the adjusted basis computed under subsection (e), the depre-
ciation deduction provided by section 167 shall, despite the provisions 
of subsection (a) of this section, be allowed with respect to such emer-
gency facility as if its adjusted basis for the purpose of such deduction 
were an amount equal to the amount of such excess. 
(g) 
PAYMENT BY UNITED STATES OF UNAMORTIZED COST 
OF 
FACILITY.—If an amount is properly includible in the gross income of 
the taxpayer on account of a payment with respect to an emergency 
facility and such payment is certified as provided in paragraph (1), 
then, at the election of the taxpayer in its return for the taxable year 
in which such amount is so includible— 
(1) The amortization deduction for the month in which such 
amount is so includible shall (in lieu of the amount of the deduction 
for such month computed under subsection (a)) be equal to the 
amount so includible but not in excess of the adjusted basis of the 
emergency facility as of the end of such month (computed without 
regard to any amortization deduction for such month). 
Payments 
referred to in this subsection shall be payments the amounts of 
which are certified, under such regulations as the President may 
§ 168(e) 
CH. 1—NORMAL TAXES AND SURTAXES 
55 
prescribe, by the certifying authority designated by the President 
as compensation to the taxpayer for the unamortized cost of the 
emergency facihty made because— 
(A) a contract with the United States involving the use of the 
facihty has been terminated by its terms or by cancellation, or 
(B) the taxpayer had reasonable ground (either from provisions 
of a contract with the United States involving the use of the 
facility, or from written or oral representations made under 
authority of the United States) for anticipating future contracts 
involving the use of the facUity, which future contracts have not 
been made. 
(2) In case the taxpayer is not entitled to any amortization 
deduction with respect to the emergency facility, the depreciation 
deduction allowable under section 167 on account of the month in 
which such amount is so includible shall be increased by such 
amount, but such deduction on account of such month shall not be 
in excess of the adjusted basis of the emergency facility as of the 
end of such month (computed without regard to any amount allow-
able, on account of such month, under section 167 or this para-
graph). 
(h) L I F E TENANT AND REMAINDEEMAN.—In the case of property 
held by one person for life with remainder to another person, the 
deduction shall be computed as if the life tenant were the absolute 
owner of the property and shall be allowable to the life tenant, 
(i) CROSS REFERENCE.— 
For special rule with respect to gain derived from the sale or exchange 
of property the adjusted basis of which is determined with regard to 
this section, see section 1238. 
SEC. 169. AMORTIZATION OF GRAIN-STORAGE FACILITIES. 
(a) ALLOWANCE O F D E D U C T I O N . — 
(1) ORIGINAL OWNER.—Any person who constructs, reconstructs, 
or erects a grain-storage facUity (as defined in subsection (d)) 
shall, at his election, be entitled to a deduction with respect to the 
amortization of the adjusted basis (for determining gain) of such 
facility based on a period of 60 months. The 60-month period 
shall begin as to any such facility, at the election of the taxpayer, 
with the month following the month in which the facility was com-
pleted, or with the succeeding taxable year. 
(2) SUBSEQUENT OWNERS.—Any person who acquires a grain-
storage facility from a taxpayer who— 
(A) elected under subsection (b) to take the amortization 
deduction provided by this subsection with respect to such 
facility, and 
(B) did not discontinue the amortization deduction pursuant 
to subsection (c), 
shall, at his election, be entitled to a deduction with respect to 
the adjusted basis (determined under subsection (e) (2)) of such 
facility based on the period, if any, remaining (at the time of 
acquisition) in the 60-month period elected under subsection (b) 
by the person who constructed, reconstructed, or erected such 
facUity. 
§ 169(a)(2) 
56 
INTERNAL REVENUE CODE OF 1954 
(3) AMOUNT 
OF DEDUCTION.—The 
amortization 
deduction 
provided in paragraphs (1) and (2) shall be an amount, with respect 
to each month of the amortization period within the taxable year, 
equal to the adjusted basis of the facility at the end of such month, 
divided by the number of months (including the month for which 
the deduction is computed) remaining in the period. Such adjusted 
basis at the end of the month shall be computed without regard 
to the amortization deduction for such month. The amortization 
deduction above provided with respect to any month shall be in 
lieu of the depreciation deduction with respect to such facility for 
such month provided by section 167. 
(b) ELECTION OF AMOETIZATION.—The election of the taxpayer 
under subsection (a) (1) to take the amortization deduction and to 
begin the 60-month period with the month following the month in 
which the facUity was completed shall be made only by a statement to 
that effect in the return for the taxable year in which the facility was 
completed. The election of the taxpayer under subsection (a) (1) 
to take the amortization deduction and to begin such period with 
the taxable year succeeding such year shall be made only by a state-
ment to that effect in the return for such succeeding taxable year. 
The election of the taxpayer under subsection (a) (2) to take the 
amortization deduction shall be made only by a statement to that 
effect in the return for the taxable year in which the facility was 
acquired. 
Notwithstanding the preceding three sentences, the 
election of the taxpayer under subsection (a) (1) or (2) may be 
made, under such regulations as the Secretary or his delegate may 
prescribe, before the time prescribed in the applicable sentence. 
(c) TERMINATION OF AMORTIZATION DEDUCTION.—A 
taxpayer 
which has elected under subsection (b) to take the amortization de-
duction provided in subsection (a) may, at any time after making such 
election, discontinue the amortization deduction with respect to the 
remainder of the amortization period, such discontinuance to begin 
as of the beginning of any month specified by the taxpayer in a notice 
in writing filed with the Secretary or his delegate before the beginning 
of such month. The depreciation deduction provided under section 
167 shall be allowed, beginning with the first month as to which the 
amortization deduction does not apply, and the taxpayer shall not be 
entitled to any further amortization deduction with respect to such 
facility. 
(d) DEFINITION OF GRAIN-STORAGE FACILITY.—For purposes of 
this section, the term "grain-storage facility" means— 
(1) any corn crib, grain bin, or grain elevator, or any similar 
structure suitable primarily for the storage of grain, which crib, 
bin, elevator, or structure is intended by the taxpayer at the time 
of his election to be used for the storage of grain produced by him 
(or, if the election is made by a partnership, produced by the mem-
bers thereof); and 
(2) any public grain warehouse permanently equipped for receiv-
ing, elevating, conditioning, and loading out grain, 
the construction, reconstruction, or erection of which was completed 
after December 31, 1952, and on or before December 31, 1956. If any 
structure described in clause (1) or (2) of the preceding sentence is 
§ 169(a)(3) 
CH, 1—NORMAL TAXES AND SURTAXES 
57 
altered or remodeled so as to increase its capacity for the storage of 
grain, or if any structure is converted, through alteration or remodel-
ing, into a structure so described, and if such alteration or remodeling 
was completed after December 31, 1952, and on or before December 
31,1956, such alteration or remodeling shall be treated as the construc-
tion of a grain-storage facility. 
The term "grain-storage facility" 
shall include only property of a character which is subject to the allow-
ance for depreciation provided in section 167, 
The term "grain-
storage facility" shall not include any facility any part of which is an 
emergency facility within the meaning of section 168 of this title. 
(e) DETERMINATION OF ADJUSTED BASIS.— 
(1) ORIGINAL OWNERS.—For purposes of subsection (a) (1)— 
(A) in determining the adjusted basis of any grain-storage facil-
ity, the construction, reconstruction, or erection of which was be-
gun before January 1, 1953, there shall be included only so much 
of the amount of the adjusted basis (computed without regard to 
this subsection) as is properly attributable to such construction, 
reconstruction, or erection after December 31, 1952; and 
(B) in determining the adjusted basis of any facility which is 
a grain-storage facility within the meaning of the second sentence 
of subsection (d), there shall be included only so much of the 
amount otherwise included in such basis as is properly attribut-
able to the alteration or remodeling. 
If any existing grain-storage facility as defined in the first sen-
tence of subsection (d) is altered or remodeled as provided in the 
second sentence of subsection (d), the expenditures for such re-
modeling or alteration shall not be applied in adjustment of the 
basis of such existing facility but a separate basis shall be computed 
, in respect of such facility as if the part altered or remodeled were 
a new and separate grain-storage facility. 
(2) SUBSEQUENT OWNERS.—For purposes of subsection (a) (2), 
the adjusted basis of any grain-storage facility shall be whichever 
of the following amounts is the smaller: 
(A) The basis (unadjusted) of such facility for purposes of this 
section in the hands of the transferor, donor, or grantor, adjusted 
as if such facility in the hands of the taxpayer had a substituted 
basis within the meaning of section 1016 (b), or 
(B) so much of the adjusted basis (for determining gain) of the 
facility in the hands of the taxpayer (as computed without regard 
to this subsection) as is properly attributable to construction, re-
construction, or erection after December 31, 1952. 
(f) DEPRECIATION DEDUCTION.—If the adjusted basis of the grain-
storage facility (computed without regard to subsection (e)) exceeds 
the adjusted basis computed under subsection (e), the depreciation 
deduction provided by section 167 shall, despite the provisions of sub-
section (a) (3) of this section, be allowed with respect to such grain-
storage facility as if the adjusted basis for the purpose of such 
deduction were an amount equal to the amount of such excess. 
(g) L I F E TENANT AND REMAINDERMAN.—In the case of property 
held by one person for life with remainder to another person, the 
amortization deduction provided in subsection (a) shall be computed 
as if the life tenant were the absolute owner of the property and shall 
be allowed to the life tenant. 
§ 169(g) 
49012°—54 
7 
58 
INTERNAL REVENUE CODE OF 1954 
SEC. 170. CHARITABLE, ETC., CONTRIBUTIONS AND GIFTS. 
(a) ALLOWANCE OF D E D U C T I O N , — 
(1) GENERAL RULE.—There shall be allowed as a deduction any 
charitable contribution (as defined in subsection (c)) payment of 
which is made within the taxable year. A charitable contribution 
shall be allowable as a deduction only if verified under regulations 
prescribed by the Secretary or his delegate. 
(2) CORPORATIONS ON ACCRUAL BASIS.—In the case of a corpora-
tion reporting its taxable income on the accrual basis, if— 
(A) the board of directors authorizes a charitable contribution 
during any taxable year, and 
(B) payment of such contribution is made after the close of 
such taxable year and on or before the 15th day of the third 
month following the close of such taxable year, 
then the taxpayer may elect to treat such contribution as paid 
during such taxable year. The election may be made only at the 
time of the filing of the return for such taxable year, and shall be 
signified in such manner as the Secretary or his delegate shall by 
regulations prescribe. 
(b) LIMITATIONS.— 
(1) INDIVIDUALS.—In the case of an individual the deduction 
provided in subsection (a) shall be limited as provided in sub-
paragraphs (A), (B), (C), and (D).^ 
(A) SPECIAL RULE.—Any charitable contribution to— 
(i) a church or a convention or association of churches, 
(ii) an educational organization referred 
to in section 
503 (b) (2), or 
(iii) a hospital referred to in section 503 (b) (5), 
shall be allowed to the extent that the aggregate of such con-
tributions does not exceed 10 percent of the taxpayer's adjusted 
gross income computed without regard to any net operating loss 
carryback to the taxable year under section 172. 
(B) GENERAL LIMITATION.—The total deductions under sub-
section (a) for any taxable year shall not exceed 20 percent of the 
taxpayer's adjusted gross income computed without regard to 
any net operating loss carryback to the taxable year under 
section 172. For purposes of this subparagraph, the deduction 
under subsection (a) shall be computed without regard to any 
deduction allowed imder subparagraph (A) but shall take into 
account any charitable contributions to the organizations 
described in clauses (i), (ii), and (iii) which are in excess of the 
amount allowable as a deduction under subparagraph (A). 
(C) UNLIMITED DEDUCTION FOR CERTAIN INDIVIDUALS.—The 
limitation in subparagraph (B) shall not apply in the case of an 
individual if, in the taxable year and in 8 oi the 10 preceding 
taxable years, the amount of the charitable contributions, plus 
the amount of income tax (determined without regard to chapter 
2, relating to tax on self-employment income) paid during such 
year in respect of such year or preceding taxable years^ exceeds 
90 percent of the taxpayer's taxable income for such year, com-
puted without regard to— 
(i) this section, 
§170 
CH. 1—NORMAL TAXES AND SURTAXES 
59 
(ii) section 151 (allowance of deductions for personal exemp-
tions), and 
(iii) aay net operating loss carryback to the taxable year 
under section 172. 
(D) 
DENIAL OF DEDUCTION IN CASE OF CEKTAIN TRANSFERS 
IN TRUST.—No deduction shall be allowed under this section for 
the value of any interest in property transferred after March 9, 
1954, to a trust if— 
(i) the grantor has a reversionary interest in the corpus or 
' f
; 
income of that portion of the trust with respect to which a 
deduction would (but for this subparagraph) be allowable 
under this section; and 
(ii) at the time of the transfer the value of such reversionary 
interest exceeds 5 percent of the value of the property con-
stituting such portion of the trust. 
For purposes of this subparagraph, a power exercisable by the 
grantor or a nonadverse party (within the meaning of section 
672 (b)), or both, to revest in the grantor property or income 
therefrom shall be treated as a reversionary interest. 
(2) CORPORATIONS.—In the case of a corporation, the total 
deductions under subsection (a) for any taxable year shall not 
exceed 5 percent of the taxpayer's taxable income computed without 
regard to— 
(A) this section, 
(B) part VIII (except section 248), 
(C) any net operating loss carryback to the taxable year under 
section 172, and 
(D) section 922 (special deduction for Western Hemisphere 
trade corporations). 
Any contribution made by a corporation in a taxable year to which 
this section applies in excess of the amount deductible in such year 
under the foregoing limitation shall be deductible in each of the two 
succeeding taxable years in order of time, but only to the extent of 
the lesser of the two following amounts: (i) the excess of the maxi-
mum amount deductible for such succeeding taxable year under the 
foregoing limitation over the contributions made in such year; and 
(ii) in the case of the first succeeding taxable year the amount of 
., such excess contribution, and in the case of the second succeeding 
taxable year the portion of such excess contribution not deductible 
in the first succeeding taxable year, 
(c) CHARITABLE CONTRIBUTION DEFINED.—For purposes of this 
section, the term "charitable contribution" means a contribution or 
gift to or for the use of— 
(1) A State, a Territory, a possession of the United States, or any 
political subdivision of any of the foregoing, or the United States 
or the District of Columbia, but only if the contribution or gift is 
made for exclusively public purposes. 
(2) A corporation, trust, or community chest, fund, or founda-
', tion— 
(A) created or organized in the United States or in any pos-
session thereof, or under the law of the United States, any State 
or Territory, the District of Columbia, or any possession of the 
United States; 
§ 170(c)(2)(A) 
60 
INTERNAL REVENUE CODE OF 1954 
(B) organized and operated exclusively for religious, charitable, 
scientific, literary, or educational purposes or for the prevention 
of cruelty to children or animals; 
(C) no part of the net earnings of which inures to the benefit 
of any private shareholder or individual; and 
(D) no substantial part of the activities of which is carrying 
on propaganda, or otherwise attempting, to influence legislation. 
A contribution or gift by a corporation to a trust, chest, fund, or 
foundation shall be deductible by reason of this paragraph only if 
it is to be used within the United States or any of its possessions 
exclusively for purposes specified in subparagraph (B). 
(3) A post or organization of war veterans, or an auxiliary unit 
or society of, or trust or foundation for, any such post or organi-
zation— 
(A) organized in the United States or any of its possessions, and 
(B) no part of the net earnings of which inures to the benefit 
of any private shareholder or individual. 
(4) In the case of a contribution or gift by an individual, a 
domestic fraternal society, order, or association, operating under 
the lodge system, but only if such contribution or gift is to be used 
exclusively for religious, charitable, scientific, literary, or educational 
purposes, or for the prevention of cruelty to children or animals. 
(5) A cemetery company owned and operated exclusively for the 
benefit of its members, or any corporation chartered solely for burial 
purposes as a cemetery corporation and not permitted by its charter 
to engage in any business not necessarily incident to that purpose, 
if such company or corporation is not operated for profit and no 
part of the net earnings of such company or corporation inures to 
the benefit of any private shareholder or individual. 
(d) DISALLOWANCE OF DEDUCTIONS IN CERTAIN CASES.— 
(1) For disallowance of deductions in case of contributions or gifts 
to charitable organizations engaging in prohibited transactions, see sec-
tion 503 (e). 
(2) For disallowance of deductions for contributions to or for the use 
of communist controlled organizations, see section 11 (a) of the Internal 
Security Act of 1950 (64 Stat. 996; 50 U. S. C. 790). 
(e) OTHER CROSS REFERENCES.— 
(1) For charitable contributions of estates and trusts, see section 
642 (c). 
(2) For nondeductibility of contributions by common trust funds, see 
section 584. 
(3) For charitable contributions of partners, see section 702. 
(4) For charitable contributions of nonresident aliens, see section 
873. 
(5) For treatment of gifts for benefit of or use in connection with the 
Naval Academy as gifts to or for the use of the United States, see section 
3 of the Act of March 31, 1944 (58 Stat. 135; 34 U. S. C. 1115b). 
(6) For treatment of gifts for benefit of the library of the Post Oflice 
Department as gifts to or for the use of the United States, see section 2 
of the Act of August 8, 1946 (60 Stat. 924; 5 U. S. C. 393). 
(7) For treatment of gifts accepted by the Secretary of State under 
the Foreign Service Act of 1946 as gifts to or for the use of the United 
States, see section 1021 (e) of that Act (60 Stat. 1032; 22 U. S. C. 809 
(e)). 
(8) For treatment of gifts of money accepted by the Attorney General 
for credit to the "Commissary Funds Federal Prisons" as gifts to or 
§ 170(c)(2)(B) 
CH. 1—NORMAL TAXES AND SURTAXES 
61 
for the use of the United States, see section 2 of the Act of May 15, 1952 
(66 Stat. 73, as amended by the Act of July 9, 1952, 66 Stat. 479, 31 
U. S. C. 725S-4). 
SEC. 171. AMORTIZABLE BOND PREMIUM. 
(a) GENERAL RULE.—In the case of any bond, as defined in sub-
section (d), the following rules shall apply to the amortizable bond 
premium (determined under subsection (b)) on the bond: 
(1) INTEREST WHOLLY OR PARTIALLY TAXABLE.—In the case of a 
bond (other than a bond the interest on which is excludable from 
gross income), the amount of the amortizable bond premium for the 
taxable year shall be allowed as a deduction. 
(2) INTEREST WHOLLY TAX-EXEMPT.—In the case of any bond 
the interest on which is excludable from gross income, no deduction 
shall be allowed for the amortizable bond premium for the taxable 
year. 
(3) ADJUSTMENT OP CREDIT OR DEDUCTION FOR INTEREST PAR-
TIALLY TAX-EXEMPT.— 
(A) INDIVIDUALS.—In the case of any bond the interest on 
which is allowable as a credit under section 35, the amount which 
would otherwise be taken into account in computing such credit 
shall be reduced by the amount of the amortizable bond premium 
for the taxable year. 
(B) CORPORATIONS.—In the case of any bond the interest on 
which is allowable as a deduction under section 242, such deduc-
tion shall be reduced by the amount of the amortizable bond 
premium for the taxable year. 
(4) CROSS REFERENCE.— 
For adjustment to basis on account of amortizable bond premium* see 
section 1016 (a) (5). 
(b) AMORTIZABLE BOND.PREMIUM.— 
(1) AMOUNT OF BOND PREMIUM.—For purposes of paragraph (2), 
the amount of bond premium, in the case of the holder of any bond, 
shall be determined— 
(A) with reference to the amount of the basis (for determining 
loss on sale or exchange) of such bond, 
(B) with reference to the amount payable on maturity or on 
earlier call date (but in the case of bonds described in subsection 
(c) (1) (B) issued after January 22, 1951, and acquired after 
January 22, 1954, only if such earlier call date is a date more than 
J 
3 years after the date of such issue), and 
(C) with adjustments proper to reflect unamortized bond 
I 
premium, with respect to the bond, for the period before the date 
as of which subsection (a) becomes applicable with respect to the 
taxpayer with respect to such bond. 
, In no case shall the amount of bond premium on a convertible bond 
include any amount attributable to the conversion features of the 
bond. 
(2) AMOUNT AMORTIZABLE.—The amortizable bond premium of 
the taxable year shall be the amount of the bond premium attrib-
utable to such year. In the case of a bond described in subsection 
(c) (1) (B) issued after January 22, 1951, and acquired after Jan-
. uary 22, 1954, which has a call date not more than 3 years after 
the date of such issue, the amount of bond premium attributable to 
1171(b)(2) 
62 
ESTTBRNAL REVENUE CODE OF 1954 
the taxable year in which the bond is called shall include an amount 
equal to the excess of the amount of the adjusted basis (for deter-
mining loss on sale or exchange) of such bond as of the beginning 
of the taxable year over the amount received on redemption of the 
bond or (if greater) the amount payable on maturity. 
(3) METHOD OF DETERMINATION.—The determinations required 
under paragraphs (1) and (2) shall be made— 
(A) in accordance with the method of amortizing bond premium 
regularly employed by the holder of the bond, if such method is 
reasonable; 
(B) in all other cases, in accordance with regulations prescribing 
reasonable methods of amortizing bond premium prescribed by 
the Secretary or his delegate. 
(c) ELECTION AS TO TAXABLE AND PARTIALLY TAXABLE BONDS.— 
(1) ELIGIBILITY TO ELECT; BONDS WITH RESPECT TO WHICH ELEC-
TION PERMITTED.—This section shall apply with respect to the 
following classes of taxpayers with respect to the following classes of 
bonds only if the taxpayer has elected to have this section apply: 
(A) PARTIALLY TAX-EXEMPT.—In the case of a taxpayer other 
than a corporation, bonds with respect to the interest on which 
the credit provided in section 35 is allowable; and 
(B) WHOLLY TAXABLE,—In the case of any taxpayer, bonds the 
interest on which is not excludable from gross income but with 
respect to which the credit provided in section 35, or the deduc-
tion provided in section 242, is not allowable. 
(2) MANNER AND EFFECT OF ELECTION.—The election authorized 
under this subsection shall be made in accordance with such regula-
tions as the Secretary or his delegate shall prescribe. If such 
election is made with respect to any bond (described in paragraph 
(1)) of the taxpayer, it shall also apply to all such bonds held by the 
taxpayer at the beginning of the first taxable year to which the 
election applies and to all such bonds thereafter acquired by him 
and shall be binding for all subsequent taxable years with respect to 
all such bonds of the taxpayer, unless, on application by the tax-
payer, the Secretary or his delegate permits him, subject to such 
conditions as the Secretary or his delegate deems necessary, to 
revoke such election. In the case of bonds held by a common trust 
fund, as defined in section 584 (a), or by a foreign personal holding 
company, as defined in section 552, the election authorized under 
this subsection shall be exercisable with respect to such bonds only 
by the common trust fund or foreign personal holding company. 
In case of bonds held by an estate or trust, the election authorized 
under this subsection shall be exercisable with respect to such 
bonds only by the fiduciary. 
(d) BOND DEFINED.—For purposes of this section, the term 
"bond" means any bond, debenture, note, or certificate or other 
evidence of indebtedness, issued by any corporation and bearing 
interest (including any like obligation issued by a government or 
political subdivision thereof), but does not include any such obligation 
which constitutes stock in trade of the taxpayer or any such obligation 
of a kind which would properly be included in the inventory of the 
taxpayer if on hand at the close of the taxable year, or any such 
§ 171(b)(2) 
CH. 1—NORMAL TAXES AND SURTAXES 
63 
obligation held by the taxpayer primarily for sale to customers in the 
ordinary course of his trade or business. 
(e) DEALERS IN TAX-EXEMPT SECURITIES.— 
For special rules applicable, in the case of dealers in securities, with 
respect to premium attributable to certain wholly tax-exempt securities, 
see section 75. 
SEC. 172. NET OPERATING LOSS DEDUCTION. 
(a) DEDUCTION ALLOWED.—There shall be allowed as a deduction 
for the taxable year an amount equal to the aggregate of (1) the net 
operating loss carryovers to such year, plus (2) the net operating loss 
carrybacks to such year. For purposes of this subtitle, the term "net 
operating loss deduction" means the deduction allowed by this sub-
section. 
(b) N E T OPERATING Loss CARRYBACKS AND CARRYOVERS.— 
(1) YEARS TO WHICH LOSS MAY BE CARRIED.—A net operating 
t loss for any taxable year ending after December 31, 1953, shall 
c; be— 
(A) a net operating loss carryback to each of the 2 taxable 
years preceding the taxable year of such loss, and 
(B) a net operating loss carryover to each of the 5 taxable 
1 
years following the taxable year of such loss. 
(2) AMOUNT OP CARRYBACKS AND CARRYOVERS.—Except as pro-
vided in subsection (f), the entire amount of the net operating loss 
for any taxable year (hereinafter in this section referred to as the 
I "loss year") shall be carried to the earliest of the 7 taxable years 
to which (by reason of subparagraphs (A) and (B) of paragraph (1)) 
such loss may be carried. 
The portion of such loss which shall be 
carried to each of the other 6 taxable years shall be the excess, if 
any, of the amount of such loss over the sum of the taxable income 
for each of the prior taxable years to which such loss may be carried. 
For purposes of the preceding sentence, the taxable income for any 
such prior taxable year shall be computed— 
(A) with the modifications specified in subsection (d) other 
than paragraphs (1), (4), and (6) thereof; and 
(B) by determining the amount of the net operating loss 
deduction without regard to the net operating loss for the loss 
year or for any taxable year thereafter, 
and the taxable income so computed shall not be considered to 
be less than zero. 
(c) N E T OPERATING Loss DEFINED.—For purposes of this section, 
the term "net operating loss" means (for any taxable year ending 
after December 31, 1953) the excess of the deductions allowed by this 
chapter over the gross income. Such excess shall be computed with 
the modifications specified in subsection (d). 
(d) MODIFICATIONS.—The modifications referred to in this section 
are as follows: 
(1) N E T OPERATING LOSS DEDUCTION.—No net operating loss 
deduction shall be allowed. 
(2) CAPITAL GAINS AND LOSSES OF TAXPAYERS OTHER THAN 
CORPORATIONS.—In the case of a taxpayer other than a corpora-
tion— 
§ 172(d)(2) 
64 
INTERNAL REVENUE CODE OF 
1954 
(A) the amount deductible on account of losses from sales or 
exchanges of capital assets shall not exceed the amount includible 
on account of gains from sales or exchanges of capital assets; and 
(B) the deduction for long-term capital gains provided by 
section 1202 shall not be allowed. 
(3) DEDUCTION FOR PERSONAL EXEMPTIONS.—No deduction shall 
be allowed under section 151 (relating to personal exemptions). No 
deduction in lieu of any such deduction shall be allowed. 
(4) NONBUSINESS 
DEDUCTIONS OF TAXPAYERS 
OTHER 
THAN 
CORPORATIONS.—In the case of a taxpayer other than a corporation, 
the deductions allowable by this chapter which are not attributable 
to a taxpayer's trade or business shall be allowed only to the extent 
of the amount of the gross income not derived from such trade 
or business. For purposes of the preceding sentence— 
(A) any gain or loss from the sale or other disposition of— 
(i) property, used in the trade or business, of a character 
which is subject to the allowance for depreciation provided in 
section 167, or 
(ii) real property used in the trade or business, 
shall be treated as attributable to the trade or business; 
(B) the modifications specified in paragraphs (1), (2) (B), and 
(3) shall be taken into account; and 
(C) any deduction allowable under section 165 (c) (3) (relating 
to casualty losses) shall not be taken into account. 
(5) SPECIAL 
DEDUCTIONS FOR CORPORATIONS.—No 
deduction 
shall be allowed under section 242 (relating to partially tax-exempt 
interest) or under section 922 (relating to Western Hemisphere 
trade corporations). 
(6) COMPUTATION OF DEDUCTION FOR DIVIDENDS RECEIVED, 
ETC.—The deductions allowed by sections 243 (relating to divi-
dends received by corporations), 244 (relating to dividends received 
on certain preferred stock of public utilities), and 245 (relating to 
dividends received from certain foreign corporations) shall be com-
puted without regard to section 246 (b) (relating to limitation on 
aggregate amount of deductions); and the deduction allowed by 
section 247 (relating to dividends paid on certain preferred stock of 
public utilities) shall be computed without regard to subsection 
(a) (1) (B) of such section. 
(e) LAW APPLICABLE TO COMPUTATIONS.—In determining 
the 
amoimt of any net operating loss carryback or carryover to any taxable 
year, the necessary computations involving any other taxable year 
shall be made under the law appHcable to such other taxable year. 
The preceding sentence shall apply with respect to all taxable years, 
whether they begin before, on, or after January 1, 1954. 
(f) TAXABLE YEARS BEGINNING IN 1953 AND ENDING IN 1954.— 
In the case of a taxable year beginning in 1953 and ending in 1954— 
(1) In lieu of the amount specified in subsection (c), the net 
operating loss for such year shall be the sum of— 
(A) that portion of the net operating loss for such year com-
puted without regard to this subsection which the number of 
days in the loss year after December 31, 1953, bears to the total 
number of days in such year, and 
§ 172(d)(2)(A) 
CH. 1—NORMAL TAXES AND SURTAXES 
65 
(B) that portion of the net operating loss for such year com-
puted under section 122 of the Internal Revenue Code of 1939 
as if this section had not been enacted which the number of days 
in the loss year before January 1, 1954, bears to the total number 
of days in such year. 
(2) The amount of any net operating loss for such year which 
shall be carried to the second preceding taxable year is the amount 
which bears the same ratio to such net operating loss as the number 
of days in the loss year after December 31, 1953, bears to the total 
number of days in such year. 
In determining the amount carried 
to any other taxable year, the reduction for the second taxable year 
preceding the loss year shall not exceed the portion of the net 
operating loss which is carried to the second preceding taxable year, 
(g) SPECIAL TRANSITIONAL RULES.— 
(1) LOSSES FOR TAXABLE YEARS ENDING BEFORE JANUARY l, 
1954.—For purposes of this section, the determination of the taxable 
years ending after December 31, 1953, to which a net operating loss 
for any taxable year ending before January 1, 1954, may be carried 
shall be made under the Internal Revenue Code of 1939. 
(2) L O S S E S FOR TAXABLE YEARS ENDING AFTER DECEMBER 31, 
1953.—For purposes of section 122 of the Internal Revenue Code of 
1939— 
^ 
(A) the determination of the taxable years ending before 
January 1, 1954, to which a net operating loss for any taxable 
,j 
year ending after December 31, 1953, may be carried shall be 
made under subsection (b) (1) (A) of this section; and 
(B) in determining the amount of the carryback to the first 
j, 
taxable year preceding the first taxable year ending after De-
cember 31, 1953, the portion of the net operating loss carried to 
I 
such year shall be such net operating loss reduced by— 
j 
(i) the net income for the second preceding taxable year 
'. 
computed as if the second sentence of section 122 (b) (2) (B) of 
the Internal Revenue Code of 1939 applied, or 
; 
(ii) if smaller, the portion of the net operating loss which by 
reason of subsection (f) of this section is carried to the second 
preceding taxable year. 
(3) EXCESS PROFITS TAX NOT AFFECTED.—For purposes of 
sub-
, chapter D of chapter 1 of the Internal Revenue Code of 1939, excess 
, profits net income shall be computed as if this section had not been 
enacted and as if section 122 of such Code continued to apply to 
. taxable years to which this subtitle applies, 
(h) CROSS REFERENCES.— 
(1) For treatment of net operating loss carryovers in certain corporate 
( 
acquisitions, see section 381. 
(2) For special limitation on net operating loss carryovers in case of 
a corporate change of ownership, see section 382. 
SEC. 173. CIRCULATION 
EXPENDITURES. 
Notwithstanding section 263, all expenditures (other than expendi-
tures for the purchase of land or depreciable property or for the acquisi-
tion of circulation through the purchase of any part of the business of 
another publisher of a newspaper, magazine, or other periodical) to 
establish, maintain, or increase the circulation of a newspaper, maga-
§ 173 
66 
INTERNAL REVENUE CODE OF 1954 
zine, or other periodical shall be allowed as a deduction; except that 
the deduction shall not be allowed with respect to the portion of such 
expenditures as, under regulations prescribed by the Secretary or his 
delegate, is chargeable to capital account if the taxpayer elects, in 
accordance with such regulations, to treat such portion as so charge-
able. 
Such election, if made, must be for the total amount of such 
portion of the expenditures which is so chargeable to capital account, 
and shall be binding for all subsequent taxable years unless, upon 
application by the taxpayer, the Secretary or his delegate permits a 
revocation of such election subject to such conditions as he deems 
necessary. 
SEC. 174. RESEARCH AND EXPERIMENTAL EXPENDITURES. 
(a) TREATMENT A S EXPENSES.— 
(1) I N GENERAL.—A taxpayer may treat research or experimental 
expenditures which are paid or incurred by him during the taxable 
year in connection with his trade or business as expenses which 
are not chargeable to capital account. 
The expenditures so treated 
shall be allowed as a deduction. 
(2) W H E N METHOD MAY BE ADOPTED.— 
(A) WITHOUT CONSENT,—A taxpayer may, without the con-
sent of the Secretary or his delegate, adopt the method provided 
in this subsection for his first taxable year— 
(i) which begins after December 31, 1953, and ends after 
the date on which this title is enacted, and 
(ii) for which expenditures described in paragraph (1) are 
paid or incurred. 
(B) WITH CONSENT.—A taxpayer may, with the consent of the 
Secretary or his delegate, adopt at any time the method provided 
in this subsection. 
(3) SCOPE.—The method adopted under this subsection shall 
apply to all expenditures described in paragraph (1). 
The method 
adopted shall be adhered to in computing taxable income for the 
taxable year and for all subsequent taxable years unless, with the 
approval of the Secretary or his delegate, a change to a different 
method is authorized with respect to part or all of such expenditures. 
(b) AMORTIZATION OF CERTAIN KESEARCH AND EXPERIMENTAL 
EXPENDITURES.— 
(1) I N GENERAL.—At the election of the taxpayer, made in 
accordance with regulations prescribed by the Secretary or his 
delegate, research or experimental expenditures which are— 
(A) paid or incurred by the taxpayer in connection with his 
trade or business, 
(B) not treated as expenses under subsection (a), and 
(C) chargeable to capital account but not chargeable to 
property of a character which is subject to the allowance under 
section 167 (relating to allowance for depreciation, etc.) or 
section 611 (relating to allowance for depletion), 
may be treated as deferred expenses. 
In computing taxable income, 
such deferred expenses shall be allowed as a deduction ratably over 
such period of not less than 60 months as may be selected by the 
taxpayer (beginning with the month in which the taxpayer first 
realizes benefits from such expenditures). 
Such deferred expenses 
§ 173 
CH. 1—NORMAL TAXES AND SURTAXES 
67 
are expenditures properly chargeable to capital account for purposes 
of section 1016 (a) (1) (relating to adjustments to basis of property). 
(2) TIME FOE AND SCOPE OF ELECTION.-—The election provided 
by paragraph (1) may be made for any taxable year beginning 
after December 31, 1953, but only if made not later than the 
time prescribed by law for filing the return for such taxable year 
(including extensions thereof). 
The method so elected, and the 
period selected by the taxpayer, shall be adhered to in computing 
taxable income for the taxable year for which the election is made 
and for all subsequent taxable years unless, with the approval of 
the Secretary or his delegate, a change to a different method (or to 
a different period) is authorized with respect to part or aU of such 
expenditures. 
The election shall not apply to any expenditure 
paid or incurred during any taxable year before the taxable year 
for which the taxpayer makes the election. 
(c) LAND AND OTHER PROPERTY.—This section shall not apply to 
any expenditure for the acquisition or improvement of land, or for 
the acquisition or improvement of property to be used in connection 
with the research or experimentation and of a character which is sub-
ject to the allowance under section 167 (relating to allowance for 
depreciation, etc.) or section 611 (relating to allowance for deple-
tion); but for purposes of this section allowances under section 167, 
and allowances under section 611, shaU be considered as expenditures. 
(d) EXPLORATION EXPENDITURES.—This section shall not apply to 
any expenditure paid or incurred for the purpose of ascertaining the 
existence, location, extent, or quality of any deposit of ore or other 
mineral (including oil and gas). 
(e) CROSS REFERENCE.— 
For adjustments to basis of property for amounts allowed as deduc-
tions as deferred expenses under subsection (b), see section 1016 (a) 
(14). 
SEC. 175. SOIL AND WATER CONSERVATION 
EXPENDITURES. 
(a) I N GENERAL.—A taxpayer engaged in the business of farming 
may treat expenditures which are paid or incurred by him during the 
taxable year for the purpose of soil or water conservation in respect 
of land used in farming, or for the prevention of erosion of land used 
in farming, as expenses which are not chargeable to capital account. 
The expenditures so treated shall be allowed as a deduction. 
(b) LIMITATION.—The amount deductible under subsection (a) for 
any taxable year shall not exceed 25 percent of the gross income derived 
from farming during the taxable year. 
If for any taxable year the 
total of the expenditures treated as expenses which are not chargeable 
to capital account exceeds 25 percent of the gross income derived from 
farming during the taxable year, such excess shall be deductible for 
succeeding taxable years in order of time; but the amount deductible 
under this section for any one such succeeding taxable year (including 
the expenditures actually paid or incurred during the taxable year) 
shall not exceed 25 percent of the gross income derived from farming 
during the taxable year. 
(c) DEFINITIONS.—For purposes of subsection (a)— 
(1) The term "expenditures which are paid or incurred by him 
during the taxable year for the purpose of soil or water conserva-
§ 175(c)(1) 
68 
INTERNAL REVENUE CODE OF 1954 
tion in respect of land used in farming, or for the prevention of 
erosion of land used in farming" means expenditures paid or in-
ciu-red for the treatment or moving of earth, including (but not 
limited to) leveling, grading and terracing, contour furrowing, the 
construction, control, and protection of diversion channels, drain-
age ditches, earthen dams, watercourses, outlets, and ponds, the 
eradication of brush, and the planting of windbreaks. 
Such term 
does not include— 
(A) the purchase, construction, installation, or improvement 
of structures, appliances, or facilities which are of a character 
which is subject to the allowance for depreciation provided in 
section 167, or 
(B) any amount paid or incurred which is allowable as a deduc-
tion without regard to this section. 
Notwithstanding the preceding sentences, such term also includes 
any amount, not otherwise allowable as a deduction, paid or in-
curred to satisfy any part of an assessment levied by a soil or water 
conservation or drainage district to defray expenditures made by 
such district which, if paid or incurred by the taxpayer, would with-
out regard to this sentence constitute expenditures deductible under 
this section. 
(2) The term ''land used in farming" means land used (before or 
simultaneously with the expenditures described in paragraph (1)) 
by the taxpayer or his tenant for the production of crops, fruits, or 
other agricultural products or for the sustenance of Hvestock. 
(d) W H E N METHOD M A Y B E ADOPTED.— 
(1) WITHOUT CONSENT.—A taxpayer may, without the consent 
of the Secretary or his delegate, adopt the method provided in this 
section for his first taxable year— 
(A) which begins after December 31, 1953, and ends after the 
date on which this title is enacted, and 
(B) for which expenditures described in subsection (a) are 
paid or incurred. 
(2) WITH CONSENT.—A taxpayer may, with the consent of the 
Secretary or his delegate, adopt at any time the method provided 
in this section. 
(e) SCOPE.—The method adopted under this section shall apply to 
all expenditures described in subsection (a). The method adopted 
shall be adhered to in computing taxable income for the taxable year 
and for all subsequent taxable years unless, with the approval of the 
Secretary or his delegate, a change to a different method is authorized 
with respect to part or all of such expenditures. 
§ 175(c)(1) 
CH. 1—NORMAL TAXES AND SURTAXES 
69 
PART 
VII—ADDITIONAL 
ITEMIZED 
DEDUCTIONS 
FOR 
INDIVIDUALS 
Sec. 211. Allowance of deductions. 
Sec. 212. Expenses for production of income. 
Sec. 213. Medical, dental, etc., expenses. 
Sec. 214. Expenses for care of certain dependents. 
ft 
Sec. 215. Alimony, etc., payments. 
Sec. 216. Amounts representing taxes and interest paid to co-
operative housing corporation. 
Sec. 217. Cross references. 
SEC. 211. ALLOWANCE OF DEDUCTIONS. 
In computing taxable income under section 63 (a), there shall be 
allowed as deductions the items specified in this part, subject to the 
exceptions provided in part IX (section 261 and following, relating to 
items not deductible). 
SEC. 212. EXPENSES FOR PRODUCTION OF INCOME. 
In the case of an individual, there shall be allowed as a deduction 
all the ordinary and necessary expenses paid or incurred during the 
taxable year— 
(1) for the production or collection of income; 
(2) for the management, conservation, or maintenance of prop-
erty held for the production of income; or 
(3) in connection with the determination, collection, or refund of 
any tax. 
SEC. 213. MEDICAL, DENTAL, ETC., EXPENSES. 
(a) ALLOWANCE OF DEDUCTION.—There shall be allowed as a 
deduction the expenses paid during the taxable year, not compensated 
for by insurance or otherwise, for medical care of the taxpayer, his 
spouse, or a dependent (as defined in section 152)—• 
(1) if neither the taxpayer nor his spouse has attained the age 
of 65 before the close of the taxable year, to the extent that such 
expenses exceed 3 percent of the adjusted gross income; or 
(2) if either the taxpayer or his spouse has attained the age of 
65 before the close of the taxable year— 
(A) the amount of such expenses for the care of the taxpayer 
and his spouse, and 
(B) the amount by which such expenses for the care of such 
dependents exceed 3 percent of the adjusted gross income. 
(b) LIMITATION 
WITH 
RESPECT 
TO MEDICINE 
AND DRUGS.— 
Amounts paid during the taxable year for medicine and drugs which 
(but for this subsection) would be taken into account in computing 
the deduction under subsection (a) shall be taken into account only 
to the extent that the aggregate of such amounts exceeds 1 percent 
of the adjusted gross income. 
(c) MAXIMUM LIMITATIONS.—The deduction under this section 
shall not exceed $2,500, multiplied by the number of exemptions 
allowed for the taxable year as a deduction under section 151 (other 
than exemptions allowed by reason of subsection (c) or (d), relating 
to additional exemptions for age or blindness); except that the maxi-
mum deduction under this section shall be— 
(1) $5,000, if the taxpayer is single and not the head of a house-
hold (as defined in section 1 (b) (2)) and not a surviving spouse 
§ 213(c)(1) 
70 
INTERNAL REVENUE CODE OF 1954 
(as defined in section 2 (b)) or is married but files a separate return; 
or 
(2) $10,000, if the taxpayer files a joint return with his spouse 
under section 6013, or is the head of a household (as defined in 
section 1 (b) (2)) or a surviving spouse (as defined in section 2 (b)). 
(d) SPECIAL KULE FOR DECEDENTS.— 
(1) TREATMENT OF EXPENSES PAID AFTER DEATH.—For purposes 
of subsection (a), expenses for the medical care of the taxpayer 
which are paid out of his estate during the 1-year period beginning 
with the day after the date of his death shall be treated as paid by 
the taxpayer at the time incurred. 
(2) LIMITATION.—Paragraph (1) shall not apply if the amount 
paid is allowable under section 2053 as a deduction in computing 
the taxable estate of the decedent, but this paragraph shall not 
apply if (within the time and in the manner and form prescribed 
by the Secretary or his delegate) there is filed— 
(A) a statement that such amount has not been claimed or 
allowed as a deduction under section 2053, and 
(B) a waiver of the right to have such amount allowed at any 
time as a deduction under section 2053. 
(e) DEFINITIONS.—For purposes of this section— 
(1) The term "medical care" means amounts paid— 
(A) for the diagnosis, cure, mitigation, treatment, or preven-
tion of disease, or for the purpose of affecting any structure or 
function of the body (including amounts paid for accident or 
health insurance), or 
(B) for transportation primarily for and essential to medical 
care referred to in subparagraph (A). 
(2) The determination of whether an individual is married at any 
time during the taxable year shall be made in accordance with the 
provisions of section 6013 (d) (relating to determination of status 
as husband and wife). 
(f) EXCLUSION OF AMOUNTS ALLOWED FOR CARE OF CERTAIN 
DEPENDENTS.—Any expense allowed as a deduction under section 
214 shall not be treated as an expense paid for medical care. 
SEC. 214. EXPENSES FOR CARE OF CERTAIN DEPENDENTS 
(a) GENERAL RULE.—There shall be allowed as a deduction ex-
penses paid during the taxable year by a taxpayer who is a woman 
or a widower for the care of one or more dependents (as defined in 
subsection (c) (1)), but only if such care is for the purpose of enabling 
the taxpayer to be gainfully employed. 
(b) LIMITATIONS.— 
(1) I N GENERAL.—The deduction under subsection (a)— 
(A) shall not exceed $600 for any taxable year; and 
(B) shall not apply to any amount paid to an individual with 
respect to whom the taxpayer is allowed for his taxable year a 
deduction under section 151 (relating to deductions for personal 
exemptions). 
(2) WORKING WIVES.—In the case of a woman who is married, 
the deduction under subsection (a)— 
§ 213(c)(1) 
CH. 1 
NORMAL TAXES AND SURTAXES 
71 
(A) shall not be allowed unless she files a joint return with her 
husband for the taxable year, and 
(B) shall be reduced by the amount (if any) by which the 
adjusted gross income of the taxpayer and her spouse exceeds 
$4,500. 
This paragraph shall not apply if the taxpayer's husband is incapable 
of self-support because mentally or physically defective, 
(c) DEFINITIONS.—For purposes of this section— 
(1) DEPENDENT.—The term "dependent" means a person with 
respect to whom the taxpayer is entitled to an exemption under 
section 151 (e) (1)— 
(A) who has not attained the age of 12 years and who (within 
the meaning of section 152) is a son, stepson, daughter, or step-
daughter of the taxpayer; or 
(B) who is physically or mentally incapable of caring for him-
self. 
(2) WIDOWER.—The term "widower" includes an unmarried 
individual who is legally separated from his spouse under a decree 
of divorce or of separate maintenance. 
(3) DETERMINATION OF STATUS.—A woman shall not be con-
sidered as married if she is legally separated from her spouse under 
a decree of divorce or of separate maintenance at the close of the 
taxable year. 
SEC. 215. ALIMONY, ETC., PAYMENTS. 
(a) GENERAL RULE,—In the case of a husband described in section 
71, there shall be allowed as a deduction amounts includible under 
section 71 in the gross income of his wife, payment of which is made 
within the husband's taxable year. 
No deduction shall be allowed 
under the preceding sentence with respect to any payment if, by reason 
of section 71 (d) or 682, the amount thereof is not includible in the 
husband's gross income. 
(b) 
CROSS REFERENCE.— 
For definitions of "husband" and "wife", see section 7701 (a) (17). 
SEC. 216. AMOUNTS REPRESENTING TAXES AND INTEREST PAID TO 
COOPERATIVE HOUSING CORPORATION. 
-(a) ALLOWANCE OF DEDUCTION.—In the case of a tenant-stock-
holder (as defined in subsection (b) (2)), there shall be allowed as a 
deduction amounts (not otherwise deductible) paid or accrued to a 
cooperative housing corporation within the taxable year, but only to 
the extent that such amounts represent the tenant-stockholder's pro-
portionate share of— 
(1) the real estate taxes allowable as a deduction to the corpora-
tion under section 164 which are paid or incurred by the corporation 
on the houses or apartment building and on the land on which such 
houses (or building) are situated, or 
(2) the interest allowable as a deduction to the corporation under 
section 163 which is paid or incurred by the corporation on its 
indebtedness contracted— 
(A) in the acquisition, construction, alteration, rehabilitation, 
or maintenance of the houses or apartment building, or 
(B) in the acquisition of the land on which the houses (or 
apartment building) are situated. 
§ 216(a)(2)(B) 
72 
INTERNAL REVENUE CODE OF 
1954 
(b) DEFINITIONS.—For purposes of this section— 
(1) COOPERATIVE HOUSING CORPORATION.—The term "cooper-
ative housing corporation" means a corporation— 
(A) having one and only one class of stock outstanding, 
(B) each of the stockholders of which is entitled, solely by 
reason of his ownership of stock in the corporation, to occupy 
for dwelling purposes a house, or an apartment in a building, 
owned or leased by such corporation, 
(C) no stockholder of which is entitled (either conditionally or 
unconditionally) to receive any distribution not out of earnings 
and profits of the corporation except on a complete or partial 
liquidation of the corporation, and 
(D) 80 percent or more of the gross income of which for the 
taxable year in which the taxes and interest described in sub-
section (a) are paid or incurred is derived from 
tenant-
stockholders. 
(2) TENANT-STOCKHOLDER.—The 
term 
"tenant-stockholder" 
means an individual who is a stockholder in a cooperative housing 
corporation, and whose stock is fully paid-up in an amount not less 
than an amount shown to the satisfaction of the Secretary or his 
delegate as bearing a reasonable relationship to the portion of the 
value of the corporation's equity in the houses or apartment build-
ing and the land on which situated which is attributable to the house 
or apartment which such individual is entitled to occupy. 
(3) The term "tenant-stockholder's proportionate share" means 
that proportion which the stock of the cooperative housing corpo-
ration owned by the tenant-stockholder is of the total outstanding 
stock of the corporation (including any stock held by the corpo-
ration) . 
SEC. 217. CROSS REFERENCES. 
(1) For deduction for long-term capital gains in the case of a tax-
payer other than a corporation, see section 1202. 
(2) For deductions in respect of a decedent, see section 691. 
PART VIII—SPECIAL DEDUCTIONS FOR CORPORATIONS 
Sec. 241. Allowance of special deductions 
Sec. 242. Partially tax-exempt interest. 
Sec. 243. Dividends received by corporations. 
Sec. 244. Dividends received on certain preferred stock. 
Sec, 245. Dividends received from certain foreign corporations. 
Sec, 246. Rules applying to deductions for dividends received. 
Sec. 247. Dividends paid on certain preferred stock of public utili-
ties. 
Sec. 248. Organizational expenditures. 
SEC. 241. ALLOWANCE OF SPECIAL DEDUCTIONS. 
In addition to the deductions provided in part VI (sec. 161 and fol-
lowing), there shall be allowed as deductions in computing taxable in-
come the items specified in this part. 
SEC. 242. PARTIALLY TAX-EXEMPT 
INTEREST. 
(a) ALLOWANCE OF DEDUCTION.—There shall be allowed to a cor-
poration as a deduction the amount received as interest on obligations 
§ 216(b) 
CH. 1—NORMAL TAXES AND SURTAXES 
73 
of the United States or on obligations of corporations organized under 
Act of Congress which are instrumentalities of the United States, but 
only if— 
(1) such interest is included in gross income; and 
(2) such interest is exempt from normal tax under the Act au-
thorizing the issuance of such obligations. 
(b) 
CROSS REFERENCE.— 
For reduction of deduction under subsection (a) on account of amor-
tizable bond premium, see section 171. 
SEC. 243. DIVIDENDS RECEIVED BY CORPORATIONS. 
(a) GENERAL RULE.—In the case of a corporation, there shall be 
allowed as a deduction an amount equal to 85 percent of the amount 
received as dividends (other than dividends described in paragraph 
(1) of section 244, relating to dividends on the preferred stock of a 
public utihty) from a domestic corporation which is subject to taxa-
tion under this chapter. 
(b) 
SPECIAL RULES FOR CERTAIN DISTRIBUTIONS.—For purposes 
of subsection (a)— 
(1) Any amount allowed as a deduction under section 591 (relat-
ing to deduction for dividends paid by mutual savings banks, etc.) 
shall not be treated as a dividend. 
(2) A dividend received from a regulated investment company 
shall be subject to the limitations prescribed in section 854. 
SEC. 244. DIVIDENDS RECEIVED ON CERTAIN PREFERRED STOCK. 
In the case of a corporation, there shall be allowed as a deduction 
an amount computed as foUow^s: 
(1) First determine the amount received as dividends on the 
preferred stock of a public utility which is subject to taxation under 
this chapter and with respect to which the deduction provided in 
section 247 for dividends paid is allowable. 
(2) Then multiply the amount determined under paragraph (1) 
by the fraction— 
(A) the numerator of which is 14 percent, and 
(B) the denominator of which is that percentage which equals 
the sum of the normal tax rate and the surtax rate for the taxable 
year prescribed by section 11. 
(3) Finally ascertain the amount which is 85 percent of the excess 
of— 
(A) the amount determined under paragraph (1), over 
(B) the amount determined under paragraph (2). 
SEC. 245. DIVIDENDS RECEIVED FROM CERTAIN FOREIGN CORPO-
RATIONS. 
In the case of dividends received from a foreign corporation (other 
than a foreign personal holding company) which is subject to taxa-
tion under this chapter, if, for an uninterrupted period of not less 
than 36 months ending with the close of such foreign corporation's 
taxable year in which such dividends are paid (or, if the corporation 
has not been in existence for 36 months at the close of such taxable 
year, for the period the foreign corporation has been in existence as 
of the close of such taxable year) such foreign corporation has been 
§245 
49012"—54 
8 
74 
INTERNAL REVENUE CODE OF 1954 
. 
engaged in trade or business within the United States and has 
derived 50 percent or more of its gross income from sources within 
the United States, there shall be allowed as a deduction in the case 
of a corporation— 
(1) An amount equal to the percent (specified in section 243 for 
the taxable year) of the dividends received out of its earnings and 
profits specified in paragraph (2) of the first sentence of section 
316 (a), but such amount shall not exceed an amount which bears 
the same ratio to such percent of such dividends received out of 
such earnings and profits as the gross income of such foreign cor-
poration for the taxable year from sources within the United 
States bears to its gross income from all sources for such taxable year, 
and 
(2) An amount equal to the percent (specified in section 243 for 
the taxable year) of the dividends received out of that part of its 
earnings and profits specified in paragraph (1) of the first sentence 
of section 316 (a) accumulated after the beginning of such uninter-
rupted period, but such amount shall not exceed an amount which 
bears the same ratio to such percent of such dividends received out 
of such accumulated earnings and profits as the gross income of 
such foreign corporation from sources within the United States for 
the portion of such uninterrupted period ending at the beginning 
of such taxable year bears to its gross income from all sources for 
such portion of such uninterrupted period. 
SEC. 246. RULES APPLYING TO DEDUCTIONS FOR DIVIDENDS RE-
CEIVED. 
(a) DEDUCTION N O T ALLOWED FOR DIVIDENDS FROM 
CERTAIN 
CORPORATIONS.—The deductions allowed by sections 243, 244, and 
245 shall not apply to any dividend from— 
(1) a corporation organized under the China Trade Act, 1922 
(see sec. 941); or 
(2) a corporation which, for the taxable year of the corporation 
in which the distribution is made, or for the next preceding taxable 
year of the corporation, is— 
(A) a corporation exempt from tax under section 501 (relating 
to certain charitable, etc., organizations) or section 521 (relating 
to farmers' cooperative associations); or 
(B) a corporation to which section 931 (relating to income from 
som-ces within possessions of the United States) applies. 
(b) LIMITATION ON AGGREGATE AMOUNT OF DEDUCTIONS.— 
(1) GENERAL RULE.—Except as provided in paragraph (2), the 
aggregate amount of the deductions allowed by sections 243, 244, 
and 245 shall not exceed 85 percent of the taxable income computed 
without regard to the deductions allowed by sections 172, 243, 244, 
245, and 247. 
(2) EFFECT OF NET OPERATING LOSS.—Paragraph (1) shall not 
apply for any taxable year for which there is a net operating loss (as 
determined under section 172). 
§245 
CH. 1 
NORMAL TAXES AND SURTAXES 
75 
SEC. 247. DIVIDENDS 
PAID ON CERTAIN 
PREFERRED 
STOCK 
OF 
PUBLIC UTILITIES. 
(a) AMOUNT OF DEDUCTION,—In the case of a public utility, there 
shall be allowed as a deduction an amount computed as follows: 
(1) First determine the amount which is the lesser of— 
(A) the amount of dividends paid during the taxable year on 
its preferred stock, or 
(B) the taxable income for the taxable year (computed with-
out the deduction allowed by this section). 
(2) Then multiply the amount determined under paragraph (1) 
by the fraction— 
(A) the numerator of which is 14 percent, and 
(B) the denominator of which is that percentage which equals 
the sum of the normal tax rate and the surtax rate for the taxable 
year specified in section 11. 
For purposes of the deduction provided in this section, the amount 
of dividends paid shall not include any amount distributed in the 
current taxable year with respect to dividends unpaid and accumulated 
in any taxable year ending before October 1, 1942. 
Amounts dis-
tributed in the current taxable year with respect to dividends unpaid 
and accumulated for a prior taxable year shall for purposes of this 
subsection be deemed to be distributed with respect to the earliest 
year or years for which there are dividends unpaid and accumulated. 
(b) DEFINITIONS.^—For purposes of this section and section 244— 
(1) PUBLIC UTILITY.—The term "public utility" means a corpo-
ration engaged in the furnishing of telephone service or in the sale 
of electrical energy, gas, or water, if the rates for such furnishing 
or sale, as the case may be, have been established or approved by a 
State or political subdivision thereof or by an agency or instrumen-
tality of the United States or by a public utility or public service 
commission or other similar body of the District of Columbia or 
of any State or political subdivision thereof. 
(2) PREFEREED STOCK.—The term "preferred stock" means stock 
issued before October 1, 1942, which during the whole of the taxable 
year (or the part of the taxable year after its issue) was stock the 
dividends in respect of which were cumulative, limited to the same 
amount, and payable in preference to the payment of dividends on 
other stock. 
Stock issued on or after October 1, 1942, shall be 
deemed for purposes of this paragraph to have been issued before 
October 1, 1942, if it was issued (including issuance either by 
the same or another corporation in a transaction which is a reor-
ganization (as defined in section 368 (a)), a transaction to which 
section 371 (relating to insolvency reorganizations) applies, or a 
transaction subject to part VI of subchapter O (relating to exchanges 
in SEC obedience orders), or the respectively corresponding provi-
sions of the Internal Revenue Code of 1939) to refund or replace 
bonds or debentures issued before October 1, 1942, or to refund or 
replace other preferred stock (including stock which is preferred 
stock by reason of this sentence), but only to the extent that the par 
or stated value of the new stock does not exceed the par, stated, or 
face value of the bonds or debentures issued before October 1, 1942, 
or the other preferred stock, which such new stock is issued to refund 
§ 247(b)(2) 
76 
INTERNAL REVENUE CODE OF 
1954 
or replace. 
The determination of whether stock was issued to 
refund or replace bonds or debentures issued before October 1, 1942, 
or to refund or replace other preferred stock, shall be made under 
regulations prescribed by the Secretary or his delegate. 
SEC. 248. ORGANIZATIONAL EXPENDITURES. 
(a) ELECTION TO AMORTIZE.—The organizational expenditures of a 
corporation may, at the election of the corporation (made in accord-
ance with regulations prescribed by the Secretary or his delegate), be 
treated as deferred expenses. In computing taxable income, such 
deferred expenses shall be allowed as a deduction ratably over such 
period of not less than 60 months as may be selected by the corpora-
tion (beginning with the month in which the corporation begins 
business). 
(b) ORGANIZATIONAL EXPENDITURES DEFINED.—The term "organi-
zational expenditures" means any expenditure which— 
(1) is incident to the creation of the corporation; 
(2) is chargeable to capital account; and 
(3) is of a character which, if expended incident to the creation of 
a corporation having a limited life, would be amortizable over such 
life. 
(c) TIME FOR AND SCOPE OF ELECTION.—The election provided by 
subsection (a) may be made for any taxable year beginning after 
December 31, 1953, but only if made not later than the time prescribed 
by law for filing the return for such taxable year (including extensions 
thereof). 
The period so elected shall be adhered to in computing the 
taxable income of the corporation for the taxable year for which the 
election is made and all subsequent taxable years. 
The election shall 
apply only with respect to expenditures paid or incurred on or after 
the date of enactment of this title. 
PART IX—ITEMS NOT DEDUCTIBLE 
Sec. 261. General rule for disallowance of deductions. 
Sec. 262. Personal, living, and family expenses. 
Sec. 263. Capital expenditures. 
Sec. 264. Certain amounts paid in connection with insurance con-
tracts. 
Sec. 265. Expenses and interest relating to tax-exempt income. 
Sec. 266. Carrying charges. 
Sec. 267. Losses, expenses, and interest with respect to transactions 
between related taxpayers. 
Sec. 268. Sale of land with unharvested crop. 
See. 269. Acquisitions made to evade or avoid income tax. 
Sec. 270. Limitation on deductions allowable to individuals in cer-
tain cases. 
Sec. 271. Debts owed by political parties, etc. 
Sec. 272. Disposal of coal. 
Sec. 273. Holders of life or terminable interest. 
SEC. 261. GENERAL RULE FOR DISALLOWANCE OF DEDUCTIONS. 
In computing taxable income no deduction shall in any case be 
allowed in respect of the items specified in this part. 
SEC. 262. PERSONAL, LIVING, AND FAMILY EXPENSES. 
Except as otherwise expressly provided in this chapter, no deduction 
shall be allowed for personal, living, or family expenses. 
- i • 
i 247(b)(2) 
CH. 1—NORMAL TAXES AND SURTAXES 
77 
SEC. 263. CAPITAL EXPENDITURES. 
(a) GENERAL RULE.—No deduction shall be allowed for— 
(1) Any amount paid out for new buildings or for permanent 
improvements or betterments made to increase the value of any 
property or estate. 
This paragraph shall not apply to— 
(A) expenditures for the development of mines or deposits 
deductible under section 616, 
(B) research and experimental expenditures deductible under 
section 174, or 
(C) soil and water conservation expenditures deductible under 
section 175. 
(2) Any amount expended in restoring property or in making 
good the exhaustion thereof for which an allowance is or has been 
made. 
(b) EXPENDITURES FOR ADVERTISING AND GOOD WILL.—If a cor-
poration has, for the purpose of computing its excess profits tax credit 
under chapter 2E or subchapter D of chapter 1 of the Internal Rev-
enue Code of 1939 claimed the benefits of the election provided in 
section 733 or section 451 of such code, as the case may be, no deduction 
shall be allowable under section 162 to such corporation for expendi-
tures for advertising or the promotion of good will which, under the 
rules and regulations prescribed under section 733 or section 451 of 
such code, as the case may be, may be regarded as capital investments. 
(c) INTANGIBLE DRILLING AND DEVELOPMENT COSTS IN THE CASE 
OF OIL AND GAS WELLS.—Notwithstanding subsection (a), regulations 
shall be prescribed by the Secretary or his delegate under this subtitle 
corresponding to the regulations which granted the option to deduct 
as expenses intangible drilling and development costs in the case of 
oil and gas wells and which were recognized and approved by the 
Congress in House Concurrent Resolution 50, Seventy-ninth Congress. 
SEC. 264. CERTAIN AMOUNTS PAID IN CONNECTION WITH INSUR-
ANCE CONTRACTS. 
(a) GENERAL RULE.—No deduction shall be allowed for— 
(1) Premiums paid on any life insurance policy covering the life 
of any ofiicer or employee, or of any person financially interested in 
any trade or business carried on by the taxpayer, when the taxpayer 
is directly or indirectly a beneficiary under such policy. 
(2) Any amount paid or accrued on indebtedness incurred or 
continued to purchase or carry a single premium life insurance, 
endowment, or annuity contract. 
Paragraph (2) shall apply in respect of annuity contracts only as 
to contracts purchased after March 1, 1954. 
(b) CONTRACTS TREATED AS SINGLE PREMIUM CONTRACTS.—For 
purposes of subsection (a) (2), a contract shall be treated as a single 
premium contract— 
(1) if substantially all the premiums on the contract are paid 
within a period of 4 years from the date on which the contract is 
purchased, or 
(2) if an amount is deposited after March 1, 1954, with the insurer 
for payment of a substantial number of future premiums on the 
contract. 
§ 264(b)(2)' 
78 
INTERNAL REVENUE CODE OF 1954 
SEC. 265. EXPENSES 
AND INTEREST 
RELATING 
TO 
TAX-EXEMPT 
INCOME. 
No deduction shall be allowed for— 
(1) EXPENSES.—Any amount otherwise allowable as a deduc-
tion which is allocable to one or more classes of income other than 
interest (whether or not any amount of income of that class or 
classes is received or accrued) wholly exempt from the taxes im-
posed by this subtitle, or any amount otherwise allowable under 
section 212 (relating to expenses for production of income) which 
is allocable to interest (whether or not any amount of such interest 
is received or accrued) wholly exempt from the taxes imposed by 
this subtitle. 
(2) INTEREST.—Interest on indebtedness incurred or continued 
to purchase or carry obligations (other than obligations of the 
United States issued after September 24, 1917, and originally sub-
scribed for by the taxpayer) the interest on which is wholly exempt 
from the taxes imposed by this subtitle. 
SEC. 266. CARRYING CHARGES. 
No deduction shall be allowed for amounts paid or accrued for such 
taxes and carrying charges as, under regulations prescribed by the 
Secretary or his delegate, are chargeable to capital account with re-
spect to property, if the taxpayer elects, in accordance with such regu-
lations, to treat such taxes or charges as so chargeable. 
SEC. 267. LOSSES, EXPENSES, AND INTEREST 
WITH RESPECT 
TO 
TRANSACTIONS BETWEEN RELATED TAXPAYERS. 
(a) DEDUCTIONS DISALLOWED.—No deduction shall be allowed— 
(1) LOSSES.—In respect of losses from sales or exchanges of 
property (other than losses in cases of distributions in corporate 
liquidations), directly or indirectly, between persons specified 
within any one of the paragraphs of subsection (b). 
(2) UNPAID EXPENSES AND INTEREST.—In respect of expenses, 
otherwise deductible under section 162 or 212, or of interest, other-
wise deductible under section 163,— 
(A) If within the period consisting of the taxable year of the 
taxpayer and 2% months after the close thereof (i) such expenses 
or interest are not paid, and (ii) the amount thereof is not includ-
ible in the gross income of the person to whom the payment is 
to be made; and 
(B) If, by reason of the method of accounting of the person to 
whom the payment is to be made, the amount thereof is not, 
unless paid, includible in the gross income of such person for the 
taxable year in which or with which the taxable year of the 
taxpayer ends; and 
(C) If, at the close of the taxable year of the taxpayer or at any 
time within 2^ months thereafter, both the taxpayer and the 
person to whom the payment is to be made are persons specified 
within any one of the paragraphs of subsection (b). 
(b) RELATIONSHIPS.—The persons referred to in subsection (a) are: 
(1) Members of a family, as defined in subsection (c) (4); 
(2) An individual and a corporation more than 50 percent in 
value of the outstanding stock of which is owned, directly or in-
directly, by or for such individual; 
§265 
CH. 1—NORMAL TAXES AND SURTAXES 
79 
(3) Two corporations more than 50 percent in value of the out-
standing stock of each of which is owned, directly or indirectly, by 
or for the same individual, if either one of such corporations, with 
respect to the taxable year of the corporation preceding the date of 
the sale or exchange was, under the law applicable to such taxable 
year, a personal holding company or a foreign personal holding 
company; 
(4) A grantor and a fiduciary of any trust; 
(5) A fiduciary of a trust and a fiduciary of another trust, if the 
same person is a grantor of both trusts; 
(6) A fiduciary of a trust and a beneficiary of such trust; 
(7) A fiduciary of a trust and a beneficiary of another trust, if 
the same person is a grantor of both trusts; 
(8) A fiduciary of a trust and a corporation more than 50 percent 
in value of the outstanding stock of which is owned, directly or in-
directly, by or for the trust or by or for a person who is a grantor 
of the trust; or 
(9) A person and an organization to which section 501 (relating 
to certain educational and charitable organizations which are ex-
empt from tax) applies and which is controlled directly or indirectly 
by such person or (if such person is an individual) by members of 
the family of such individual. 
(c) CONSTRUCTIVE OWNERSHIP OF STOCK.—For purposes of deter-
mining, in applying subsection (b), the ownership of stock— 
(1) Stock owned, directly or indirectly, by or for a corporation, 
partnership, estate, or trust shall be considered as being owned pro-
portionately by or for its shareholders, partners, or beneficiaries; 
(2) An individual shall be considered as owning the stock owned, 
directly or indirectly, by or for his family; 
(3) An individual owning (otherwise than by the application of 
paragraph (2)) any stock in a corporation shall be considered as 
owning the stock owned, directly or indirectly, by or for his 
partner; 
(4) The family of an individual shall include only his brothers 
and sisters (whether by the whole or half blood), spouse, ancestors, 
and lineal descendants; and 
(5) Stock constructively owned by a person by reason of the 
application of paragraph (1) shall, for the purpose of applying para-
graph (1), (2), or (3), be treated as actually owned by such person, 
but stock constructively owned by an individual by reason of the 
application of paragraph (2) or (3) shall not be treated as owned 
by him for the purpose of again applying either of such paragraphs 
in order to make another the constructive owner of such stock. 
(d) AMOUNT OF GAIN W H E R E Loss PREVIOUSLY DISALLOWED.— 
If— 
(1) in the case of a sale or exchange of property to the taxpayer 
a loss sustained by the transferor is not allowable to the trans-
feror as a deduction by reason of subsection (a) (1) (or by reason 
of section 24 (b) of the Internal Revenue Code of 1939); and 
(2) after December 31, 1953, the taxpayer sells or otherwise dis-
poses of such property (or of other property the basis of which in 
his hands is determined directly or indirectly by reference to such 
property) at a gain, 
§ 267(d)(2) 
80 
INTERNAL REVENUE CODE OF 1954 
then such gain shall be recognized only to the extent that it exceeds 
so much of such loss as is properly allocable to the property sold or 
otherwise disposed of by the taxpayer. 
This subsection applies with 
respect to taxable years ending after December 31, 1953. This sub-
section shall not apply if the loss sustained by the transferor is not 
allowable to the transferor as a deduction by reason of section 1091 
(relating to wash sales) or by reason of section 118 of the Internal 
Kevenue Code of 1939. 
SEC. 268. SALE OF LAND WITH UNHARVESTED CROP. 
Where an unharvested crop sold by the taxpayer is considered 
under the provisions of section 1231 as "property used in the trade or 
business", in computing taxable income no deduction (whether or not 
for the taxable year of the sale and whether for expenses, depreciation, 
or otherwise) attributable to the production of such crop shall be 
allowed. 
SEC. 269. ACQUISITIONS MADE TO EVADE OR AVOID INCOME TAX. 
(a) I N GENERAL.—If— 
(1) any person or persons acquire, or acquired on or after October 
8, 1940, directly or indirectly, control of a corporation, or 
(2) any corporation acquires, or acquired on or after October 8, 
1940, directly or indirectly, property of another corporation, not 
controlled, directly or indirectly, immediately before such acquisi-
tion, by such acquiring corporation or its stockholders, the basis 
of which property, in the hands of the acquiring corporation, is 
determined by reference to the basis in the hands of the transferor 
corporation, 
and the principal purpose for which such acquisition was made is 
evasion or avoidance of Federal income tax by securing the benefit 
of a deduction, credit, or other allowance which such person or cor-
poration would not otherwise enjoy, then such deduction, credit, or 
other allowance shall not be allowed. For purposes of paragraphs (1) 
and (2), control means the ownership of stock possessing at least 
50 percent of the total combined voting power of all classes of stock 
entitled to vote or at least 50 percent of the total value of shares of 
all classes of stock of the corporation. 
(b) POWER OF SECRETARY OR H I S DELEGATE T O ALLOW DEDUC-
TION, ETC., IN PART.—In any case to which subsection (a) applies the 
Secretary or his delegate is authorized— 
(1) to allow as a deduction, credit, or allowance any part of any 
amount disallowed by such subsection, if he determines that such 
allowance wUl not result in the evasion or avoidance of Federal 
income tax for which the acquisition was made; or 
(2) to distribute, apportion, or allocate gross income, and dis-
tribute, apportion, or allocate the deductions, credits, or allowances 
the benefit of which was sought to be secured, between or among the 
corporations, or properties, or parts thereof, involved, and to allow 
such deductions, credits, or allowances so distributed, apportioned, 
or allocated, but to give effect to such allowance only to such extent 
as he determines will not result in the evasion or avoidance of 
Federal income tax for which the acquisition was made; or 
(3) to exercise his powers in part under paragraph (1) and in 
part under paragraph (2). 
§ 267(d) 
/ 
; 
CH. 1 
NORMAL TAXES AND SURTAXES 
81 
(c) PRESUMPTION 
IN 
CASE 
OF DISPROPORTIONATE 
PURCHASE 
PRICE.—The fact that the consideration paid upon an acquisition by 
any person or corporation described in subsection (a) is substantially 
disproportionate to the aggregate— 
(1) of the adjusted basis of the property of the corporation (to 
the extent attributable to the interest acquired specified in para-
graph (1) of subsection (a)), or of the property acquired specified 
in paragraph (2) of subsection (a); and 
(2) of the tax benefits (to the extent not reflected in the adjusted 
basis of the property) not available to such person or corporation 
otherwise than as a result of such acquisition, 
shall be prima facie evidence of the principal purpose of evasion or 
avoidance of Federal income tax. This subsection shall apply only 
with respect to acquisitions after March 1, 1954. 
SEC. 270. LIMITATION ON DEDUCTIONS ALLOWABLE TO INDIVIDUALS 
IN CERTAIN CASES. 
(a) RECOMPUTATION 
OF TAXABLE INCOME.—If the deductions 
allowed by this chapter or the corresponding provisions of prior reve-
nue laws (other than specially treated deductions, as defined in sub-
section (b)) allowable to an individual (except for the provisions of this 
section or the corresponding provisions of prior revenue laws) and 
attributable to a trade or business carried on by him for 5 consecutive 
taxable years have, in each of such years (including at least one year 
to which this subtitle applies), exceeded by more than $50,000 the 
gross income derived from such trade or business, the taxable income 
(computed under section 63 or the corresponding provisions of prior 
revenue laws) of such individual for each of such years shall be recom-
puted. 
For the purpose of such recomputation in the case of any 
such taxable year, such deductions shall be allowed only to the extent 
of $50,000 plus the gross income attributable to such trade or business, 
except that the net operating loss deduction, to the extent attributable 
to such trade or business, shall not be allowed. 
(b) SPECIALLY TREATED DEDUCTIONS.—For the purpose of sub-
section (a) the specially treated deductions shall be taxes, interest, 
casualty and abandonment losses connected with a trade or business 
deductible under section 165 (c) (1), losses and expenses of the trade 
or business of farming which are directly attributable to drought, 
the net operating loss deduction allowed by section 172, and expendi-
tures as to which taxpayers are given the option, under law or regu-
lations, either (1) to deduct as expenses when incurred or (2) to defer 
or capitalize. 
(c) REDETERMINATION OF TAX.—On the basis of the taxable income 
computed under the provisions of subsection (a) for each of the 5 
consecutive taxable years specified in such subsection, the tax imposed 
by this subtitle or the corresponding provisions of prior revenue laws 
shall be redetermined for each such taxable year. 
If for any such 
taxable year assessment of a deficiency is prevented (except for the 
provisions of section 1311 and following) by the operation of any law 
or rule of law (other than section 7122, relating to compromises), any 
increase in the tax previously determined for such taxable year shall 
be considered a deficiency for purposes of this section. 
For purposes 
of this section, the term "tax previously determined" shall have the 
meaning assigned to such term by section 1314 (a) (1). 
§270 (c) 
82 
INTERNAL REVENUE CODE OF 
1954 
(d) EXTENSION OF STATUTE OF LIMITATIONS.—Notwithstanding 
any law or rule of law (other than section 7122, relating to compro-
mises), any amount determined as a deficiency under subsection (c), 
or which would be so determined if assessment were prevented in the 
manner described in subsection (c), with respect to any taxable year 
may be assessed as if on the date of the expiration of the time prescribed 
by law for the assessinent of a deficiency for the fifth taxable year of 
the 5 consecutive taxable years specified in subsection (a), 1 year 
remained before the expiration of the period of limitation upon assess-
ment for any such taxable year. 
SEC. 271. DEBTS OWED BY POLITICAL PARTIES, ETC. 
(a) GENERAL RULE.—In the case of a taxpayer (other than a bank 
as defined in section 581) no deduction shall be allowed under section 
166 (relating to bad debts) or under section 165 (g) (relating to 
worthlessness of securities) by reason of the worthlessness of any debt 
owed by a political party. 
(b) DEFINITIONS.— 
(1) POLITICAL PARTY.—For purposes of subsection (a), the term 
"political party" means— 
(A) a political party; 
(B) a national, State, or local committee of a political party; or 
(C) a committee, association, or organization which accepts 
contributions or makes expenditures for the purpose of influencing 
or attempting to influence the election of presidential or vice-
presidential electors or of any individual whose name is presented 
for election to any Federal, State, or local elective public office, 
whether or not such individual is elected. 
(2) CONTRIBUTIONS.—For purposes of paragraph (1) (C), the 
term "contributions" includes a gift, subscription, loan, advance, or 
deposit, of money, or anything of value, and includes a contract, 
promise, or agreement to make a contribution, whether or not 
legally enforceable. 
(3) EXPENDITURES.—For purposes of paragraph (1) (C), the 
term "expenditures" includes a payment, distribution, loan, ad-
vance, deposit, or gift, of money, or anything of value, and includes 
a contract, promise, or agreement to make an expenditure, whether 
or not legally enforceable. 
SEC. 272. DISPOSAL OF COAL. 
Where the disposal of coal is covered by section 631, no deduction 
shall be allowed for expenditures attributable to the making and 
administering of the contract under which such disposition occurs and 
to the preservation of the economic interest retained under such 
contract, except that if in any taxable year such expenditures plus 
the adjusted depletion basis of the coal disposed of in such taxable year 
exceed the amount realized under such contract, such excess, to the 
extent not availed of as a reduction of gain under section 1231, shall 
be a loss deductible under section 165 (a). This section shall not 
apply to any taxable year during which there is no income under the 
contract. 
§ 279(d) 
CH. 1—NORMAL TAXES AND SURTAXES 
83 
SEC. 273. HOLDERS OF LIFE OR TERMINABLE INTEREST. 
Amounts paid under the laws of a State, a Territory, the District 
of Columbia, a possession of the United States, or a foreign country 
as income to the holder of a life or terminable interest acquired by 
gift, bequest, or inheritance shall not be reduced or diminished by any 
deduction for shrinkage (by whatever name called) in the value of 
such interest due to the lapse of time. 
§273 
84 
INTERNAL REVENUE CODE OF 1954 
Subchapter C—Corporate Distributions and Adjustments 
Part 
I. Distributions by corporations. 
Part II. Corporate liquidations. 
Part III. Corporate organizations and reorganizations. 
Part IV. Insolvency reorganizations. 
Part 
V. Carryovers. 
Part VI. Effective date of subchapter C. 
PART I—DISTRIBUTIONS BY CORPORATIONS 
Subpart A. Effects on recipients. 
Subpart B. Effects on corporation. 
Subpart C. Definitions; constructive ownership of stock. 
Subpart A—^Effects on Recipients 
Sec. 301. Distributions of property. 
Sec. 302. Distributions in redemption of stock. 
Sec. 303. Distributions in redemption of stock to pay death taxes. 
Sec. 304. Redemption through use of related corporations. 
Sec. 305. Distributions of stock and stock rights. 
Sec. 306. Dispositions of certain stock. 
Sec. 307. Basis of stock and stock rights acquired in distributions. 
SEC. 301. DISTRIBUTIONS OF PROPERTY. 
(a) I N GENERAL.—Except as otherwise provided in this chapter, a 
distribution of property (as defined in section 317 (a)) made by a 
corporation to a shareholder with respect to its stock shall be treated 
in the manner provided in subsection (c). 
(b) AMOUNT DISTRIBUTED.— 
(1) GENERAL RULE.—For purposes of this section, the amount 
of any distribution shall be— 
(A) NONCORPORATE DISTRIBUTEES.—If the shareholder is not 
a corporation, the amount of money received, plus the fair market 
value of the other property received. 
(B) CORPORATE DISTRIBUTEES.—If the shareholder is a corpo-
ration, the amount of money received, plus whichever of the 
following is the lesser: 
(i) the fair market value of the other property received; or 
(ii) the adjusted basis (in the hands of the distributing cor-
poration immediately before the distribution) of the other 
property received, increased in the amount of gain to the dis-
tributing corporation which is recognized under subsection (b) 
or (c) of section 311. 
(2) REDUCTION FOR LIABILITIES.— The amount of any distribu-
tion determined under paragraph (1) shall be reduced (but not 
below zero) by— 
(A) the amount of any liability of the corporation assumed by 
the shareholder in connection with the distribution, and 
(B) the amount of any liability to which the property received 
by the shareholder is subject immediately before, and immediately 
after, the distribution. 
§301 
CH. I—NORMAL TAXES AND SURTAXES 
85 
(3) DETERMINATION OF FAIR MARKET VALUE.—For purposes of 
this section, fair market value shall be determined as of the date of 
the distribution. 
(c) AMOUNT TAXABLE.—In the case of a distribution to which sub-
section (a) applies— 
(1) AMOUNT CONSTITUTING DIVIDEND.—That portion of the dis-
tribution which is a dividend (as defined in section 316) shall be 
included in gross income. 
(2) AMOUNT APPLIED AGAINST BASIS.—That portion of the dis-
tribution which is not a dividend shall be applied against and reduce 
the adjusted basis of the stock. 
(3) AMOUNT IN EXCESS OF BASIS.— 
(A) I N GENERAL.—Except as provided in subparagraph (B), 
that portion of the distribution which is not a dividend, to the 
extent that it exceeds the adjusted basis of the stock, shall be 
treated as gain from the sale or exchange of property. 
(B) DISTRIBUTIONS OUT OF INCREASE IN VALUE ACCRUED BE-
FORE MARCH 1, 1913.—That portion of the distribution which is 
not a dividend, to the extent that it exceeds the adjusted basis of 
the stock and to the extent that it is out of increase in value ac-
crued before March 1, 1913, shall be exempt from tax. 
(d) BASIS.—The basis of property received in a distribution to 
which subsection (a) applies shall be— 
(1) NONCORPORATE DISTRIBUTEES.—If the shareholder is not a 
corporation, the fair market value of such property. 
(2) CORPORATE DISTRIBUTEES.—If the shareholder is a corpora-
tion, whichever of the following is the lesser: 
(A) the fair market value of such property; or 
(B) the adjusted basis (in the hands of the distributing cor-
poration immediately before the distribution) of such property, 
increased in the amount of gain to the distributing corporation 
which is recognized under subsection (b) or (c) of section 311. 
(e) EXCEPTION 
FOR CERTAIN 
DISTRIBUTIONS 
BY 
PERSONAL 
SERVICE CORPORATIONS.—Any distribution made by a corporation, 
which was classified as a personal service corporation under the pro-
visions of the Revenue Act of 1918 or the Revenue Act of 1921, out 
of its earnings or profits which were taxable in accordance with the 
provisions of section 218 of the Revenue Act of 1918 (40 Stat. 1070), 
or section 218 of the Revenue Act of 1921 (42 Stat. 245), shall be 
exempt from tax to the distributees. 
(f) SPECIAL RULES.— 
(1) For distributions in redemption of stock, see section 302. 
(2) For distributions in partial or complete liquidation, see part II 
(sec. 331 and following). 
(3) For distributions in corporate organizations and reorganizations, 
see part III (sec. 351 and following). 
(4) For partial exclusion from gross income of dividends received 
by individuals, see section 116. 
SEC. 302. DISTRIBUTIONS IN REDEMPTION OF STOCK, 
(a) GENERAL RULE.—If a corporation redeems its stock (within 
the meaning of section 317 (b)), and if paragraph (1), (2), (3), or (4) 
of subsection (b) applies, such redemption shall be treated as a dis-
tribution in part or full payment in exchange for the stock. 
§ 302(a) 
86 
INTERNAL REVENUE CODE OF 1954 
(b) REDEMPTIONS TREATED AS EXCHANGES.— 
(1) REDEMPTIONS NOT EQUIVALENT TO DIVIDENDS.—Subsection 
(a) shall apply if the redemption is not essentially equivalent to a 
dividend. 
(2) SUBSTANTIALLY DISPROPORTIONATE REDEMPTION OF STOCK.— 
(A) I N GENERAL.—Subsection ^a) shall apply if the distribution 
is substantially disproportionate with respect to the shareholder. 
(B) LIMITATION.—This paragraph shall not apply unless imme-
diately after the redemption the shareholder owns less than 50 
percent of the total combined voting power of aU classes of 
stock entitled to vote. 
(C) DEFINITIONS.—For purposes of this paragraph, the dis-
tribution is substantially disproportionate if— 
(i) the ratio which the voting stock of the corporation owned 
by the shareholder immediately after the redemption bears 
to all of the voting stock of the corporation at such time, 
is less than 80 percent of— 
(ii) the ratio which the voting stock of the corporation owned 
by the shareholder immediately before the redemption bears 
to all of the voting stock of the corporation at such time. 
For purposes of this paragraph, no distribution shall be treated 
as substantially disproportionate unless the shareholder's owner-
ship of the common stock of the corporation (whether voting or 
nonvoting) after and before redemption also meets the 80 percent 
requirement of the preceding sentence. 
For purposes of the 
preceding sentence, if there is more than one class of common 
stock, the determinations shall be made by reference to fair 
market value. 
(D) SERIES OF REDEMPTIONS.—This paragraph shall not apply 
to any redemption made pursuant to a plan the purpose or effect 
of which is a series of redemptions resulting in a distribution 
which (in the aggregate) is not substantially disproportionate 
with respect to the shareholder. 
(3) TERMINATION OF SHAREHOLDER'S INTEREST.—Subsection (a) 
shall apply if the redemption is in complete redemption of all of the 
stock of the corporation owned by the shareholder. 
(4) STOCK 
ISSUED 
BY RAILROAD 
CORPORATIONS IN 
CERTAIN 
REORGANIZATIONS.—^Subsectiou (a) shall apply if the redemption 
is of stock issued by a railroad corporation (as defined in section 
77 (m) of the Bankruptcy Act, as amended) pursuant to a plan of 
reorganization under section 77 of the Bankruptcy Act. 
(5) APPLICATION OF PARAGRAPHS.—In determining whether a 
redemption meets the requirements of paragraph (1), the fact that 
such redemption faUs to meet the requirements of paragraph (2), 
(3), or (4) shall not be taken into account. 
If a redemption meets 
the requirements of paragraph (3) and also the requirements of 
paragraph (1), (2), or (4), then so much of subsection (c) (2) as 
would (but for this sentence) apply in respect of the acquisition of 
an interest in the corporation within the 10-year period beginning 
on the date of the distribution shall not apply. 
(c) CONSTRUCTIVE OWNERSHIP OF STOCK.— 
302(b) 
CH. 1—NORMAL TAXES AND SURTAXES 
8 7 
(1) I N GENERAL.—Ex;cept as provided in paragraph (2) of this 
subsection, section 318 (a) shall apply in determining the ownership 
of stock for purposes of this section. 
(2) FOR DETERMINING TERMINATION OF INTEREST.— 
(A) In the case of a distribution described in subsection (b) 
(3), section 318 (a) (1) shall not apply if— 
(i) immediately after the distribution the distributee has 
no interest in the corporation (including an interest as ofl5cer, 
director, or employee), other than an interest as a creditor, 
(ii) the distributee does not acquire any such interest (other 
than stock acquired by bequest or inheritance) within 10 
years from the date of such distribution, and 
(iii) the distributee, at such time and in such manner as the 
Secretary or his delegate by regulations prescribes, files an 
agreement to notify the Secretary or his delegate of any 
acquisition described in clause (ii) and to retain such records 
as may be necessary for the application of this paragraph. 
If the distributee acquires such an interest in the corporation 
(other than by bequest or inheritance) within 10 years from the 
date of the distribution, then the periods of limitation provided 
in sections 6501 and 6502 on the making of an assessment and 
the collection by levy or a proceeding in court shall, with respect 
to any deficiency (including interest and additions to the tax) 
resulting from such acquisition, include one year immediately 
following the date on which the distributee (in accordance with 
regulations prescribed by the Secretary or his delegate) notifies 
the Secretary or his delegate of such acquisition; and such assess-
ment and collection may be made notwithstanding any provision 
of law or rule of law which otherwise would prevent such assess-
ment and collection. 
(B) Subparagraph (A) of this paragraph shall not apply if— 
(i) any portion of the stock redeemed was acquired, directly 
or indirectly, within the 10-year period ending on the date of 
the distribution by the distributee from a person the ownership 
of whose stock would (at the time of distribution) be attribut-
able to the distributee under section 318 (a), or 
(ii) any person owns (at the time of the distribution) stock 
, 
the ownership of which is attributable to the distributee under 
section 318 (a) and such person acquired any stock in the cor-
poration, directly or indirectly, from the distributee within the 
10-year period ending on the date of the distribution, unless 
such stock so acquired from the distributee is redeemed in the 
same transaction. 
The preceding sentence shall not apply if the acquisition (or, in 
the case of clause (ii), the disposition) by the distributee did not 
have as one of its principal purposes the avoidance of Federal 
income tax. 
(d) REDEMPTIONS TREATED AS DISTRIBUTIONS or 
PROPERTY.— 
Except as otherwise provided in this subchapter, if a corporation 
redeems its stock (within the meaning of section 317 (b)), and if sub-
section (a) of this section does not apply, such redemption shall be 
treated as a distribution of property to which section 301 applies. 
§ 302(d) 
88 
INTERNAL REVENUE CODE OF 1954 
(e) C R O S S KEFERENCJES.— 
For special rules relating to redemption— 
(1) Death Taxes.—Of stock to pay death taxes, see section 303. 
(2) Section 306 Stock.—Of section 306 stock, see section 306. 
(3) Liquidations.—Of stock in partial or complete liquidation, see 
section 331. 
SEC. 303. DISTRIBUTIONS IN REDEMPTION OF STOCK TO PAY DEATH 
TAXES. 
(a) I N GENERAL.—A distribution of property to a shareholder by 
a corporation in redemption of part or all of the stock of such corpora-
tion which (for Federal estate tax purposes) is included in determining 
the gross estate of a decedent, to the extent that the amount of such 
distribution does not exceed the sum of— 
(1) the estate, inheritance, legacy, and succession taxes (including 
any interest collected as a part of such taxes) imposed because of 
such decedent's death, and 
(2) the amount of funeral and administration expenses allowable 
as deductions to the estate under section 2053 (or under section 
2106 in the case of the estate of a decedent nonresident, not a 
citizen of the United States), 
shall be treated as a distribution in full payment in exchange for the 
stock so redeemed. 
(b) LIMITATIONS ON APPLICATION OF SUBSECTION (a).— 
(1) PERIOD FOR DISTRIBUTION.—Subsection (a) shall apply only 
to amounts distributed after the death of the decedent and— 
(A) within the period of limitations provided in section 6501 (a) 
for the assessment of the Federal estate tax (determined without 
the application of any provision other than section 6501 (a)), or 
within 90 days after the expiration of such period, or 
(B) if a petition for redetermination of a deficiency in such 
estate tax has been filed with the Tax Court within the time 
prescribed in section 6213, at any time before the expiration of 
60 days after the decision of the Tax Court becomes final, 
(2) RELATIONSHIP OF STOCK TO DECEDENT'S ESTATE.— 
(A) IN GENERAL.—Subsection (a) shall apply to a distribution 
by a corporation only if the value (for Federal estate tax purposes) 
of all of the stock of such corporation which is included in deter-
mining the value of the decedent's gross estate is either— 
(i) more than 35 percent of the value of the gross estate of 
such decedent, or 
(ii) more than 50 percent of the taxable estate of such 
decedent. 
(B) SPECIAL RULE FOR STOCK OF TWO OR MORE CORPORATIONS.— 
For purposes of the 35 percent and 50 percent requirements of 
subparagraph (A), stock of two or more corporations, with respect 
to each of which there is included in determining the value of 
the decedent's gross estate more than 75 percent in value of the 
outstanding stock, shall be treated as the stock of a single cor-
poration. 
For the purpose of the 75 percent requirement of the 
preceding sentence, stock which, at the decedent's death, repre-
sents the surviving spouse's interest in property held by the 
decedent and the surviving spouse as community property shall 
§ 302(e) 
CH, 1—NORMAL TAXES AND SURTAXES 
B9 
be treated as having been included in determining the value of 
the decedent's gross estate, 
(c) STOCK WITH SUBSTITUTED BASIS.—If— 
(1) a shareholder owns stock of a corporation (referred to in this 
subsection as ''new stock") the basis of which is determined by 
reference to the basis of stock of a corporation (referred to in this 
'. subsection as "old stock"), 
(2) the old stock was included (for Federal estate tax purposes) 
in determining the gross estate of a decedent, and 
(3) subsection (a) would apply to a distribution of property 
to such shareholder in redemption of the old stock, 
then, subject to the limitation specified in subsection (b) (1), sub-
section (a) shall apply in respect of a distribution in redemption of 
the new stock. 
SEC. 304. REDEMPTION THROUGH USE OF RELATED CORPORATIONS. 
(a) TEEATMENT OF CERTAIN STOCK PURCHASES,— 
(1) ACQUISITION BY RELATED CORPORATION (OTHER THAN SUB-
SIDIARY).—For purposes of sections 302 and 303, if— 
(A) one or more persons are in control of each of two corpo-
rations, and 
(B) in return for property, one of the corporations acquires 
stock in the other corporation from the person (or persons) so in 
control, 
then (unless paragraph (2) applies) such property shall be treated 
as a distribution in redemption of the stock of the corporation 
acquiring such stock. 
In any such case, the stock so acquired shall 
be treated as having been transferred by the person from whom 
acquired, and as having been received by the corporation acquiring 
. it, as a contribution to the capital of such corporation. 
(2) ACQUISITION BY SUBSIDIARY.—For purposes of sections 302 
and 303, if— 
(A) in return for property, one corporation acquires from a 
shareholder of another corporation stock in such other corpora-
tion, and 
(B) the issuing corporation controls the acquiring corporation, 
then such property shall be treated as a distribution in redemption 
of the stock of the issuing corporation. 
(b) 
SPECIAL RULES FOR APPLICATION OF SUBSECTION 
(a).— 
(1) RULE FOR DETERMINATIONS UNDER SECTION 302 (b).—^In the 
case of any acquisition of stock to which subsection (a) of this sec-
tion applies, determinations as to whether the acquisition is, by 
reason of section 302 (b), to be treated as a distribution in part or 
full payment in exchange for the stock shall be made by reference 
to the stock of the issuing corporation. 
In applying section 318 (a) 
(relating to constructive ownership of stock) with respect to section 
302 (b) for purposes of this paragraph, section 318 (a) (2) (C) shall 
' be applied without regard to the 50 percent limitation contained 
: therein. 
(2) AMOUNT CONSTITUTING DIVIDEND.— 
(A) WHERE SUBSECTION (a) (i) APPLIES.^—In the case of any 
acquisition of stock to which paragraph (1) (and not paragraph 
(2)) of subsection (a) of this section applies, the determination of 
§ 304(b)(2)(A) 
49012°—54 
9 
90 
INTERNAL REVENUE CODE OF 1954 
the amount which is a dividend shall be made solely by reference 
to the earnings and profits of the acquiring corporation. 
(B) WHERE SUBSECTION (a) (2) APPLIES.—In the case of any 
acquisition of stock to which subsection (a) (2) of this section 
applies, the determination of the amount which is a dividend 
shall be made as if the property were distributed by the acquiring 
corporation to the issuing corporation and immediately thereafter 
distributed by the issuing corporation, 
(c) 
CONTROL.— 
(1) I N GENERAL.^—For purposes of this section, control means 
the ownership of stock possessing at least 50 percent of the total 
combined voting power of all classes of stock entitled to vote, or at 
least 50 percent of the total value of shares of all classes of stock. 
If a person (or persons) is in control (within the meaning of the 
preceding sentence) of a corporation which in turn owns at least 50 
percent of the total combined voting power of all stock entitled to 
vote of another corporation, or owns at least 50 percent of the total 
value of the shares of all classes of stock of another corporation, then 
such person (or persons) shall be treated as in control of such other 
corporation. 
(2) CONSTRUCTIVE OWNERSHIP.—Section 318 (a) (relating to the 
constructive ownership of stock) shall apply for purposes of deter-
mining control under paragraph (1). 
For purposes of the preceding 
sentence, section 318 (a) (2) (C) shall be applied without regard to 
the 50 percent limitation contained therein. 
SEC. 305. DISTRIBUTIONS OF STOCK AND STOCK RIGHTS. 
(a) GENERAL RULE.—Except as provided in subsection (b), gross 
income does not include the amount of any distribution made by a 
corporation to its shareholders, with respect to the stock of such 
corporation, in its stock or in rights to acquire its stock. 
(b) DISTRIBUTIONS IN LIEU OF MONEY.—Subsection (a) shall not 
apply to a distribution by a corporation of its stock (or rights to 
acquire its stock), and the distribution shall be treated as a distribution 
of property to which section 301 applies— 
(1) to the extent that the distribution is made in discharge of 
preference dividends for the taxable year of the corporation in 
which the distribution is made or for the preceding taxable year; or 
(2) if the distribution is, at the election of any of the shareholders 
(whether exercised before or after the declaration thereof), payable 
either— 
(A) in its stock (or in rights to acquire its stock), or 
(B) in property. 
(c) CROSS REFERENCES.—• 
For special rules— 
(1) Relating to the receipt of stock and stock rights in corporate 
organizations and reorganizations, see part III (sec. 351 and following). 
(2) In the case of a distribution which results in a gift, see section 
2501 and following. 
(3) In the case of a distribution which has the effect of the payment 
of compensation, see section 61 (a) (1). 
SEC. 306. DISPOSITIONS OF CERTAIN STOCK. 
(a) GENERAL RULE.—If a shareholder sells or otherwise disposes 
of section 306 stock (as defined in subsection (c))— 
§ 304(b) (2) (A) 
CH. 1—NORMAL TAXES AND SURTAXES 
9 1 
(1) DISPOSITIONS OTHER THAN REDEMPTIONS.—If such disposi-
tion is not a redemption (within the meaning of section 317 (b))— 
(A) The amount reaUzed shall be treated as gain from the 
sale of property which is not a capital asset. 
This subparagraph 
shall not apply to the extent that— 
(i) the amount realized, exceeds 
(ii) such stock's ratable share of the amount which would 
have been a dividend at the time of distribution if (in lieu of 
section 306 stock) the corporation had distributed money in 
an amount equal to the fair market value of the stock at the 
time of distribution. 
(B) Any excess of the amount realized over the sum of— 
(i) the amount treated under subparagraph (A) as gain 
from the sale of property which is not a capital asset, plus 
(ii) the adjusted basis of the stock, 
shall be treated as gain from the sale of such stock. 
(C) No loss shall be recognized. 
(2) REDEMPTION.—If the disposition is a redemption, the amount 
realized shall be treated as a distribution of property to which 
section 301 applies. 
(b) EXCEPTIONS.—Subsection (a) shall not apply—• 
(1) TERMINATION OF SHAREHOLDER'S INTEREST.— 
(A) NOT IN REDEMPTION.—If the disposition— 
(i) is not a redemption; 
(ii) is not, directly or indirectly, to a person the ownership 
of whose stock would (under section 318 (a)) be attributable 
to the shareholder; and 
(iii) terminates the entire stock interest of the shareholder 
in the corporation (and for purposes of this clause, section 318 
(a) shall apply). 
(B) I N REDEMPTION.—If the disposition is a redemption and 
section 302 (b) (3) applies. 
(2) LIQUIDATIONS.—If the section 306 stock is redeemed in a 
distribution in partial or complete liquidation to which part II 
(sec. 331 and following) applies. 
(3) WHERE GAIN OR LOSS IS NOT RECOGNIZED.—To the extent 
that, under any provision of this subtitle, gain or loss to the share-
holder is not recognized with respect to the disposition of the section 
306 stock. 
(4) TRANSACTIONS NOT IN AVOIDANCE.—If it is established to the 
satisfaction of the Secretary or his delegate— 
(A) that the distribution, and the disposition or redemption, or 
(B) in the case of a prior or simultaneous disposition (or re-
demption) of the stock with respect to which the section 306 stock 
disposed of (or redeemed) was issued, that the disposition (or 
redemption) of the section 306 stock, 
was not in pursuance of a plan having as one of its principal purposes 
the avoidance of Federal income tax. 
(c) SECTION 306 STOCK DEFINED.— 
* -s; 
(1) I N GENERAL,—For purposes of this subchapter, the term 
''section 306 stock" means stock which meets the requirements of 
subparagraph (A), (B), or (C) of this paragraph. 
§306(0(1) 
92 
INTERNAL REVENUE CODE OF 1964 
(A) DISTRIBUTED TO SELLER.^—Stock (other than common stock 
issued with respect to common stock) which was distributed to the 
shareholder selhng or otherwise disposing of such stock if, by rea-
son of section 305 (a), any part of such distribution was not in-
cludible in the gross income of the shareholder. 
(B) 
RECEIVED IN A CORPORATE REORGANIZATION OR SEPARA-
TION.—Stock which is not common stock and— 
(i) which was received, by the shareholder selling or other-
wise disposing of such stock, in pursuance of a plan of reorgan-
ization (within the meaning of section 368 (a)), or in a dis-
tribution or exchange to which section 355 (or so much of sec-
tion 356 as relates to section 355) applied, and 
(ii) with respect to the receipt of which gain or loss to the 
shareholder was to any extent not recognized by reason of part 
III, but only to the extent that either the effect of the transac-
tion was substantially the same as the receipt of a stock 
dividend, or the stock was received in exchange for section 
306 stock. 
For purposes of this section, a receipt of stock to which the 
foregoing provisions of this subparagraph apply shall be treated 
as a distribution of stock. 
(C) 
STOCK HAVING TRANSFERRED OR SUBSTITUTED BASIS.—• 
Except as otherwise provided in subparagraph (B), stock the 
basis of which (in the hands of the shareholder selling or otherwise 
disposing of such stock) is determined by reference to the basis 
(in the hands of such shareholder or any other person) of section 
306 stock. 
(2) EXCEPTION WHERE NO EARNINGS AND PROFITS.^—For purposes 
of this section, the term "section 306 stock" does not include any 
stock no part of the distribution of which would have been a-
dividend at the time of the distribution if money had been dis-
tributed in lieu of the stock. 
(d) STOCK RIGHTS.—For purposes of this section— 
(1) stock rights shall be treated as stock, and 
(2) stock acquired through the exercise of stock rights shall be 
treated as stock distributed at the time of the distribution of the 
stock rights, to the extent of the fair market value of such rights at 
the time of the distribution. 
(e) CONVERTIBLE STOCK.^—For purposes of subsection (c)— 
(1) if section 306 stock was issued with respect to common stock 
and later such section 306 stock is exchanged for cominon stock in 
the same corporation (whether or not such exchange is pursuant 
to a conversion privilege contained in the section 306 stock), then 
(except as provided in paragraph (2)) the common stock so received 
shall not be treated as section 306 stock; and 
(2) common stock with respect to which there is a privilege of 
converting into stock other than common stock (or into property), 
whether or not the conversion privilege is contained in such stock, 
shall not be treated as common stock. 
(f) SOURCE OF GAIN.—The amount treated under subsection (a) (1) 
(A) as gain from the sale of property which is not a capital asset shall, 
for purposes of part I of subchapter N (sec. 861 and following, relating 
§ 306(c)(1) (A) 
CH. 1—NORMAL TAXES AND SURTAXES 
93 
to determination of sources of income), be treated as derived from 
the same source as would have been the source if money had been 
received from the corporation as a dividend at the time of the dis-
tribution of such stock. 
If under the preceding sentence such amount 
is determined to be derived from sources within the United States, 
such amount shall be considered to be fixed or determinable annual or 
periodical gains, profits, and income within the meaning of section 
871 (a) or section 881 (a), as the case may be. 
(g) CHANGE IN TERMS AN-D CONDITIONS OF STOCK.—If a substan-
tial change is made in the terms and conditions of any stock, then, 
for purposes of this section— 
(1) the fair market value of such stock shall be the fair market 
value at the time of the distribution or at the time of such change, 
whichever such value is higher; 
(2) such stock's ratable share of the amount which would have 
been a dividend if money had been distributed in lieu of stock 
shall be determined as of the time of distribution or as of the time 
of such change, whichever such ratable share is higher; and 
(3) subsection (c) (2) shall not apply unless the stock meets the 
requirements of such subsection both at the time of such distribu-
tion and at the time of such change. 
(h) STOCK RECEIVED IN DISTRIBUTIONS AND REORGANIZATIONS TO 
WHICH 1939 CODE APPLIED.—-If stock— 
(1) was received in a distribution or reorganization to which 
the Internal Revenue Code of 1939 (or the corresponding provisions 
of prior law) applied, 
(2) such stock would have been section 306 stock if this Code 
applied to such distribution or reorganization, and 
(3) such stock is disposed of or redeemed on or after June 22, 
1954, 
then the foregoing subsections of this section shall not apply in 
respect of such disposition or redemption. The extent to which such 
disposition or redemption shall be treated as a dividend shall be deter-
mined as if the Internal Revenue Code of 1939 (as modified by the 
provisions of this Code other than the foregoing subsections of this 
section) continued to apply in respect of such disposition or redemp-
tion. 
SEC. 307. BASIS OF STOCK AND STOCK RIGHTS ACQUIRED IN DIS-
TRIBUTIONS. 
(a) GENERAL RULE.—If a shareholder in a corporation receives 
its stock or rights to acquire its stock (referred to in this subsection 
as "new stock") in a distribution to which section 305 (a) applies, 
then the basis of such new stock and of the stock with respect to 
which it is distributed (referred to in this section as "old stock"), 
respectively, shall, in the shareholder's hands, be determined by 
allocating between the old stock and the new stock the adjusted basis 
of the old stock. 
Such allocation shall be made under regulations 
prescribed by the Secretary or his delegate. 
(b) EXCEPTION FOR CERTAIN STOCK RIGHTS.—• 
(1) I N GENERAL.—If— 
(A) a corporation distributes rights to acquire its stock to a 
shareholder in a distribution to which section 305 (a) applies, 
and 
§ 307(b)(1)(A) 
94 
INTERNAL REVENUE CODE OF 1954 
(B) the fair market value of such rights at the time of the 
distribution is less than 15 percent of the fair market value of 
the old stock at such time, 
then subsection (a) shall not apply and the basis of such rights 
shall be zero, unless the taxpayer elects under paragraph (2) of this 
subsection to determine the basis of the old stock and of the stock 
rights under the method of allocation provided in subsection (a). 
(2) ELECTION.—^The election referred to in paragraph (1) shall 
be made in the return filed within the time prescribed by law (includ-
ing extensions thereof) for the taxable year in which such rights 
were received. 
Such election shall be made in such manner as the 
Secretary or his delegate may by regulations prescribe, and shall be 
irrevocable when made, 
(c) CROSS REFERENCE.—• 
For basis of stock and stock rights distributed before June 22,1954, 
see section 1052. 
Subpart B—Effects on Corporation 
Sec. 311. Taxability of corporation on distribution. 
Sec. 312. Effect on earnings and profits. 
SEC. 311. TAXABILITY OF CORPORATION ON DISTRIBUTION. 
(a) GENERAL RULE.—Except as provided in subsections (b) and 
(c) of this section and section 453 (d), no gain or loss shall be recog-
nized to a corporation on the distribution, with respect to its stock, 
of— 
_ 
(1) its stock (or rights to acquire its stock), or 
(2) property. 
(b) LIFO INVENTORY.— 
(1) RECOGNITION OF GAIN.—If a corporation inventorying goods 
under the method provided in section 472 (relating to last-in, first-* 
out inventories) distributes inventory assets (as defined in para-
graph (2) (A)), then the amount (if any) by which— 
(A) the inventory amount (as defined in paragraph (2) (B)) 
of such assets under a method authorized by section 471 (relat-
ing to general rule for inventories), exceeds 
(B) the inventory amount of such assets under the method 
provided in section 472, 
shall be treated as gain to the corporation recognized from the sale 
of such inventory assets. 
(2) DEFINITIONS.—For purposes of paragraph (1)— 
(A) INVENTORY ASSETS.—The term "inventory assets" means 
stock in trade of the corporation, or other property of a kind 
which would properly be included in the inventory of the cor-
poration if on hand at the close of the taxable year. 
(B) INVENTORY AMOUNT.—The 
term 
"inventory 
amount" 
means, in the case of inventory assets distributed during a tax-
able year, the amount of such inventory assets determined as 
if the taxable year closed at the time of such distribution. 
(3) METHOD OF DETERMINING INVENTORY AMOUNT.—For pur-
poses of this subsection, the inventory amount of assets under a 
method authorized by section 471 shall be determined— 
§ 307(b)(1)(B) 
CH. 1 
NORMAL TAXES AND SURTAXES 
95 
(A) if the corporation uses the retail method of valuing inven-
tories under section 472, by using such method, or 
(B) if subparagraph (A) does not apply, by using cost or 
market, whichever is lower. 
(c) LIABILITY IN EXCESS OF BASIS.—If— 
(1) a corporation distributes property to a shareholder with re-
spect to its stock, 
(2) such property is subject to a liability, or the shareholder 
assumes a liability of the corporation in connection with the dis-
tribution, and 
(3) the amount of such liability exceeds the adjusted basis (in the 
hands of the distributing corporation) of such property, 
then gain shall be recognized to the distributing corporation in an 
amount equal to such excess as if the property distributed had been 
sold at the time of the distribution. 
In the case of a distribution of 
property subject to a liability which is not assumed by the share-
holder, the amount of gain to be recognized under the preceding sen-
tence shall not exceed the excess, if any, of the fair market value of such 
property over its adjusted basis. 
SEC. 312. EFFECT ON EARNINGS AND PROFITS. 
(a) GENERAL RULE,—Except as otherwise provided in this section, 
on the distribution of property by a corporation with respect to its 
stock, the earnings and profits of the corporation (to the extent thereof) 
shall be decreased by the sum of— 
(1) the amount of money, 
(2) the principal amount of the obligations of such corporation, 
and 
(3) the adjusted basis of the other property, 
so distributed. 
(b) CERTAIN INVENTORY ASSETS.— 
(1) I N GENERAL.^—On the distribution by a corporation, with 
respect to its stock, of inventory assets (as defined in paragraph 
(2) (A)) the fair market value of which exceeds the adjusted basis 
thereof, the earnings and profits of the corporation— 
(A) shall be increased by the amount of such excess; and 
(B) shall be decreased by whichever of the following is the 
lesser: 
(i) the fair market value of the inventory assets distributed, 
or 
(ii) the earnings and profits (as increased under subpara-
graph (A)). 
(2) 
DEFINITIONS.— 
(A) INVENTORY ASSETS.—For purposes of paragraph (1), the 
term "inventory assets" means— 
(i) stock in trade of the corporation, or other property of a 
kind which would properly be included in the inventory of the 
corporation if on hand at the close of the taxable year; 
(ii) property held by the corporation primarily for sale to 
customers in the ordinary course of its trade or business; and 
(iii) unrealized receivables or fees, except receivables from 
sales or exchanges of assets other than assets described in 
this subparagraph. 
§312(b)(2)(A)(iii) 
96 
INTERNAL REVENUE CODE OF 
1954 
(B) UNREALIZED RECEIVABLES OR FEES.—For purposes of 
subparagraph (A) (iii), the term "unrealized receivables or 
fees" means, to the extent not previously includible in income 
under the method of accounting used by the corporation, any 
rights (contractual or otherwise) to payment for— 
(i) goods delivered, or to be delivered, to the extent that the 
proceeds therefrom would be treated as amounts received from 
the sale or exchange of property other than a capital asset, or 
(ii) services rendered or to be rendered. 
(c) ADJUSTMENTS FOR LIABILITIES, ETC.—-In making the adjust-
ments to the earnings and profits of a corporation under subsection 
(a) or (b), proper adjustment shall be made for— 
(1) the amount of any liability to which the property distributed 
is subject, 
(2) the amount of any liability of the corporation assumed by a 
shareholder in connection with the distribution, and 
(3) any gain to the corporation recognized under subsection (b) 
or (c) of section 311. 
(d) CERTAIN DISTRIBUTIONS OF STOCK AND SECURITIES.— 
(1) I N GENERAL.—The distribution to a distributee by or on 
behalf of a corporation of its stock or securities, of stock or securities 
in another corporation, or of property, in a distribution to which 
this Code applies, shall not be considered a distribution of the 
earnings and profits of any corporation— 
(A) if no gain to such distributee from the receipt of such stock 
or securities, or property, was recognized under this Code, or 
(B) if the distribution was not subject to tax in the hands of 
such distributee by reason of section 305 (a). 
(2) PRIOR DISTRIBUTIONS.—In the case of a distribution of stock 
or securities, or property, to which section 115 (h) of the Internal 
Revenue Code of 1939 (or the corresponding provision of prior law) 
applied, the effect on earnings and profits of such distribution shall 
be determined under such section 115 (h), or the corresponding 
provision of prior law, as the case may be. 
(3) STOCK OR SECURITIES.—For purposes of this subsection, the 
term ''stock or securities" includes rights to acquire stock or 
securities. 
(e) SPECIAL R U L E 
FOR PARTIAL LIQUIDATIONS AND CERTAIN 
REDEMPTIONS.—In the case of amounts distributed in partial liquida-
tion (whether before, on, or after June 22, 1954) or in a redemption 
to which section 302 (a) or 303 applies, the part of such distribution 
which is properly chargeable to capital account shall not be treated 
as a distribution of earnings and profits.. 
(f) EFFECT ON EARNINGS AND PROFITS OF GAIN OR LOSS AND OF 
RECEIPT OF TAX-FREE DISTRIBUTIONS.— 
(1) EFFECT ON EARNINGS AND PROFITS OF GAIN OR LOSS.—The 
gain or loss realized from the sale or other disposition 
(after 
February 28, 1913) of property by a corporation—• 
(A) for the purpose of the computation of the earnings and 
profits of the corporation, shall (except as provided in subpara-
graph (B)) be determined by using as the adjusted basis the ad-
justed basis (under the law applicable to the year in which the 
sale or other disposition was made) for determining gain, except 
§ 312(b)(2)(B) 
CH. 1—NORMAL TAXES AND SURTAXES 
97 
that no regard shall be had to the value of the property as of 
March 1, 1913; but 
(B) for purposes of the computation of the earnings and profits 
of the corporation for any period beginning after February 28, 
1913, shall be determined by using as the adjusted basis the ad-
justed basis (under the law applicable to the year in which the 
sale or other disposition was made) for determining gain. 
- Gain or loss so realized shall increase or decrease the earnings and 
profits to, but not beyond, the extent to which such a realized gain 
or loss was recognized in computing taxable income under the law 
applicable to the year in which such sale or disposition was made. 
Where, in determining the adjusted basis used in computing such 
realized gain or loss, the adjustment to the basis difi'ers from the 
adjustment proper for the purpose of determining earnings and 
profits, then the latter adjustment shall be used in determining the 
increase or decrease above provided. 
For purposes of this sub-
section, a loss with respect to which a deduction is disallowed under 
section 1091 (relating to wash sales of stock or securities), or the 
corresponding provision of prior law, shall not be deemed to be 
recognized. 
(2) 
EFFECT ON EARNINGS AND PROFITS OF RECEIPT OF TAX-FREE 
DISTRIBUTIONS.—Where a corporation receives (after February 28, 
1913) a distribution from a second corporation which (under the 
law applicable to the year in which the distribution was made) was 
not a taxable dividend to the shareholders of the second corporation, 
the amount of such distribution shall not increase the earnings and 
profits of the first corporation in the following cases: 
^ 
(A) no such increase shall be made in respect of the part of 
such distribution which (under such law) is directly applied in 
reduction of the basis of the stock in respect of which the distribu-
tion was made; and 
(B) no such increase shall be made if (under such law) the dis-
tribution causes the basis of the stock in respect of which the 
distribution was made to be allocated between such stock and the 
property received (or such basis would, but for section 307 (b), 
be so allocated), 
(g) 
EARNINGS 
AND 
PROFITS—INCREASE 
IN 
VALUE 
ACCRUED 
BEFORE MARCH 1, 1913.— 
(1) If any increase or decrease in the earnings and profits for 
any period beginning after February 28, 1913, with respect to any 
matter would be different had the adjusted basis of the property 
' involved been determined without regard to its March 1, 1913, 
value, then, except as provided in paragraph (2), an increase 
(properly reflecting such difference) shall be made in that part of 
the earnings and profits consisting of increase in value of property 
accrued before March 1, 1913. 
(2) If the application of subsection (f) to a sale or other disposi-
tion after February 28, 1913, results in a loss which is to be applied 
in decrease of earnings and profits for any period beginning after 
February 28, 1913, then, notwithstanding subsection (f) and in 
lieu of the rule provided in paragraph (1) of this subsection, the 
amount of such loss so to be applied shall be reduced by the amount, 
. 
- 
§312Cg)(2) 
98 
INTERNAL REVENUE CODE OF 1954 
if any, by which the adjusted basis of the property used in deter-
mining the loss exceeds the adjusted basis computed without regard 
to the value of the property on March 1, 1913, and if such amount 
so applied in reduction of the decrease exceeds such loss, the excess 
over such loss shall increase that part of the earnings and profits 
consisting of increase in value of property accrued before March 1, 
1913. 
(h) EARNINGS AND PROFITS 
OF PERSONAL 
SERVICE 
CORPORA-
TIONS.—In the case of a personal service corporation subject for any 
taxable year to supplement S of the Internal Revenue Code of 1939, 
an amount equal to the undistributed supplement S net income of the 
personal service corporation for its taxable year shall be considered as 
paid in as of the close of such taxable year as paid-in surplus or as a 
contribution to capital, and the accumulated earnings and profits as 
of the close of such taxable year shall be correspondingly reduced, if 
such amount or any portion thereof is required to be included as a 
dividend in the gross income of the shareholders. 
(i) ALLOCATION IN CERTAIN CORPORATE SEPARATIONS.—In 
the 
case of a distribution or exchange to which section 355 (or so much of 
section 356 as relates to section 355) applies, proper allocation with 
respect to the earnings and profits of the distributing corporation and 
the controlled corporation (or corporations) shall be made under 
regulations prescribed by the Secretary or his delegate. 
(j) DISTRIBUTION OF PROCEEDS OF LOAN INSURED BY THE UNITED 
STATES.— 
(1) I N GENERAL.—If a corporation distributes property with 
respect to its stock, and if, at the time of the distribution— 
(A) there is outstanding a loan to such corporation which was 
made, guaranteed, or insured by the United States (or by any 
agency or instrumentality thereof), and 
(B) the amount of such loan so outstanding exceeds the 
adjusted basis of the property constituting security for such loan, 
then the earnings and profits of the corporation shall be increased 
by the amount of such excess, and (immediately after the distribu-
tion) shall be decreased by the amount of such excess. 
For pur-
poses of subparagraph (B) of the preceding sentence, the adjusted 
basis of the property at the time of distribution shall be determined 
without regard to any adjustment under section 1016 (a) (2) (relat-
ing to adjustment for depreciation, etc.). 
For purposes of this 
paragraph, a commitment to make, guarantee, or insure a loan shall 
be treated as the making, guaranteeing, or insuring of a loan. 
(2) EFFECTIVE DATE.—Paragraph (1) shall apply only with re-
spect to distributions made on or after June 22, 1954. 
Subpart C—Definitions; Constructive Ownership of Stock 
Sec. 316. Dividend defined. 
Sec. 317. Other definitions. 
Sec. 318. Constructive ownership of stock. 
«-
SEC. 316. DIVIDEND DEFINED. 
(a) GENERAL RULE.—For purposes of this subtitle, the term 
"dividend" means any distribution of property made by a corporation 
to its shareholders— 
§ 312(g)(2) 
,, 
CH. 1—NORMAL TAXES AND SURTAXES 
99 
(1) out of its earnings and profits accumulated after February 28, 
1913, or 
(2) out of its earnings and profits of the taxable year (computed 
as of the close of the taxable year without diminution by reason of 
any distributions made during the taxable year), without regard to 
the amount of the earnings and profits at the time the distribution 
was made. 
Except as otherwise provided in this subtitle, every distribution is 
made out of earnings and profits to the extent thereof, and from the 
most recently accumulated earnings and profits. 
To the extent that 
any distribution is, under any provision of this subchapter, treated 
as a distribution of property to which section 301 applies, such dis-
tribution shall be treated as a distribution of property for purposes 
of this subsection. 
(b) SPECIAL RULES.— 
(1) CERTAIN INSURANCE COMPANY DIVIDENDS.—The definition 
in subsection (a) shall not apply to the term "dividend'^ as used 
: in sections 803 (e), 821 (a) (2), 823 (2), and 832 (c) (11) (where the 
• reference is to dividends of insurance companies paid to policy-
; holders). 
(2) DISTRIBUTIONS BY PERSONAL HOLDING COMPANIES.—In 
the 
r case of a corporation which— 
1 
(A) under the law applicable to the taxable year in which the 
J 
distribution is made, is a personal holding company (as defined 
, 
in section 542), or 
•
j 
(B) for the taxable year in respect of which the distribution 
is made under section 563 (b) (relating to dividends paid after 
; 
the close of the taxable year), or section 547 (relating to deficiency 
; 
dividends), or the corresponding provisions of prior law, is a per-
1 
sonal holding company under the law applicable to such taxable 
year, 
the term "dividend" also means any distribution of property 
(whether or not a dividend as defined in subsection (a)) made 
- by the corporation to its shareholders, to the extent of its undis-
J tributed personal holding company income (determined under sec-
T tion 545 without regard to distributions under this paragraph) for 
such year. 
SEC. 317. OTHER DEFINITIONS. 
(a) PROPERTY.—For purposes of this part, the term "property" 
means money, securities, and any other property; except that such 
term does not include stock in the corporation making the distribution 
(or rights to acquire such stock). 
(b) REDEMPTION OF STOCK.—For purposes of this part, stock shall 
be treated as redeemed by a corporation if the corporation acquires 
its stock from a shareholder in exchange for property, whether or not 
the stock so acquired is cancelled, retired, or held as treasury stock. 
SEC. 318. CONSTRUCTIVE OWNERSHIP OF STOCK. 
(a) GENERAL RULE.—For purposes of those provisions of this sub-
chapter to which the rules contained in this section are expressly made 
applicable— 
§ 318(a) 
100 
INTERNAL REVENUE CODE OF 1954 
(1) MEMBERS OF FAMILY.— 
(A) I N GENERAL.—An individual shall be considered as owning 
the stock owned, directly or indirectly, by or for— 
(i) his spouse (other than a spouse who is legally separated 
from the individual under a decree of divorce or separate main-
tenance), and 
(ii) his children, grandchildren, and parents. 
(B) EFFECT OF ADOPTION.—For purposes of subparagraph (A) 
(ii), a legally adopted child of an individual shall be treated as a 
child of such individual by blood. 
(2) PARTNERSHIPS, ESTATES, TRUSTS, AND CORPORATIONS.— 
(A) PARTNERSHIPS AND ESTATES.—Stock owned, directly or 
indirectly, by or for a partnership or estate shall be considered as 
being owned proportionately by its partners or beneficiaries. 
Stock owned, directly or indirectly, by or for a partner or a 
beneficiary of an estate shall be considered as being owned by 
the partnership or estate. 
(B) TRUSTS.—Stock owned, directly or indirectly, by or for a 
trust shall be considered as being owned by its beneficiaries in 
proportion to the actuarial interest of such beneficiaries in such 
trust. 
Stock owned, directly or indirectly, by or for a beneficiary 
of a trust shall be considered as being owned by the trust, unless 
such beneficiary's interest in the trust is a remote contingent 
interest. For purposes of the preceding sentence, a contingent 
interest of a beneficiary in a trust shall be considered remote if, 
under the maximum exercise of discretion by the trustee in favor 
of such beneficiary, the value of such interest, computed actuari-
ally, is 5 percent or less of the value of the trust property. 
Stock 
owned, directly or indirectly, by or for any portion of a trust of 
which a person is considered the owner under subpart E of part I 
of subchapter J (relating to grantors and others treated as sub-
stantial owners) shall be considered as being owned by such 
person; and such trust shall be treated as owning the stock 
owned, directly or indirectly, by or for that person. 
This sub-
paragraph shall not apply with respect to any employees' trust 
described in section 401 (a) which is exempt from tax under 
section 501 (a). 
(C) CORPORATIONS.—If 50 percent or more in value of the 
stock in a corporation is owned, directly or indirectly, by or 
for any person, then— 
(i) such person shall be considered as owning the stock 
owned, directly or indirectly, by or for that corporation, in 
that proportion which the value of the stock which such 
person so owns bears to the value of all the stock in such 
corporation; and 
(ii) such corporation shall be considered as owning the stock 
owned, directly or indirectly, by or for that person. 
(3) OPTIONS.—If any person has an option to acquire stock, 
such stock shall be considered as owned by such person. For 
purposes of this paragraph, an option to acquire such an option, 
and each one of a series of such options, shall be considered as an 
option to acquire such stock. 
1318(a)(1) 
CH. 1—NORMAL TAXES AND SURTAXES 
lOl 
(4) 
CONSTRUCTIVE OWNERSHIP AS ACTUAL O W N E R S H I P . — 
(A) I N GENERAL.—Except as provided in subparagraph (B), 
stock constructively owned by a person by reason of the appH-
cation of paragraph (1), (2), or (3) shall, for purposes of apply-
ing paragraph (1), (2), or (3), be treated as actually owned by 
such person. 
(B) MEMBERS OF FAMILY.—Stock constructively owned by 
an individual by reason of the application of paragraph (1) shall 
not be treated as owned by him for purposes of again applying 
paragraph (1) in order to make another the constructive owner 
of such stock, 
(C) OPTION RULE IN LIEU OF FAMILY RULE.—For purposes of 
this paragraph, if stock may be considered as owned by an 
individual under paragraph (1) or (3), it shall be considered as 
owned by him under paragraph (3). 
: (b) CROSS REFERENCES.— 
For provisions to which the rules contained in subsection (a) apply, 
see— 
]; 
(1) section 302 (relating to redemption of stock); 
(2) section 304 (relating to redemption by related corporations); 
J 
(3) section 306 (b) (1) (A) (relating to disposition of section 306 
' 
stock); 
(4) section 334 (b) (3) (C) (relating to basis of property received 
in certain liquidations of subsidiaries); and 
(5) section 382 (a) (3) (relating to special limitations on net operat-
ing loss carryovers). 
i 
PART II—CORPORATE LIQUIDATIONS 
Subpart A. Effects on recipients. 
; 
Subpart B. Effects on corporation. 
Subpart C. Collapsible 
corporations; 
foreign 
personal 
holding 
companies. 
Subpart D. Definition. 
b',. „... ^_/-
^i 
'i 
Subpart A—Effects on Recipients 
Sec. 331. Gain or loss to shareholder in corporate liquidations. 
Sec. 332. Complete liquidations of subsidiaries. 
Sec. 333. Election as to recognition of gain in certain liquidations. 
Sec. 334. Basis of property received in liquidations. 
SEC. 331. GAIN OR LOSS TO SHAREHOLDERS IN CORPORATE LIQUI-
D A T I O N S . 
(a) GENERAL R U L E . — 
(1) COMPLETE LIQUIDATIONS.—Amounts distributed in complete 
liquidation of a corporation shall be treated as in full payment in 
exchange for the stock. 
(2) PARTIAL 
LIQUIDATIONS.^—Amounts distributed in partial 
liquidation of a corporation (as defined in section 346) shall be 
treated as in part or full payment in exchange for the stock. 
(b) NONAPPLICATION OF SECTION 301.—Section 301 (relating to 
effects on shareholder of distributions of property) shall not apply to 
any distribution of property in partial or complete liquidation. 
331(b) 
102 
INTERNAL REVENUE CODE OF 1954 
(c) CROSS REFERENCES.—• 
(1) For general rule for determination of the amount of gain or loss 
to the distributee, see section 1001. 
(2) For general rule for determination of the amount of gain or loss 
recognized, see section 1002. 
SEC. 332. COMPLETE LIQUIDATIONS OF SUBSIDIARIES. 
(a) GENERAL RULE.—No gain or loss shall be recognized on the 
receipt by a corporation of property distributed in complete liquida-
tion of another corporation. 
(b) 
LIQUIDATIONS TO WHICH SECTION APPLIES.—For purposes of 
subsection (a), a distribution shall be considered to be in complete 
liquidation only if— 
(1) the corporation receiving such property was, on the date of 
the adoption of the plan of liquidation, and has continued to be at 
all times until the receipt of the property, the owner of stock (in 
such other corporation) possessing at least 80 percent of the total 
combined voting power of all classes of stock entitled to vote and 
the owner of at least 80 percent of the total number of shares of all 
other classes of stock (except nonvoting stock which is limited and 
preferred as to dividends); and either 
(2) the distribution is by such other corporation in complete 
cancellation or redemption of all its stock, and the transfer of all the 
)roperty occurs within the taxable year; in such case the adoption 
)y the shareholders of the resolution under which is authorized the 
distribution of all the assets of such corporation in complete cancel-
lation or redemption of all its stock shall be considered an adoption 
of a plan of liquidation, even though no time for the completion of 
the transfer of the property is specified in such resolution; or 
(3) such distribution is one of a series of distributions by such 
other corporation in complete cancellation or redemption of all its 
stock in accordance with a plan of liquidation under which the 
transfer of all the property under the liquidation is to be completed 
within 3 years from the close of the taxable year during which is 
made the first of the series of distributions under the plan, except 
that if such transfer is not completed within such period, or if the 
taxpayer does not continue qualified under paragraph (1) until the 
completion of such transfer, no distribution under the plan shall 
be considered a distribution in complete liquidation. 
If such transfer of all the property does not occur within the taxable 
year, the Secretary or his delegate may require of the taxpayer such 
bond, or waiver of the statute of limitations on assessment and 
collection, or both, as he may deem necessary to insure, if the transfer 
of the property is not completed within such 3-year period, or if the 
taxpayer does not continue qualified under paragraph (1) until the 
completion of such transfer, the assessment and collection of all 
income taxes then imposed by law for such taxable year or subsequent 
taxable years, to the extent attributable to property so received. 
A 
distribution otherwise constituting a distribution in complete liquida-
tion within the meaning of this subsection shall not be considered 
as not constituting such a distribution merely because it does not 
constitute a distribution or liquidation within the meaning of the 
corporate law under which the distribution is made; and for purposes 
§ 331(c) 
CH. 1—NORMAL TAXES AND SURTAXES 
103 
of this subsection a transfer of property of such other corporation 
to the taxpayer shall not be considered as not constituting a distribu-
tion (or one of a series of distributions) in complete cancellation or 
redemption of all the stock of such other corporation, merely because 
the carrying out of the plan involves (A) the transfer under the plan 
to the taxpayer by such other corporation of property, not attributable 
to shares owned by the taxpayer, on an exchange described in section 
361, and (B) the complete cancellation or redemption under the plan, 
as a result of exchanges described in section 354, of the shares not 
owned by the taxpayer. 
(c) SPECIAL KULE FOR INDEBTEDNESS OF SUBSIDIARY TO PARENT.— 
If— 
• 
, 
. . 
. 
(1) a corporation is liquidated and subsection (a) applies to such 
- liquidation, and 
(2) on the date of the adoption of the plan of liquidation, such 
corporation was indebted to the corporation which meets the 80 
percent stock ownership requirements specified in subsection (b), 
then no gain or loss shall be recognized to the corporation so indebted 
because of the transfer of property in satisfaction of such indebtedness. 
SEC. 333. ELECTION AS TO RECOGNITION OF GAIN IN CERTAIN LIQUI-
D A T I O N S . 
(a) GENERAL EULE.—In the case of property distributed in com-
plete liquidation of a domestic corporation (other than a collapsible 
corporation to which section 341 (a) applies), if— 
(1) the liquidation is made in pursuance of a plan of liquidation 
adopted on or after June 22, 1954, and 
(2) the distribution is in complete cancellation or redemption of 
all the stock, and the transfer of all the property under the liquida-
tion occurs within some one calendar month, 
then in the case of each qualified electing shareholder (as defined in 
subsection (c)) gain on the shares owned by him at the time of the 
adoption of the plan of liquidation shall be recognized only to the 
extent provided in subsections (e) and (f). 
(b) EXCLUDED CORPORATION.—For purposes of this section, the 
term "excluded corporation" means a corporation which at any time 
between January 1, 1954, and the date of the adoption of the plan of 
liquidation, both dates inclusive, was the owner of stock possessing 
50 percent or more of the total combined voting power of all classes 
of stock entitled to vote on the adoption of such plan. 
(c) QUALIFIED ELECTING SHAREHOLDERS.—For purposes of this 
section, the term "qualified electing shareholder" means a shareholder 
(other than an excluded corporation) of any class of stock (whether or 
not entitled to vote on the adoption of the plan of liquidation) who is a 
shareholder at the time of the adoption of such plan, and whose 
written election to have the benefits of subsection (a) has been made 
and filed in accordance with subsection (d), but— 
(1) in the case of a shareholder other than a corporation, only if 
written elections have been so filed by shareholders (other than 
corporations) who at the time of the adoption of the plan of liquida-
- tion are owners of stock possessing at least 80 percent of the total 
combined voting power (exclusive of voting power possessed by 
stock owned by corporations) of all classes of stock entitled to vote 
on the adoption of such plan of liquidation; or 
§ 333(c)(1) 
104 
INTERNAL REVENUE CODE OF 1954 
(2) in the case of a shareholder which is a corporation, only if 
written elections have been so filed by corporate shareholders (other 
than an excluded corporation) which at the time of the adoption 
of such plan of liquidation are owners of stock possessing at least 
80 percent of the total combined voting power (exclusive of voting 
power possessed by stock owned by an excluded corporation and 
by shareholders who are not corporations) of all classes of stock 
entitled to vote on the adoption of such plan of liquidation. 
(d) MAKING AND FILING OF ELECTIONS.^—The written elections 
referred to in subsection (c) must be made and filed in such manner 
as to be not in contravention of regulations prescribed by the Secretary 
or his delegate. The filing must be within 30 days after the date of 
the adoption of the plan of liquidation. 
(e) NONCORPORATE SHAREHOLDERS.—In the case of a qualified 
electing shareholder other than a corporation^—• 
(1) there shall be recognized, and treated as a dividend, so much 
of the gain as is not in excess of his ratable share of the earnings 
and profits of the corporation accumulated after February 28, 1913, 
such earnings and profits to be determined as of the close of the 
month in which the transfer in liquidation occurred under sub-
section (a) (2), but without diminution by reason of distributions 
made during such month; but by including in the computation 
thereof all amounts accrued up to the date on which the transfer 
of all the property under the liquidation is completed; and 
(2) there shall be recognized, and treated as short-term or long-
term capital gain, as the case may be, so much of the remainder of 
the gain as is not in excess of the amount by which the value of that 
portion of the assets received by him which consists of money, 
or of stock or securities acquired by the corporation after December 
31, 1953, exceeds his ratable share of such earnings and profits. 
(f) CORPORATE SHAREHOLDERS.—In the case of a qualified electing 
shareholder which is a corporation, the gain shall be recognized only 
to the extent of the greater of the two following— 
(1) the portion of the assets received by it which consists of 
money, or of stock or securities acquired by the liquidating corpora-
tion after December 31, 1953; or 
(2) its ratable share of the earnings and profits of the liquidating 
corporation accumulated after February 28, 1913, such earnings 
and profits to be determined as of the close of the month in which 
the transfer in liquidation occurred under subsection (a) (2), but 
without diminution by reason of distributions made during such 
month; but by including in the computation thereof all amounts 
accrued up to the date on which the transfer of all the property 
under the liquidation is completed. 
SEC. 334. BASIS OF PROPERTY RECEIVED IN LIQUIDATIONS. 
(a) GENERAL RULE.—If property is received in a distribution in 
partial or complete liquidation (other than a distribution to which 
section 333 applies), and if gain or loss is recognized on receipt of such 
property, then the basis of the property in the hands of the distributee 
shall be the fair market value of such property at the time of the dis-
tribution. 
§ 333(c)(2) 
CH. 1—NORMAL TAXES AND SURTAXES 
105 
(b) LIQUIDATION OP SUBSIDIARY.— 
(1) I N GENERAL.—If property is received by a corporation in a 
distribution in complete liquidation of another corporation (within 
the meaning of section 332 (b)), then, except as provided in para-
graph (2), the basis of the property in the hands of the distributee 
shall be the same as it would be in the hands of the transferor. 
If property is received by a corporation in a transfer to which section 
332 (c) applies, and if paragraph (2) of this subsection does not 
apply, then the basis of the property in the hands of the transferee 
shall be the same as it would be in the hands of the transferor. 
(2) EXCEPTION.—If property is received by a corporation in a 
distribution in complete liquidation of another corporation (within 
the meaning of section 332 (b)), and if— 
(A) the distribution is pursuant to a plan of liquidation 
adopted— 
(i) on or after June 22, 1954, and 
;i; 
(ii) not more than 2 years after the date of the transaction 
described in subparagraph (B) (or, in the case of a series of 
transactions, the date of the last such transaction); and 
(B) stock of the distributing corporation possessing at least 
80 percent of the total combined voting power of all classes of 
stock entitled to vote, and at least 80 percent of the total number 
of shares of all other classes of stock (except nonvoting stock which 
is limited and preferred as to dividends), was acquired by the 
distributee by purchase (as defined in paragraph (3)) during a 
period of not more than 12 months, 
then the basis of the property in the hands of the distributee shall 
be the adjusted basis of the stock with respect to which the distribu-
tion was made. 
For purposes of the preceding sentence, under 
regulations prescribed by the Secretary or his delegate, proper 
adjustment in the adjusted basis of any stock shall be made for any 
distribution made to the distributee with respect to such stock 
before the adoption of the plan of liquidation, for any money re-
ceived, for any liabilities assumed or subject to which the property 
was received, and for other items. 
(3) PURCHASE DEFINED.—For purposes of paragraph (2) (B), the 
term "purchase" means any acquisition of stock, but only if— 
(A) the basis of the stock in the hands of the distributee is not 
determined (i) in whole or in part by reference to the adjusted 
basis of such stock in the hands of the person from whom acquired, 
or (ii) under section 1014 (a) (relating to property acquired from 
a decedent), 
(B) the stock is not acquired in an exchange to which section 
351 applies, and 
(C) the stock is not acquired from a person the ownership of 
whose stock would, under section 318 (a), be attributed to the 
person acquiring such stock. 
(4) DISTRIBUTEE DEFINED.—For purposes of this subsection, the 
term "distributee" means only the corporation which meets the 80 
percent stock ownership requirements specified in section 332 (b). 
§ 334(b)(4) 
49012°—54——10 
106 
INTERNAL REVENUE CODE OF 1954 
(c) PROPERTY RECEIVED IN LIQUIDATION UNDER SECTION 333.—• 
If— 
(1) property was acquired by a shareholder in the liquidation of 
a corporation in cancellation or redemption of stock, and 
(2) with respect to such acquisition— 
(A) gain was realized, but 
(B) as the result of an election made by the shareholder under 
section 333, the extent to which gain was recognized was deter-
mined under section 333, 
then the basis shall be the same as the basis of such stock cancelled or 
redeemed in the liquidation, decreased in the amount of any money 
received by the shareholder, and increased in the amount of gain 
recognized to him. 
Subpart B—Eflfects on Corporation 
Sec. 336. General rule. 
Sec. 337. Gain or loss on sales or exchanges in connection with 
certain liquidations. 
Sec. 338. Effect on earnings and profits. 
SEC. 336. GENERAL RULE. 
Except as provided in section 453 (d) (relating to disposition of 
installment obligations), no gain or loss shall be recognized to a cor-
poration on the distribution of property in partial or complete liqui-
dation. 
SEC. 337. GAIN OR LOSS ON SALES OR EXCHANGES IN CONNECTION 
WITH CERTAIN LIQUIDATIONS. 
(a) GENERAL RULE.—If— 
(1) a corporation adopts a plan of complete liquidation on or 
after June 22, 1954, and 
(2) within the 12-month period beginning on the date of the 
adoption of such plan, all of the assets of the corporation are 
distributed in complete liquidation, less assets retained to meet 
claims, 
then no gain or loss shall be recognized to such corporation from the 
sale or exchange by it of property within such 12-month period. 
(b) PROPERTY DEFINED.— 
(1) IN GENERAL.—For purposes of subsection (a), the term 
"property" does not include— 
(A) stock in trade of the corporation, or other property of a 
kind which would properly be included in the inventory of the 
corporation if on hand at the close of the taxable year, and 
property held by the corporation primarily for sale to customers 
in the ordinary course of its trade or business, 
(B) installment obligations acquired in respect of the sale or 
exchange (without regard to whether such sale or exchange 
occurred before, on, or after the date of the adoption of the plan 
referred to in subsection (a)) of stock in trade or other property 
described in subparagraph (A) of this paragraph, and 
(C) installment obligations acquired in respect of property 
(other than property described in subparagraph (A)) sold or 
exchanged before the date of the adoption of such plan of liqui-
dation. 
§ 334(c) 
CH. 1—NORMAL TAXES AND SURTAXES 
107 
(2) NONRECOGNITION WITH RESPECT TO INVENTORY IN CERTAIN 
CASES.—Notwithstanding paragraph (1) of this subsection, if sub-
stantially all of the property described in subparagraph (A) of 
such paragraph (1) which is attributable to a trade or business of 
the corporation is, in accordance with this section, sold or exchanged 
to one person in one transaction, then for purposes of subsection 
(a) the term "property" includes— 
(A) such property so sold or exchanged, and 
(B) installment obligations acquired in respect of such sale or 
exchange. 
(c) LIMITATIONS.— 
(1) COLLAPSIBLE CORPORATIONS AND LIQUIDATIONS TO WHICH 
SECTION 333 APPLIES.—This section shall not apply to any sale or 
exchange— 
(A) made by a collapsible corporation (as defined in section 
341 (b)), or 
_ 
(B) following the adoption of a plan of complete liquidation, 
if section 333 applies with respect to such liquidation. 
(2) LIQUIDATIONS TO WHICH SECTION 332 APPLIES.—^In the case of 
a sale or exchange following the adoption of a plan of complete 
liquidation, if section 332 applies with respect to such liquidation, 
then— 
(A) if the basis of the property of the liquidating corporation 
in the hands of the distributee is determined under section 334 
(b) (1), this section shall not apply; or 
(B) if the basis of the property of the liquidating corporation 
in the hands of the distributee is determined under section 334 
(b) (2), this section shall apply only to that portion (if any) of 
the gain which is not greater than the excess of (i) that portion 
of the adjusted basis (adjusted for any adjustment required 
under the second sentence of section 334 (b) (2)) of the stock of 
the liquidating corporation which is allocable, under regulations 
prescribed by the Secretary or his delegate, to the property sold 
or exchanged, over (ii) the adjusted basis, in the hands of the 
liquidating corporation, of the property sold or exchanged. 
SEC. 338. EFFECT ON EARNINGS AND PROFITS. 
For special rule relating to the effect on earnings and profits of certain 
distributions in partial liquidation, see section 312 (e). 
Subpart C—Collapsible Corporations; Foreign Personal Holding 
Companies 
Sec. 341. Collapsible corporations. 
Sec. 342. Liquidation of certain foreign personal holding companies. 
SEC. 341. COLLAPSIBLE CORPORATIONS. 
(a) TREATMENT OF GAIN TO SHAREHOLDERS.—Gain from—• 
(1) the sale or exchange of stock of a collapsible corporation, 
(2) a distribution in partial or complete liquidation of a collapsible 
corporation, which distribution is treated under this part as in part 
or full payment in exchange for stock, and 
(3) a distribution made by a collapsible corporation which, under 
section 301 (c) (3) (A), is treated, to the extent it exceeds the basis 
§ 341(a)(3) 
108 
INTERNAL REVENUE CODE OF 1954 
of the stock, in the same manner as a gain from the sale or exchange 
of property, 
to the extent that it would be considered (but for the provisions of this 
section) as gain from the sale or exchange of a capital asset held for 
more than 6 months shall, except as provided in subsection (d), be 
considered as gain from the sale or exchange of property which is not 
a capital asset. 
(b) DEFINITIONS.— 
(1) COLLAPSIBLE CORPORATION.—For purposes of this section, the 
term "collapsible corporation" means a corporation formed or 
availed of principally for the manufacture, construction, or produc-
tion of property, for the purchase of property which (in the hands of 
the corporation) is property described in paragraph (3), or for the 
holding of stock in a corporation so formed or availed of, with a 
view to— 
(A) the sale or exchange of stock by its shareholders (whether 
in liquidation or otherwise), or a distribution to its shareholders, 
before the realization by the corporation manufacturing, con-
structing, producing, or purchasing the property of a substantial 
part of the taxable income to be derived from such property, and 
(B) the realization by such shareholders of gain attributable to 
such property. 
(2) PRODUCTION OR PURCHASE OF PROPERTY.—For purposes of 
paragraph (1), a corporation shall be deemed to have manufactured, 
constructed, produced, or purchased property, if— 
(A) it engaged in the manufacture, construction, or production 
of such property to any extent, 
(B) it holds property having a basis determined, in whole or 
in part, by reference to the cost of such property in the hands of 
a person who manufactured, constructed, produced, or purchased 
the property, or 
(C) it holds property having a basis determined, in whole or 
in part, by reference to the cost of property manufactured, con-
structed, produced, or purchased by the corporation. 
(3) SECTION 341 ASSETS.—For purposes of this section, the term 
"section 341 assets" means property held for a period of less than 
3 years which is— 
(A) stock in trade of the corporation, or other property of a 
kind which would properly be included in the inventory of the 
corporation if on hand at the close of the taxable year; 
(B) property held by the corporation primarily for sale to 
customers in the ordinary course of its trade or business; 
(C) unrealized receivables or fees, except receivables from sales 
of property other than property described in this paragraph; or 
(D) property described in section 1231 (b) (without regard to 
any holding period therein provided), except such property which 
is or has been used in connection with the manufacture, construc-
tion, production, or sale of property described in subparagraph 
(A)or(B). 
In determining whether the 3-year holding period specified in this 
paragraph has been satisfied, section 1223 shall apply, but no such 
period shall be deemed to begin before the completion of the manu-
facture, construction, production, or purchase. 
§ 341(a)(3) 
CH. 1—NORMAL TAXES AND SURTAXES 
109 
(4) UNREALIZED 
RECEIVABLES.—For 
purposes 
of 
paragraph 
(3) (C), the term "unreaHzed receivables or fees" means, to the 
extent not previously includible in income under the method of 
accounting used by the corporation, any rights (contractual or 
otherwise) to payment for— 
(A) goods delivered, or to be delivered, to the extent the pro-
ceeds therefrom would be treated as amounts received from the 
sale or exchange of property other than a capital asset, or 
(B) services rendered or to be rendered. 
(c) PRESUMPTION IN CERTAIN CASES.— 
(1) I N GENERAL.—For purposes of this section, a corporation 
shall, unless shown to the contrary, be deemed to be a collapsible 
corporation if (at the time of the sale or exchange, or the distribu-
tion, described in subsection (a)) the fair market value of its section 
341 assets (as defined in subsection (b) (3)) is— 
(A) 50 percent or more of the fair market value of its total 
assets, and 
(B) 120 percent or more of the adjusted basis of such section 
341 assets. 
Absence of the conditions described in subparagraphs (A) and (B) 
shall not give rise to a presumption that the corporation was not a 
collapsible corporation. 
(2) DETERMINATION OF TOTAL ASSETS.—In determining the fair 
market value of the total assets of a corporation for purposes of 
paragraph (1) (A), there shall not be taken into account— 
(A) cash, 
(B) obligations which are capital assets in the hands of the 
corporation (and governmental obligations described in section 
1221 (5)), and 
(C) stock in any other corporation. 
(d) LIMITATIONS ON APPLICATION OF SECTION.—In the case of gain 
realized by a shareholder with respect to his stock in a collapsible 
corporation, this section shall not apply— 
(1) unless, at any time after the commencement of the manu-
facture, construction, or production of the property, or at the time 
of the purchase of the property described in subsection (b) (3) or at 
any time thereafter, such shareholder (A) owned (or was considered 
as owning) more than 5 percent in value of the outstanding stock 
of the corporation, or (B) owned stock which was considered as 
owned at such time by another shareholder who then owned (or 
was considered as owning) more than 5 percent in value of the 
outstanding stock of the corporation; 
(2) to the gain recognized during a taxable year, unless more than 
70 percent of such gain is attributable to the property so manu-
factured, constructed, produced, or purchased; and 
(3) to gain realized after the expiration of 3 years following the 
completion of such manufacture, construction, production, or 
purchase. 
For purposes of paragraph (1), the ownership of stock shall be deter-
mined in accordance with the rules prescribed in paragraphs (1), (2), 
(3), (5), and (6) of section 544 (a) (relating to personal holding com-
panies) ; except that, in addition to the persons prescribed by paragraph 
(2) of that section, the family of an individual shall include the spouses 
§ 341(d) 
110 
INTERNAL REVENUE CODE OF 1954 
of that individual's brothers and sisters (whether by the whole or half 
blood) and the spouses of that individual's lineal descendants. 
SEC. 342. LIQUIDATION OF CERTAIN FOREIGN PERSONAL HOLDING 
COMPANIES. 
(a) I N GENERAL.—If any distribution— 
(1) is, within the meaning of the Internal Revenue Code of 1939, 
a distribution in partial liquidation or in complete liquidation (in-
cluding any one of a series of distributions made by the corporation 
in complete cancellation or redemption of all its stock) and 
(2) is made by a foreign corporation which, with respect to any 
taxable year beginning on or before, and ending after, August 26, 
1937, was a foreign personal h®lding company, and with respect to 
which a United States group (as defined in section 552 (a) (2)) 
existed after August 26, 1937, and before January 1, 1938, 
then the distribution shall be treated as a distribution in full or part 
payment in exchange for the stock, and the amount of the gain 
recognized (determined under section 1002 without regard to this 
part) resulting from such distribution shall be considered as a gain 
from the sale or exchange of a capital asset held for not more than 
6 months. 
(b) SPECIAL RULE FOR CERTAIN LIQUIDATIONS BEFORE 1956.— 
Subsection (a) shall not apply in the case of a series of distributions 
in complete liquidation described in subsection (a) if— 
(1) the first distribution is made on or after June 22, 1954, and 
(2) the final distribution is made before January 1, 1956; 
and the amount of the gain recognized (determined under section 
1002 without regard to this part) resulting from such distributions 
shall be considered as a gain from the sale or exchange of a capital 
asset, or of property which is not a capital asset, as the case may be. 
Subpart D—Definition 
Sec. 346. Partial liquidation defined. 
SEC. 346. PARTIAL LIQUIDATION DEFINED. 
(a) I N GENERAL.—For purposes of this subchapter, a distribution 
shall be treated as in partial liquidation of a corporation if— 
(1) the distribution is one of a series of distributions in redemp-
tion of all of the stock of the corporation pursuant to a plan; or 
(2) the distribution is not essentially equivalent to a dividend, is 
in redemption of a part of the stock of the corporation pursuant to 
a plan, and occurs within the taxable year in which the plan is 
adopted or within the succeeding taxable year, including (but not 
limited to) a distribution which meets the requirements of sub-
section (b). 
For purposes of section 562 (b) (relating to the dividends paid deduc-
tion) and section 6043 (relating to information returns), a partial 
liquidation includes a redemption of stock to which section 302 
applies. 
(b) TERMINATION OF A BUSINESS.—A distribution shall be treated 
as a distribution described in subsection (a) (2) if the requirements of 
paragraphs (1) and (2) of this subsection are met. 
(1) The distribution is attributable to the corporation's ceasing 
to conduct, or consists of the assets of, a trade or business which has 
§ 341(d) 
CH. 1 
NORMAL TAXES AND SURTAXES 
111 
been actively conducted throughout the 5-year period immediately 
before the distribution, which trade or business was not acquired by 
the corporation within such period in a transaction in which gain or 
loss was recognized in whole or in part. 
(2) Immediately after the distribution the liquidating corporation 
is actively engaged in the conduct of a trade or business, which 
trade or business was actively conducted throughout the 5-year 
period ending on the date of the distribution and was not acquired 
by the corporation within such period in a transaction in which gain 
or loss was recognized in whole or in part. 
Whether or not a distribution meets the requirements of paragraphs 
(1) and (2) of this subsection shall be determined without regard to 
whether or not the distribution is pro rata with respect to all of the 
shareholders of the corporation. 
(c) TREATMENT OF CERTAIN REDEMPTIONS.—^The fact that, with 
respect to a shareholder, a distribution qualifies under section 302 (a) 
(relating to redemptions treated as distributions in part or full pay-
ment in exchange for stock) by reason of section 302 (b) shall not be 
taken into account in determining whether the distribution, with 
respect to such shareholder, is also a distribution in partial liquida-
tion of the corporation. 
PART III—CORPORATE ORGANIZATIONS AND 
REORGANIZATIONS 
Subpart A. Corporate organizations. 
Subpart B. Effects on sliareholders and security holders. 
Subpart C. Effects on corporations. 
Subpart D. Special rule; definitions. 
Subpart A—Corporate Organizations 
Sec. 351. Transfer to corporation controlled by transferor. 
SEC. 
351. 
TRANSFER TO CORPORATION CONTROLLED BY TRANS-
FEROR. 
(a) GENERAL RULE.—No gain or loss shall be recognized if property 
is transferred to a corporation by one or more persons solely in ex-
change for stock or securities in such corporation and immediately 
after the exchange such person or persons are in control (as defined 
in section 368 (c)) of the corporation. 
For purposes of this section, 
stock or securities issued for services shall not be considered as issued 
in return for property. 
(b) RECEIPT OF PROPERTY.—If subsection (a) would apply to an 
exchange but for the fact that there is received, in addition to the 
stock or securities permitted to be received under subsection (a), other 
property or money, then— 
(1) gain (if any) to such recipient shall be recognized, but not in 
excess of— 
(A) the amount of money received, plus 
(B) the fair market value of such other property received; and 
(2) no loss to such recipient shall be recognized. 
(c) SPECIAL RULE.—In determining control, for purposes of this 
section, the fact that any corporate transferor distributes part or all 
§351(0) 
112 
INTERNAL REVENUE CODE OF 1954 
of the stock which it receives in the exchange to its shareholders shall 
not be taken into account. 
(d) 
CROSS REFERENCES.— 
(1) For special rule where another party to the exchange assumes a 
liability, or acquires property subject to a liability, see section 357. 
(2) For the basis of stock, securities, or property received in an 
exchange to which this section applies, see sections 358 and 362. 
(3) For special rule in the case of an exchange described in this 
section but which results in a gift, see section 2501 and following. 
(4) For special rule in the case of an exchange described in this 
section but which has the effect of the payment of compensation by 
the corporation or by a transferor, see section 61 (a) (1). 
Subpart B^—^Eflfects on Shareholders and Security Holders 
SEC. 354. Exchanges of stock and securities in certain reorganiza-
tions. 
SEC. 355. Distribution of stock and securities of a controlled cor-
poration. 
SEC. 356. Receipt of additional consideration. 
SEC. 357. Assumption of liability. 
SEC. 358. Basis to distributees. 
SEC. 354. EXCHANGES OF STOCK AND SECURITIES IN CERTAIN RE-
ORGANIZATIONS. 
(a) GENERAL R U L E . — 
(1) IN GENERAL.—No gain or loss shall be recognized if stock or 
securities in a corporation a party to a reorganization are, in pur-
suance of the plan of reorganization, exchanged solely for stock or 
securities in such corporation or in another corporation a party 
to the reorganization. 
(2) LIMITATION.—Paragraph'(1) shall not apply if— 
(A) the principal amount of any such securities received 
exceeds the principal amount of any such securities surrendered, or 
(B) any such securities are received and no such securities are 
surrendered. 
(3) 
C R O S S 
R E F E R E N C E . — 
For treatment of the exchange if any property is received which is 
not permitted to be received under this subsection (including an excess 
principal amount of securities received over securities surrendered), 
see section 356. 
(b) 
EXCEPTION.— 
(1) I N GENERAL.—Subsection (a) shall not apply to an exchange 
in pursuance of a plan of reorganization within the meaning of 
section 368 (a) (1) (D), unless— 
(A) the corporation to which the assets are transferred acquires 
substantially all of the assets of the transferor of such assets; and 
(B) the stock, securities, and other properties received by such 
transferor, as well as the other properties of such transferor, are 
distributed in pursuance of the plan of reorganization. 
(2) CROSS REFERENCE.— 
For special rules for certain exchanges in pursuance of plans of reor-
ganization within the meaning of section 368 (a) (1) (D), see section 355. 
(c) CERTAIN RAILROAD REORGANIZATIONS.—Notwithstanding any 
other provision of this subchapter, subsection (a) (1) (and so much of 
§ 351(c) 
CH. 1—NORMAL TAXES AND SURTAXES 
113 
section 356 as relates to this section) shall apply with respect to a 
plan of reorganization (whether or not a reorganization within the 
meaning of section 368 (a)) for a railroad approved by the Interstate 
Commerce Commission under section 77 of the Bankruptcy Act, or 
under section 20b of the Interstate Commerce Act, as being in the 
public interest. 
SEC. 355. DISTRIBUTION OF STOCK AND SECURITIES OF A CON-
TROLLED CORPORATION. 
(a) 
EFFECT ON DISTRIBUTEES.— 
(1) 
GENERAL RULE.—If— 
(A) a corporation (referred to in this section as the "distribut-
ing corporation")— 
(i) distributes to a shareholder, with respect to its stock, or 
(ii) distributes to a security holder, in exchange for its 
securities, 
solely stock or securities of a corporation (referred to in this 
section as "controlled corporation") which it controls immediately 
before the distribution, 
(B) the transaction was not used principally as a device for 
the distribution of the earnings and profits of the distributing 
corporation or the controlled corporation or both (but the mere 
fact that subsequent to the distribution stock or securities in 
one or more of such corporations are sold or exchanged by all or 
some of the distributees (other than pursuant to an arrangement 
negotiated or agreed upon prior to such distribution) shall not 
be construed to mean that the transaction was used principally 
as such a device), 
(C) the requirements of subsection (b) (relating to active 
businesses) are satisfied, and 
(D) as part of the distribution, the distributing corporation 
distributes— 
(i) all of the stock and securities in the controlled corporation 
held by it immediately before the distribution, or 
(ii) an amount of stock in the controlled corporation con-
stituting control within the meaning of section 368 (c), and 
it is established to the satisfaction of the Secretary or his 
delegate that the retention by the distributing corporation of 
stock (or stock and securities) in the controlled corporation 
was not in pursuance of a plan having as one of its principal 
purposes the avoidance of Federal income tax, 
then no gain or loss shall be recognized to (and no amount shall 
be includible in the income of) such shareholder or security holder 
on the receipt of such stock or securities. 
(2) NoN PRO RATA DISTRIBUTIONS, ETC.—Paragraph (1) shall be 
applied without regard to the following: 
(A) whether or not the distribution is pro rata with respect to 
all of the shareholders of the distributing corporation, 
(B) whether or not the shareholder surrenders stock in the 
distributing corporation, and 
(C) whether or not the distribution is in pursuance of a plan 
of reorganization (within the meaning of section 368 (a) (1) (D)). 
§ 355(a)(2)(C) 
114 
INTERNAL REVENUE CODE OF 1954 
(3) LIMITATION.—Paragraph (1) shall not apply if— 
(A) the principal amount of the securities in the controlled 
corporation which are received exceeds the principal amount of 
the securities which are surrendered in connection with such 
distribution, or 
(B) securities in the controlled corporation are received and no 
securities are surrendered in connection with such distribution. 
For purposes of this section (other than paragraph (1) (D) of this 
subsection) and so much of section 356 as relates to this section, 
stock of a controlled corporation acquired by the distributing cor-
poration by reason of any transaction which occurs within 5 years 
of the distribution of such stock and in which gain or loss was 
recognized in whole or in part, shall not be treated as stock of such 
controlled corporation, but as other property. 
(4) CROSS REPERENCE.— 
For treatment of the distribution if any property is received which 
is not permitted to be received under this subsection (including an 
excess principal amount of securities received over securities sur-
rendered), see section 356. 
(b) 
R E Q U I R E M E N T S AS TO A C T I V E B U S I N E S S . — 
(1) I N GENERAL.—Subsection (a) shall apply only if either— 
(A) the distributing corporation, and the controlled corpora-
tion (or, if stock of more than one controlled corporation is dis-
tributed, each of such corporations), is engaged immediately after 
the distribution in the active conduct of a trade or business, or 
(B) immediately before the distribution, 
the 
distributing 
corporation had no assets other than stock or securities in the 
controlled corporations and each of the controlled corporations 
is engaged immediately after the distribution in the active con-
duct of a trade or business. 
(2) DEFINITION.^—For purposes of paragraph (1), a corporation 
shall be treated as engaged in the active conduct of a trade or 
business if and only if— 
(A) it is engaged in the active conduct of a trade or business, 
or substantially all of its assets consist of stock and securities of a 
corporation controlled by it (immediately after the distribution) 
which is so engaged, 
(B) such trade or business has been actively 
conducted 
throughout the 5-year period ending on the date of the distribu-
tion, 
(C) such trade or business was not acquired within the period 
described in subparagraph (B) in a transaction in which gain or 
loss was recognized in whole or in part, and 
(D) control of a corporation which (at the time of acquisition 
of control) was conducting such trade or business— 
(i) was not acquired directly (or through one or more cor-
porations) by another corporation within the period described 
in subparagraph (B), or 
(ii) was so acquired by another corporation within such 
period, but such control was so acquired only by reason of 
transactions in which gain or loss was not recognized in 
whole or in part, or only by reason of such transactions com-
bined with acquisitions before the beginning of such period. 
§ 355(a)(3) 
CH. 1—NORMAL TAXES AND SURTAXES 
115 
SEC. 356. RECEIPT OF ADDITIONAL CONSIDERATION. 
(a) 
GAIN ON EXCHANGES.— 
(1) RECOGNITION OF GAIN.—^If— 
(A) section 354 or 355 would apply to an exchange but for 
the fact that 
(B) the property received in the exchange consists not only 
of property permitted by section 354 or 355 to be received with-
out the recognition of gain but also of other property or money, 
then the gain, if any, to the recipient shall be recognized, but in 
an amount not in excess of the sum of such money and the fair 
market value of such other property. 
(2) TREATMENT AS DIVIDEND.—If an exchange is described in 
paragraph (1) but has the effect of the distribution of a dividend, 
then there shall be treated as a dividend to each distributee such 
an amount of the gain recognized under paragraph (1) as is not in 
excess of his ratable share of the undistributed earnings and profits 
of the corporation accumulated after February 28, 1913. 
The 
remainder, if any, of the gain recognized under paragraph (1) shall 
be treated as gain from the exchange of property. 
(b) 
ADDITIONAL CONSIDERATION RECEIVED IN CERTAIN DISTRI-
BUTIONS.—'If— 
(1) section 355 would apply to a distribution but for the fact 
that 
(2) the property received in the distribution consists not only 
of property permitted by section 355 to be received without the 
recognition of gain, but also of other property or money, 
then an amount equal to the sum of such money and the fair market 
value of such other property shall be treated as a distribution of 
property to which section 301 applies. 
(c) Loss.—If—• 
(1) section 354 would apply to an exchange, or section 355 
would apply to an exchange or distribution, but for the fact that 
(2) the property received in the exchange or distribution consists 
not only of property permitted by section 354 or 355 to be received 
without the recognition of gain or loss, but also of other property 
or money, 
then no loss from the exchange or distribution shall be recognized. 
(d) SECURITIES 
AS 
OTHER 
PROPERTY.—For purposes of 
this 
section—• 
(1) I N GENERAL.—^Except as provided in paragraph (2), the 
term "other property" includes securities. 
(2) EXCEPTIONS.— 
(A) SECURITIES WITH RESPECT TO WHICH NONRECOGNITION OF 
GAIN WOULD BE PERMITTED.—The term "other property" does 
not include securities to the extent that, under section 354 or 355, 
such securities would be permitted to be received without the 
recognition of gain. 
(B) 
GREATER PRINCIPAL AMOUNT IN SECTION 354 EXCHANGE.— 
If— 
(i) in an exchange described in section 354 (other than sub-
section (c) thereof), securities of a corporation a party to the 
1356(d) (2) (B)(i) 
116 
INTERNAL REVENUE CODE OF 1954 
reorganization are surrendered and securities of any corpora-
tion a party to the reorganization are received, and 
(ii) the principal amount of such securities received exceeds 
the principal amount of such securities surrendered, 
then, with respect to such securities received, the term "other 
property" means only the fair market value of such excess. 
For 
purposes of this subparagraph and subparagraph (C), if no 
securities are surrendered, the excess shall be the entire principal 
amount of the securities received. 
(C) GREATER PRINCIPAL AMOUNT IN SECTION 355 TRANSAC-
TION.—If, in an exchange or distribution described in section 355, 
the principal amount of the securities in the controlled corpora-
tion which are received exceeds the principal amount of the 
securities in the distributing corporation which are surrendered, 
then, with respect to such securities received, the term "other 
property" means only the fair market value of such excess. 
(e) EXCHANGES FOR SECTION 306 STOCK.—Notwithstanding any 
other provision of this section, to the extent that any of the other 
property (or money) is received in exchange for section 306 stock, an 
amount equal to the fair market value of such other property (or the 
amount of such money) shall be treated as a distribution of property 
to which section 301 applies. 
(f) TRANSACTIONS INVOLVING GIFT OR COMPENSATION.— 
For special rules for a transaction described in section 354, 355, or 
this section, but which— 
(1) results in a gift, see section 2501 and following, or 
(2) has the effect of the payment of compensation, see section 
61 (a) (1). 
SEC. 357. ASSUMPTION OF LIABILITY. 
(a) GENERAL KULE.—Except as provided in subsections (b) and 
(c),if-
(1) the taxpayer receives property which would be permitted to 
be received under section 351, 361, or 371 without the recognition of 
gain if it were the sole consideration, and 
(2) as part of the consideration, another party to the exchange 
assumes a liability of the taxpayer, or acquires from the taxpayer 
property subject to a liability, 
then such assumption or acquisition shall not be treated as money or 
other property, and shall not prevent the exchange from being within 
the provisions of section 351, 361, or 371, as the case may be. 
(b) TAX AVOIDANCE PURPOSE.— 
(1) I N GENERAL.—If, taking into consideration the nature of the 
liability and the circumstances in the light of which the arrange-
ment for the assumption or acquisition was made, it appears that 
the principal purpose of the taxpayer with respect to the assumption 
or acquisition described in subsection (a)— 
(A) was a purpose to avoid Federal income tax on the exchange, 
or 
(B) if not such purpose, was not a bona fide business purpose, 
then such assumption or acquisition (in the total amount of the 
liability assumed or acquired pursuant to such exchange) shall, for 
purposes of section 351, 361, or 371 (as the case may be), be con-
sidered as money received by the taxpayer on the exchange. 
§ 356(d) (2) (B)(i) 
CH. 1—NORMAL TAXES AND SURTAXES 
117 
(2) BURDEN OF PROOF.—In any suit or proceeding where the 
burden is on the taxpaj^er to prove such assumption or acquisition 
is not to be treated as money received by the taxpayer, such burden 
shall not be considered as sustained unless the taxpayer sustains 
such burden by the clear preponderance of the evidence. 
(c) LIABILITIES IN EXCESS OF BASIS.— 
(1) I N GENERAL.—In the case of an exchange— 
; 
(A) to which section 351 applies, or 
(B) to which section 361 applies by reason of a plan of reor-
ganization within the meaning of section 368 (a) (1) (D), 
if the sum of the amount of the liabilities assumed, plus the amount 
- of the liabilities to which the property is subject, exceeds the total 
of the adjusted basis of the property transferred pursuant to such 
exchange, then such excess shall be considered as a gain from the 
sale or exchange of a capital asset or of property which is not a 
capital asset, as the case may be. 
(2) EXCEPTIONS.—Paragraph (1) shall not apply to any exchange 
to which— 
(A) subsection (b) (1) of this section applies, or 
(B) section 371 applies. 
SEC. 358. BASIS TO DISTRIBUTEES. 
(a) GENERAL RULE.—In the case of an exchange to which section 
351, 354, 355, 356, 361, or 371 (b) applies— 
(1) NoNRECOGNiTiON PROPERTY.—The basis of the property 
permitted to be received under such section without the recognition 
of gain or loss shall be the same as that of the property exchanged— 
(A) decreased by— 
(i) the fair market value of any other property (except 
money) received by the taxpayer, and 
(ii) the amount of any money received by the taxpayer, and 
(B) increased by— 
(i) the amount which was treated as a dividend, and 
(ii) the amount of gain to the taxpayer which was recognized 
on such exchange (not including any portion of such gain which 
was treated as a dividend). 
(2) OTHER PROPERTY.—The basis of any other property (except 
money) received by the taxpayer shall be its fair market value. 
(b) ALLOCATION OF BASIS.— 
(1) I N GENERAL.—Under regulations prescribed by the Secretary 
or his delegate, the basis determined under subsection (a) (1) shall 
be allocated among the properties permitted to be received without 
the recognition of gain or loss. 
(2) SPECIAL RULE FOR SECTION 355.—In the case of an exchange 
to which section 355 (or so much of section 356 as relates to section 
355) applies, then in making the allocation under paragraph (1) of 
this subsection, there shall be taken into account not only the 
property so permitted to be received without the recognition of 
gain or loss, but also the stock or securities (if any) of the distributing 
corporation which are retained, and the allocation of basis shall be 
made among all such properties. 
(c) SECTION 355 TRANSACTIONS WHICH ARE N O T EXCHANGES.— 
For purposes of this section, a distribution to which section 355 (or so 
§ 358(c) 
118 
INTERNAL REVENUE CODE OF 1954 
much of section 356 as relates to section 355) applies shall be treated 
as an exchange, and for such purposes the stock and securities of the 
distributing corporation which are retained shall be treated as 
surrendered, and received back, in the exchange. 
(d) ASSUMPTION OF LIABILITY.—Where, as part of the considera-
tion to the taxpayer, another party to the exchange assumed a liability 
of the taxpayer or acquired from the taxpayer property subject to a 
liability, such assumption or acquisition (in the amount of the liability) 
shall, for purposes of this section, be treated as money received by the 
taxpayer on the exchange. 
(e) EXCEPTION.—This section shall not apply to property acquired 
by a corporation by the issuance of its stock or securities as considera-
tion in whole or in part for the transfer of the property to it. 
Subpart C—Effects on Corporation 
Sec. 361. Nonrecognition of gain or loss to corporations. 
Sec. 362. Basis to corporations. 
..-,,' 
Sec. 363. Effect on earnings and profits. 
. 
-i-?iil. ' } 
SEC. 361. NONRECOGNITION OF GAIN OR LOSS TO CORPORATIONS. 
(a) GENERAL RULE.—No gain or loss shall be recognized if a 
corporation a party to a reorganization exchanges property, in pur-
suance of the plan of reorganization, solely for stock or securities in 
another corporation a party to the reorganization. 
(b) EXCHANGES NOT SOLELY IN K I N D . — 
(1) GAIN.—If subsection (a) would apply to an exchange but for 
the fact that the property received in exchange consists not only 
of stock or securities permitted by subsection (a) to be received 
without the recognition of gain, but also of other property or 
money, then— 
(A) if the corporation receiving such other property or money 
distributes it in pursuance of the plan of reorganization, no gain 
to the corporation shall be recognized from the exchange, but 
(B) if the corporation receiving such other property or money 
does not distribute it in pursuance of the plan of reorganization, 
the gain, if any, to the corporation shall be recognized, but in an 
amount not in excess of the sum of such money and the fair 
market value of such other property so received, which is not so 
distributed. 
(2) Loss.—If subsection (a) would apply to an exchange but for 
the fact that the property received in exchange consists not only 
of property permitted by subsection (a) to be received without the 
recognition of gain or loss, but also of other property or money, 
then no loss from the exchange shall be recognized. 
SEC. 362. BASIS TO CORPORATIONS. 
(a) PROPERTY ACQUIRED BY ISSUANCE OF STOCK OR AS PAID-IN 
SURPLUS.—If property was acquired on or after June 22, 1954, by a 
corporation— 
(1) in connection with a transaction to which section 351 (relating 
to transfer of property to corporation controlled by transferor) 
applies, or 
(2) as paid-in surplus or as a contribution to capital, 
§ 358(c) 
CH. 1 
NORMAL TAXES AND SURTAXES 
119 
then the basis shall be the same as it would be in the hands of the 
transferor, increased in the amount of gain recognized to the trans-
feror on such transfer. 
(b) TEANSPERS TO CORPORATIONS.—If property was acquired by a 
corporation in connection with a reorganization to which this part 
applies, then the basis shall be the same as it would be in the hands 
of the transferor, increased in the amount of gain recognized to the 
transferor on such transfer. 
This subsection shall not apply if the 
property acquired consists of stock or securities in a corporation a 
party to the reorganization, unless acquired by the issuance of stock 
or securities of the transferee as the consideration in whole or in part 
for the transfer. 
(c) SPECIAL RULE FOR CERTAIN CONTRIBUTIONS TO CAPITAL.— 
(1) PROPERTY OTHER THAN MONEY.—Notwithstanding subsec-
tion (a) (2), if property other than money— 
(A) is acquired by a corporation, on or after June 22, 1954, 
as a contribution to capital, and 
(B) is not contributed by a shareholder as such, 
then the basis of such property shall be zero. 
(2) MONEY.—Notwithstanding subsection (a) (2), if money— 
(A) is received by a corporation, on or after June 22, 1954, 
as a contribution to capital, and 
(B) is not contributed by a shareholder as such, 
then the basis of any property acquired with such money during 
the 12-month period beginning on the day the contribution is 
received shall be reduced by the amount of such contribution. 
The excess (if any) of the amount of such contribution over the 
amount of the reduction under the preceding sentence shall be 
applied to the reduction (as of the last day of the period specified 
in the preceding sentence) of the basis of any other property held 
by the taxpayer. 
The particular properties to which the reduc-
tions required by this paragraph shall be allocated shall be deter-
mined under regulations prescribed by the Secretary or his delegate. 
SEC. 363. EFFECT ON EARNINGS AND PROFITS. 
For rules relating to the effect on earnings and profits of transactions 
to which this part applies, see sections 312 and 381. 
' 
Subpart D—Special Rule; Definitions 
<'^'j 
Sec. 367. Foreign corporations. 
Sec. 368. Definitions relating to corporate reorganizations. 
SEC. 367. FOREIGN CORPORATIONS. 
In determining the extent to which gain shall be recognized in the 
case of any of the exchanges described in section 332, 351, 354, 355, 
356, or 361, a foreign corporation shall not be considered as a corpora-
tion unless, before such exchange, it has been established to the satis-
faction of the Secretary or his delegate that such exchange is not in 
pursuance of a plan having as one of its principal purposes the avoid-
ance of Federal income taxes. 
For purposes of this section, any dis-
tribution described in section 355 (or so much of section 356 as relates 
to section 355) shall be treated as an exchange whether or not it is an 
^exchange. 
§367 
120 
INTERNAL REVENUE CODE OF 1954 
SEC. 368. DEFINITIONS RELATING TO CORPORATE REORGANIZA-
TIONS. 
(a) REORGANIZATION.— 
(1) I N GENERAL.—For purposes of parts I and II and this part, 
the term "reorganization" means— 
(A) a statutory merger or consoUdation; 
(B) the acquisition by one corporation, in exchange solely for 
all or a part of its voting stock, of stock of another corporation if, 
immediately after the acquisition, the acquiring corporation has 
control of such other corporation (whether or not such acquiring 
corporation had control immediately before the acquisition); 
(C) the acquisition by one corporation, in exchange solely for 
all or a part of its voting stock (or in exchange solely for all or a 
part of the voting stock of a corporation which is in control of 
the acquiring corporation), of substantially all of the properties 
of another corporation, but in determining whether the exchange 
is solely for stock the assumption by the acquiring corporation 
of a liability of the other, or the fact that property acquired is 
subject to a liability, shall be disregarded; 
(D) a transfer by a corporation of all or a part of its assets to 
another corporation if immediately after the transfer the trans-
feror, or one or more of its shareholders (including persons who 
were shareholders immediately before the transfer), or any com-
bination thereof, is in control of the corporation to which the 
assets are transferred; but only if, in pursuance of the plan, stock 
or securities of the corporation to which the assets are transferred 
are distributed in a transaction which qualifies under section 354, 
355, or 356; 
(E) a recapitalization; or 
(F) a mere change in identity, form, or place of organization, 
however effected. 
(2) SPECIAL RULES RELATING TO PARAGRAPH (i).— 
(A) 
REORGANIZATIONS DESCRIBED IN BOTH PARAGRAPH (i) (c) 
AND PARAGRAPH (1) (D).—If a transaction is described in both 
paragraph (1) (C) and paragraph (1) (D), then, for purposes of 
this subchapter, such transaction shall be treated as described 
only in paragraph (1) (D), 
(B) 
ADDITIONAL CONSIDERATION IN CERTAIN PARAGRAPH (i) (c) 
CASES.—If— 
(i) one corporation acquires substantially all of the properties 
of another corporation, 
(ii) theacquisition would qualify under paragraph (1) (C) but 
for the fact that the acquiring corporation exchanges money or 
other property in addition to voting stock, and 
(iii) the acquiring corporation acquires, solely for voting 
stock described in paragraph (1) (C), property of the other 
corporation having a fair market value which is at least 80 per-
cent of the fair market value of all of the property of the other 
corporation, 
then such acquisition shall (subject to subparagraph (A) of this 
paragraph) be treated as qualifying under paragraph (1) (C). 
Solely for the purpose of determining whether clause (iii) of the 
§ 368 
CH. 1—NORMAL TAXES AND SURTAXES 
121 
preceding sentence applies, the amount of any liability assumed 
by the acquiring corporation, and the amount of any liability to 
which any property acquired by the acquiring corporation is 
subject, shall be treated as money paid for the property. 
(C) TRANSFERS OF ASSETS TO SUBSIDIARIES IN CERTAIN PARA-
GRAPH (i) (A) AND (i) (c) CASES.—A transaction 
otherwise 
qualifying under paragraph (1) (A) or paragraph (1) (C) shall 
I 
not be disqualified by reason of the fact that part or all of the 
assets which were acquired in the transaction are transferred to 
a corporation controlled by the corporation acquiring such assets. 
(b) PARTY TO A REORGANIZATION.—For purposes of this part, the 
term ''a party to a reorganization" includes— 
(1) a corporation resulting from a reorganization, and 
(2) both corporations, in the case of a reorganization resulting 
from the acquisition by one corporation of stock or properties of 
another. 
In the case of a reorganization qualifying under paragraph (1) (C) 
of subsection (a), if the stock exchanged for the properties is stock of 
a corporation which is in control of the acquiring corporation, the 
term "a party to a reorganization" includes the corporation so con-
trolling the acquiring corporation. 
In the case of a reorganization 
qualifying under paragraph (1) (A) or (1) (C) of subsection (a) by 
reason of paragraph (2) (C) of subsection (a), the term "a party to a 
reorganization" includes the corporation controlling the corporation 
to which the acquired assets are transferred. 
(c) CONTROL,^—For purposes of part I (other than section 304), 
part II, and this part, the term "control" means the ownership of stock 
possessing at least 80 percent of the total combined voting power of all 
classes of stock entitled to vote and at least 80 percent of the total 
number of shares of all other classes of stock of the corporation. 
PART IV—INSOLVENCY REORGANIZATIONS 
0 • 
1 
Sec. 371. Reorganization in certain receivership and bankruptcy 
proceedings. 
^' 
Sec. 372. Basis in connection with certain receivership and bank-
1 
ruptcy proceedings. 
Sec. 373. Loss not recognized in certain railroad reorganizations. 
SEC. 371. REORGANIZATION IN CERTAIN RECEIVERSHIP AND BANK-
RUPTCY PROCEEDINGS. 
•' (a) E X C H A N G E S BY CORPORATIONS.— 
(. 
(1) IN GENERAL.—No gain or loss shall be recognized if property 
of a corporation (other than a railroad corporation, as defined in 
r section 77 (m) of the Bankruptcy Act (49 Stat. 922; 11 U. S.C. 
205)) is transferred in pursuance of an order of the court having 
jurisdiction of such corporation-— 
( 
(A) in a receivership, foreclosure, or similar proceeding, or 
(B) in a proceeding under chapter X of the Bankruptcy Act 
(52 Stat. 883-905; 11 U. S. C , chapter 10) or the corresponding 
¥ 
provisions of prior law, 
to another corporation organized or made use of to effectuate a plan 
of reorganization approved by the court in such proceeding, in 
c exchange solely for stock or securities in such other corporation. 
§37Ua)(l) 
49012°—54 
11 
122 
INTERNAL REVENUE CODE OF 
1954 
(2) GAIN FEOM EXCHANGES NOT SOLELY IN KIND.—If an exchange 
would be within the provisions of paragraph (1) if it were not for 
the fact that the property received in exchange consists not only of 
stock or securities permitted by paragraph (1) to be received with-
out the recognition of gain, but also of other property or money, 
then— 
(A) if the corporation receiving such other property or money 
distributes it in pursuance of the plan of reorganization, no gain 
to the corporation shall be recognized from the exchange, but 
(B) if the corporation receiving such other property or money 
does not distribute it in pursuance of the plan of reorganization, 
the gain, if any, to the corporation shall be recognized, but in an 
amount not in excess of the sum of such money and the fair 
market value of such other property so received, which is not so 
distributed. 
(b) EXCHANGES BY SECURITY HOLDERS.— 
(1) I N GENERAL.—No gain or loss shall be recognized on an 
exchange consisting of the relinquishment or extinguishment of 
stock or securities in a corporation the plan of reorganization of 
which is approved by the court in a proceeding described in sub-
section (a), in consideration of the acquisition solely of stock or 
securities in a corporation organized or made use of to effectuate 
such plan of reorganization. 
(2) GAIN FROM EXCHANGES NOT SOLELY IN KIND.—If an exchange 
would be within the provisions of paragraph (1) if it were not for 
the fact that the property received in exchange consists not only 
of property permitted by paragraph (1) to be received without the 
recognition of gain, but also of other property or money, then the 
gain, if any, to the recipient shall be recognized, but in an amount 
not in excess of the sum of such money and the fair market value 
of such other property. 
(c) Loss FROM EXCHANGES N O T SOLELY IN KIND.—If an exchange 
would be within the provisions of subsection (a) (1) or (b) (1) if it were 
not for the fact that the property received in exchange consists not 
only of property permitted by subsection (a) (1) or (b) (1) to be 
received without the recognition of gain or loss, but also of other 
property or money, then no loss from the exchange shall be recognized. 
(d) ASSUMPTION OF LIABILITIES.—In the case of a transaction in-
volving an assumption of a liability or the acquisition of property 
subject to a liability, the rules provided in section 357 shall apply. 
SEC. 372. BASIS IN CONNECTION WITH CERTAIN RECEIVERSHIP AND 
BANKRUPTCY PROCEEDINGS. 
(a) CORPORATION.—If property was acquired by a corporation in a 
transfer to which— 
(1) section 371 (a) applies, 
(2) so much of section 371 (c) as relates to section 371 (a) (1) 
applies, or 
(3) the corresponding provisions of prior law apply, 
then notwithstanding the provisions of section 270 of the Bankruptcy 
Act (54 Stat„ 709; 11 U. S. C. 670), the basis in the hands of the 
acquiring corporation shall be the same as it would be in the hands of 
the corporation whose property was so acquired, increased in the 
§371 (a) (2) 
CH. 1—NORMAL TAXES AND SURTAXES 
123 
amount of gain recognized to the corporation whose property was so 
acquired under the law appHcable to the year in which the acquisition 
occurred, and such basis shall not be adjusted under section 1017 by 
reason of a discharge of indebtedness in pursuance of the plan of 
reorganization under which such transfer was made, 
(b) STOCK OR SECURITY HOLDER.— 
For basis of stock or securities acquired under section 371 (b), see 
section 358. 
SEC. 373. LOSS NOT RECOGNIZED IN CERTAIN RAILROAD REORGAN-
IZATIONS. 
(a) NoNREcoGNiTiON OF Loss.—No loss shall be recognized if 
property of a railroad corporation, as defined in section 77 (m) df 
the Bankruptcy Act (49 Stat. 922; 11 U . S . C. 205), is transferred in 
pursuance of an order of the court having jurisdiction of such cor-
poration— 
(1) in a receivership proceeding, or 
(2) in a proceeding under section 77 of the Bankruptcy Act, 
to a railroad corporation (as defined in section 77 (m) of the Bank-
ruptcy Act) organized or made use of to effectuate a plan of reorgan-
ization approved by the court in such proceeding. 
- (b) BASIS.— 
1 
(1) RAILROAD CORPORATIONS.—If the property of a railroad cor-
poration (as defined in section 77 (m) of the Bankruptcy Act) was 
i acquired after December 31, 1938, in pursuance of an order of 
the court having jurisdiction of such corporation— 
(A) in a receivership proceeding, or 
(B) in a proceeding under section 77 of the Bankruptcy Act, 
and the acquiring corporation is a railroad corporation (as defined 
'• in section 77 (m) of the Bankruptcy Act) organized or made use 
1 of to effectuate a plan of reorganization approved by the court in 
i such proceeding, the basis shall be the same as it would be in the 
hands of the railroad corporation whose property was so acquired. 
(2) PROPERTY ACQUIRED BY STREET, SUBURBAN, OR INTERURBAN 
I ELECTRIC RAILWAY CORPORATION.—If the property of any street, 
- suburban, or interurban electric railway corporation engaged as a 
common carrier in the transportation of persons or property in 
interstate commerce was acquired after December 31, 1934, in pur-
suance of an order of the court having jurisdiction of such corpora-
tion in a proceeding under section 77B of the Bankruptcy Act (48 
? Stat. 912), and the acquiring corporation is a street, suburban, or 
1 interurban electric railway engaged as a common carrier in the 
transportation of persons or property in interstate commerce, 
organized or made use of to effectuate a plan of reorganization 
approved by the court in such proceeding, then, notwithstanding 
the provisions of section 270 of the Bankruptcy Act (52 Stat. 904; 
11 U. S. C. 670), the basis shall be the same as it would be in the 
'hands of the corporation whose property was so acquired. 
§ 373(b)(2) 
124 
INTERNAL REVENUE CODE OP 19 
54 " 
, 
PART V—CARRYOVERS 
. 
Sec. 381. Carryovers in certain corporate acquisitions. 
Sec. 382. Special limitations on net operating loss carryovers. 
SEC. 381. CARRYOVERS IN CERTAIN CORPORATE 
ACQUISITIONS. 
(a) GENERAL RULE.—In the case of the acquisition of assets of a 
corporation by another corporation— 
(1) in a distribution to such other corporation to which section 
332 (relating to hquidations of subsidiaries) appUes, except in a case 
in which the basis of the assets distributed is determined under 
section 334 (b) (2); or 
(2) in a transfer to which section 361 (relating to nonrecognition 
of gain or loss to corporations) applies, but only if the transfer is 
in connection with a reorganization described in subparagraph (A), 
(C), (D) (but only if the requirements of subparagraphs (A) and 
(B) of section 354 (b) (1) are met), or (F) of section 368 (a) (1), 
the acquiring corporation shall succeed to and take into account, as 
of the close of the day of distribution or transfer, the items described 
in subsection (c) of the distributor or transferor corporation, subject 
to the conditions and limitations specified in subsections (b) and (c). 
(b) OPERATING RULES.—Except in the case of an acquisition in 
connection with a reorganization described in subparagraph (F) of 
section 368.(a) (1)— 
(1) The taxable year of the distributor or transferor corporation 
shall end on the date of distribution or transfer. 
(2) For purposes of this section, the date of distribution or trans-
fer shall be the day on which the distribution or transfer is com-
pleted; except that, under regulations prescribed by the Secretary 
or his delegate, the date when substantially all of the property has 
been distributed or transferred may be used if the distributor or 
transferor corporation ceases all operations, other than liquidating 
activities, after such date. 
(3) The corporation acquiring property in a distribution or trans-
fer described in subsection (a) shall not be entitled to carry back a 
net operating loss for a taxable year ending after the date of dis-
tribution or transfer to a taxable year of the distributor or transferor 
corporation. 
(c) ITEMS OF THE DISTRIBUTOR OR TRANSFEROR CORPORATION.— 
The items referred to in subsection (a) are: 
(1) N E T OPERATING LOSS CARRYOVERS.—The net operating loss 
carryovers determined under section 172, subject to the following 
conditions and limitations: 
(A) The taxable year of the acquiring corporation to which 
the net operating loss carryovers of the distributor or transferor 
corporation are first carried shall be the first taxable year ending 
after the date of distribution or transfer. 
(B) In determining the net operating loss deduction, the 
portion of such deduction attributable to the net operating loss 
carryovers of the distributor or transferor corporation to the first 
taxable year of the acquiring corporation ending after the date 
of distribution or transfer shall be limited to an amount which 
bears the same ratio to the taxable income (determined without 
§381 
CH. 1—NORMAL TAXES AND SURTAXES 
125 
regard to a net operating loss deduction) of the acquiring corpora-
tion in such taxable year as the number of days in the taxable 
year after the date of distribution or transfer bears to the total 
number of days in the taxable year. 
(C) For the purpose of determining the amount of the net 
operating loss carryovers under section 172 (b) (2), a net operat-
ing loss for a taxable year (hereinafter in this subparagraph 
referred to as the "loss year") of a distributor or transferor cor-
poration which ends on or before the end of a loss year of the 
acquiring corporation shall be considered to be a net operating 
loss for a year prior to such loss year of the acquiring corpora-
tion. 
For the same purpose, the taxable income for a "prior 
taxable year" (as the term is used in section 172 (b) (2)) shall 
be computed as provided in such section; except that, if the date 
of distribution or transfer is on a day other than the last day of 
a taxable year of the acquiring corporation— 
(i) such taxable year shall (for the purpose of this subpara-
graph only) be considered to be 2 taxable years (hereinafter in 
this subparagraph referred to as the "pre-acquisition part year" 
and the "post-acquisition part year"); 
(ii) the pre-acquisition part year shall begin on the same 
day as such taxable year begins and shall end on the date of 
distribution or transfer; 
(iii) the post-acquisition part year shall begin on the day 
following the date of distribution or transfer and shall end on 
the same day as the end of such taxable year; 
(iv) the taxable income for such taxable year (computed 
with the modifications specified in section 172 (b) (2) (A) but 
without a net operating loss deduction) shall be divided be-
tween the pre-acquisition part year and the post-acquisition 
part year in proportion to the number of days in each; 
(v) the net operating loss deduction for the pre-acquisition 
part year shall be determined as provided in section 172 (b) 
(2) (B), but without regard to a net operating loss year of 
the distributor or transferor corporation; and 
(vi) the net operating loss deduction for the post-acquisition 
part year shall be determined as provided in section 172 (b) 
(2) (B). 
(2) EARNINGS AND PROFITS.—In the case of a distribution or 
transfer described in subsection (a)— 
(A) the earnings and profits or deficit in earnings and profits, 
as the case may be, of the distributor or transferor corporation 
shall, subject to subparagraph (B), be deemed to have been 
received or incurred by the acquiring corporation as of the close 
of the date of the distribution or transfer; and 
(B) a deficit in earnings and profits of the distributor, trans-
feror, or acquiring corporation shall be used only to offset earn-
ings and profits accumulated after the date of transfer. 
For 
this purpose, the earnings and profits for the taxable year of the 
acquiring corporation in which the distribution or transfer 
occurs shall be deemed to have been accumulated after such 
distribution or transfer in an amount which bears the same ratio 
§ 381(c)(2)(B) 
126 
INTERNAL REVENUE CODE OF 
1954 
to the undistributed earnings and profits of the acquiring cor-
poration for such taxable year (computed without regard to any 
earnings and profits received from the distributor or transferor 
corporation, as described in subparagraph (A) of this paragraph) 
as the number of days in the taxable year after the date of dis-
tribution or transfer bears to the total number of days in the 
taxable year. 
(3) CAPITAL LOSS CAERYOVEE.—The capital loss carryover deter-
mined under section 1212, subject to the following conditions and 
limitations: 
(A) The taxable year of the acquiring corporation to which 
the capital loss carri^^over of the distributor or transferor cor-
poration is first carried shall be the first taxable year ending 
after the date of distribution or transfer. 
(B) The capital loss carryover shall be a short-term capital 
loss in the taxable year determined under subparagraph (A) but 
shall be limited to an amount which bears the same ratio to the 
net capital gain (determined without regard to a short-term 
capital loss attributable to capital loss carryover), if any, of the 
acquiring corporation in such taxable year as the number of days 
in the taxable year after the date of distribution or transfer bears 
to the total number of days in the taxable year. 
(C) For purposes of determining the amount of such capital 
loss carryover to taxable years following the taxable year deter-
mined under subparagraph (A), the net capital gain in the taxable 
year determined under subparagraph (A) shall be considered to 
be an amount equal to the amount determined under sub-
paragraph (B). 
(4) METHOD OF ACCOUNTING.—The acquiring corporation shall 
use the method of accounting used by the distributor or transferor 
corporation on the date of distribution or transfer unless different 
methods were used by several distributor or transferor corporations 
or by a distributor or transferor corporation and the acquiring 
corporation. 
If different methods were used, the acquiring corpora-
tion shall use the method or combination of methods of computing 
taxable income adopted pursuant to regulations prescribed by the 
Secretary or his delegate. 
(5) INVENTOEIES.—In any case in which inventories are received 
by the acquiring corporation, such inventories shall be taken by 
such corporation (in determining its income) on the same basis on 
which such inventories were taken by the distributor or transferor 
corporation, unless different methods were used by several dis-
tributor or transferor corporations or by a distributor or transferor 
corporation and the acquiring corporation. 
If different methods 
were used, the acquiring corporation shall use the method or com-
bination of methods of taldng inventory adopted pursuant to 
regulations prescribed by the Secretary or his delegate. 
(6) METHOD OP COMPUTING DEPEECIATION ALLOWANCE.—The 
acquiring corporation shall be treated as the distributor or trans-
feror corporation for purposes of computing the depreciation allow-
ance under paragraphs (2), (3), and (4) of section 167 (b) on property 
acquired in a distribution or transfer with respect to that part or 
§ 381(c)(2)(B) 
CH. 1—NORMAL TAXES AND SURTAXES 
127 
all of the basis in the hands of the acquiring corporation as does not 
exceed the basis in the hands of the distributor or transferor 
corporation. 
(7) PREPAID INCOME.—If the acquiring corporation assumes the 
liability described in section 452 (e) (2) with respect to prepaid 
income of a distributor or transferor corporation which had elected, 
under section 452 (d), to report such income as provided in section 
452, the acquiring corporation shall be treated, for this purpose, as 
if it were the distributor or transferor corporation, unless the 
acquiring corporation, after the date of distribution or transfer, 
uses the cash receipts and disbursements method of accounting. 
In 
the latter case, the acquiring corporation shall include in gross 
income for the first taxable year ending after the date of distribu-
tion or transfer, so much of such prepaid income as was not includible 
in gross income of the distributor or transferor corporation under 
section 452 for preceding taxable years. 
(8) INSTALLMENT METHOD.—If the acquiring corporation acquires 
installment obligations (the income from which the distributor or 
transferor corporation has elected, under section 453, to report on 
the installment basis) the acquiring corporation shall, for purposes 
of section 453, be treated as if it were the distributor or transferor 
corporation. 
(9) AMORTIZATION OF BOND DISCOUNT OR PREMIUM.—If the 
ac-
quiring corporation assumes liability for bonds of the distributor or 
transferor corporation issued at a discount or premium, the acquir-
ing corporation shall be treated as the distributor or transferor 
corporation after the date of distribution or transfer for purposes 
of determining the amount of amortization allowable or includible 
with respect to such discount or premium. 
(10) 
TREATMENT 
OF 
CERTAIN EXPENSES DEFERRED 
BY THE 
ELECTION OF DISTRIBUTOR OR TRANSFEROR CORPORATION.—The 
acquiring corporation shall be entitled to deduct, as if it were the 
distributor or transferor corporation, expenses deferred 
under 
sections 615 and 616 (relating to exploration and development 
expenditures, respectively) if the distributor or transferor corpora-
tion has so elected. 
For the purpose of applying the limitation 
provided in section 615, if, for any taxable year, the distributor or 
transferor corporation was allowed the deduction in section 615 (a) 
or made the election in section 615 (b), the acquiring corporation 
shall be deemed to have been allowed such deduction or to have 
made such election, as the case may be. 
(11) 
CONTRIBUTIONS TO PENSION PLANS, EMPLOYEES' ANNUITY 
PLANS, AND STOCK BONUS AND PROFIT-SHARING PLANS. The acquir-
ing corporation shall be considered to be the distributor or trans-
feror corporation after the date of distribution or transfer for the 
purpose of determining the amounts deductible under section 404 
with respect to pension plans, employees' annuity plans, and stock 
bonus and profit-sharing plans. 
(12) 
RECOVERY OP BAD DEBTS, PRIOR TAXES, OR DELINQUENCY 
AMOUNTS.—If the acquiring corporation is entitled to the recovery 
of bad debts, prior taxes, or delinquency amounts previously de-
ducted or credited hj the distributor or transferor corporation, the 
§ 381(c) (12) 
128 
INTERNAL REVENUE CODE OF 1954 . 
acquiring corporation shall include in its income such amounts as 
would have been includible by the distributor or transferor corpo-
ration in accordance with section 111 (relating to the recovery of 
bad debts, prior taxes, and delinquency amounts). 
(13) 
INVOLUNTARY CONVERSIONS UNDER SECTION 1033.—The ac-
quiring corporation shall be treated as the distributor or transferor 
corporation after the date of distribution or transfer for purposes of 
applying section 1033. 
(14) 
DIVIDEND CARRYOVER TO PERSONAL HOLDING COMPANY,— 
The dividend carryover (described in section 564) to taxable years 
ending after the date of distribution or transfer. 
(15) 
INDEBTEDNESS OF CERTAIN PERSONAL HOLDING COMPANIES.— 
The acquiring corporation shall be considered to be the distributor 
or transferor corporation for the purpose of determining the applica-
bility of section 545 (b) (7), relating to a deduction for payment of 
certain indebtedness incurred before January 1, 1934. 
(16) 
CERTAIN 
OBLIGATIONS OF DISTRIBUTOR OR TRANSFEROR 
CORPORATION.—If the acquiring corporation— 
(A) assumes an obligation of the distributor or transferor cor-
poration which, after the date of the distribution or transfer, 
gives rise to a liability, and 
(B) such liability, if paid or accrued by the distributor or trans-
feror corporation, would have been deductible in computing its 
taxable income, 
the acquiring corporation shall be entitled to deduct such items 
when paid or accrued, as the case may be, as if such corporation 
were the distributor or transferor corporation. 
A corporation 
which would have been an acquiring corporation under this section 
if the date of distribution or transfer had occurred on or after the 
effective date of the provisions of this subchapter applicable to a 
liquidation or reorganization, as the case may be, shall be entitled, 
even though the date of distribution or transfer occurred before such 
effective date, to apply this paragraph with respect to amounts 
paid or accrued in taxable years beginning after December 31, 1953, 
on account of such obligations of the distributor or transferor cor-
poration. 
This paragraph shall not apply if such obligations are 
reflected in the amount of stock, securities, or property transferred 
by the acquiring corporation to the transferor corporation for the 
property of the transferor corporation. 
(17) 
DEFICIENCY DIVIDEND OF PERSONAL HOLDING COMPANY.— 
If the acquiring corporation pays a deficiency dividend (as defined 
in section 547 (d)) with respect to the distributor or transferor 
corporation, such distributor or transferor corporation shall, with 
respect to such payments, be entitled to the deficiency dividend 
deduction provided in section 547. 
(18) 
PERCENTAGE DEPLETION ON EXTRACTION OF ORES OR MIN-
ERALS FROM THE WASTE O
R RESIDUE OF PRIOR MINING.—The acquir-
ing corporation shall be considered to be the distributor or transferor 
corporation for the purpose of determining the applicability of sec-
tion 613 (c) (3) (relating to extraction of ores or minerals from the 
ground). 
§ 381(c) (12) 
CH. 1—NORMAL TAXES AND SURTAXES 
129 
(19) CHAEITABLE CONTRIBUTIONS IN EXCESS OF PRIOR YEARS' 
LIMITATION.—Contributions made in the taxable year ending on 
the date of distribution or transfer and the prior taxable year by 
the distributor or transferor corporation in excess of the amount 
deductible under section 170 (b) (2) in such taxable years shall be 
deductible by the acquiring corporation in its first two taxable 
years which begin after the date of distribution or transfer, subject 
to the limitations imposed in section 170 (b) (2). 
SEC. 382. SPECIAL LIMITATIONS ON NET OPERATING LOSS CARRY-
OVERS. 
(a) PURCHASE or A CORPORATION AND CHANGE IN ITS TRADE OR 
BUSINESS.— 
(1) I N GENERAL.—If, at the end of a taxable year of a corpora-
tion— 
(A) any one or more of those persons described in paragraph (2) 
own a percentage of the total fair market value of the outstanding 
stock of such corporation which is at least 50 percentage points 
• 
more than such person or persons owned at^—• 
' 
(i) the beginning of such taxable year, or 
"
; 
(ii) the beginning of the prior taxable year, 
(B) the increase in percentage points at the end of such taxable 
i 
year is attributable to— 
(i) a purchase by such person or persons of such stock, the 
. 
stock of another corporation owning stock in such corporation, 
or an interest in a partnership or trust owning stock in such 
corporation, or 
*
"
* 
(ii) a decrease in the amount of such stock outstanding or 
the amount of stock outstanding of another corporation owning 
"[ 
stock in such corporation, except a decrease resulting from a 
redemption to pay death taxes to which section 303 applies, 
and 
(C) such corporation has not continued to carry on a trade or 
business substantially the same as that conducted before any 
change in the percentage ownership of the fair market value of 
such stock, 
the net operating loss carryovers, if any, from prior taxable years 
of such corporation to such taxable year and subsequent taxable 
years shall not be included in the net operating loss deduction for 
such taxable year and subsequent taxable years. 
(2) DESCRIPTION OF PERSON OR PERSONS.—The person or persons 
referred to in paragraph (1) shall be the 10 persons (or such lesser 
number as there are persons owning the outstanding stock at the 
end of such taxable year) who own the greatest percentage of the fair 
market value of such stock at the end of such taxable year; except 
that, if any other person owns the same percentage of such stock at 
such time as is owned by one of the 10 persons, such person shall 
also be included. If any of the persons are so related that such 
stock owned by one is attributed to the other under the rules 
specified in paragraph (3), such persons shall be considered as only 
one person solely for the purpose of selecting the 10 persons (more 
or less) who own the greatest percentage of the fair market value of 
such outstanding stock. 
§ 382(a)(2) 
130 
INTERNAL REVENUE CODE OF 1954 
(3) ATTRIBUTION OF OWNERSHIP.—Section 318 (relating to con-
structive ownership of stock) shall apply in determining the owner-
ship of stock, except that section 318 (a) (2) (C) shall be applied 
without regard to the 50 percent limitation contained therein. 
(4) DEFINITION OF PURCHASE.—For purposes of this subsection, 
the term "purchase" means the acquisition of stock, the basis of 
which is determined solely by reference to its cost to the holder 
thereof, in a transaction from a person or persons other than the 
person or persons the ownership of whose stock would be attributed 
to the holder by application of paragraph (3). 
(b) 
CHANGE OF OWNERSHIP AS THE RESULT OP A REORGANIZA-
TION.— 
(1) I N GENERAL.—If, in the case of a reorganization specified in 
paragraph (2) of section 381 (a), the transferor corporation or the 
acquiring corporation— 
(A) has a net operating loss which is a net operating loss 
carryover to the first taxable year of the acquiring corporation 
ending after the date of transfer, and 
(B) the stockholders (immediately before the reorganization) 
of such corporation (hereinafter in this subsection referred to as 
the ''loss corporation"), as the result of owning stock of the loss 
corporation, own (immediately after the reorganization) less than 
20 percent of the fair market value of the outstanding stock of 
the acquiring corporation, 
the total net operating loss carryover from prior taxable years of 
the loss corporation to the first taxable year of the acquiring cor-
poration ending after the date of transfer shall be reduced by the 
percentage determined under paragraph (2). 
(2) REDUCTION OF NET OPERATING LOSS CARRYOVER.—The reduc-
tion applicable under paragraph (1) shall be the percentage deter-
mined by subtracting from 100 percent— 
(A) the percent of the fair market value of the outstanding 
stock of the acquiring corporation owned (immediately after the 
reorganization) by the stockholders (immediately before the 
reorganization) of the loss corporation, as the result of owning 
stock of the loss corporation, multiplied by 
(B) five. 
(3) EXCEPTION TO LIMITATION IN THIS SUBSECTION.^—The limita-
tion in this subsection shall not apply if the transferor corporation 
and the acquiring corporation are owned substantially by the same 
persons in the same proportion. 
(4) N E T OPERATING LOSS CARRYOVERS TO SUBSEQUENT YEARS.'— 
In computing the net operating loss carryovers to taxable years 
subsequent to a taxable year in which there was a limitation appli-
cable to a net operating loss carryover by operation of this sub-
section, the income in such taxable year, as computed under section 
172 (b) (2), shall be increased by the amount of the reduction of the 
total net operating loss carryover determined under paragraph (2). 
(5) ATTRIBUTION OF OWNERSHIP.—If the transferor corporation 
or the acquiring corporation owns (immediately before the reor-
ganization) any of the outstanding stock of the loss corporation, such 
transferor corporation or acquiring corporation shall, for purposes 
§ 382(a)(3) 
CH. 1—NORMAL TAXES AND SURTAXES 
131 
of this subsection, be treated as owning (immediately after the 
reorganization) a percentage of the fair market value of the acquir-
ing corporation's outstanding stock which bears the same ratio to 
the percentage of the fair market value of the outstanding stock of 
the loss corporation (immediately before the reorganization) owned 
by such transferor corporation or acquiring corporation as the fair 
t' market value of the total outstanding stock of the loss corporation 
(immediately before the reorganization) bears to the fair market 
^i- value of the total outstanding stock of the acquiring corporation 
(immediately after the reorganization). 
(6) STOCK OF CORPORATION CONTROLLING ACQUIRING CORPORA-
TION.—If the stockholders of the loss corporation (immediately 
before the reorganization) own, as a result of the reorganization, 
stock in a corporation controlling the acquiring corporation, such 
r stock of the controlling corporation shall, for purposes of this sub-
section, be treated as stock of the acquiring corporation in an 
amount valued at an equivalent fair market value. 
(c) DEFINITION OF STOCK.—For purposes of this section, "stock" 
means all shares except nonvoting stock which is limited and preferred 
as to dividends. 
; 
PART VI—EFFECTIVE DATE OF SUBCHAPTER C 
Sec. 391. Effective date of part I. 
Sec. 392. Effective date of part II. 
Y ; 
Sec. 393. Effective dates of parts III and IV. 
Sec. 394. Effective date of part V. 
Sec. 395. Special rules for application of this subchapter. 
^ 
SEC. 391. EFFECTIVE DATE OF PART I. 
Except as otherwise provided in this subchapter, part I shall take 
effect on June 22, 1954. 
Section 306 shall apply only with respect to 
dispositions (or redemptions) occurring on or after June 22, 1954. 
SEC. 392. EFFECTIVE DATE OF PART II. 
(a) GENERAL RULE.—Except as otherwise provided in this sub-
chapter, part II shall apply with respect to a plan of liquidation 
only if the first distribution in pursuance of such plan occurs on or 
after June 22, 1954. 
Section 341 shall apply only with respect to 
sales, exchanges, and distributions on or after June 22, 1954. 
(b) SPECIAL RULE FOR CERTAIN SALES DURING 1954.— 
(1) NONRECOGNITION OF GAIN OR LOSS.—If— 
"
•
/ 
(A) all of the assets of a corporation (less assets retained to 
I) 
meet claims) are distributed before January 1, 1955, in complete 
liquidation of such corporation; and 
li 
(B) the corporation elects (at such time and in such manner 
as the Secretary or his delegate may by regulations prescribe) to 
a 
have this subsection apply, 
then no gain or loss shall be recognized to such corporation from 
the sale or exchange by it of property during the calendar year 
1954. 
(2) CERTAIN PROVISIONS OF SECTION 337 MADE APPLICABLE.—For 
purposes of paragraph (1)— 
(A) the term "property" has the meaning given to such term 
by section 337 (b); except that any determination required by 
§ 392(b)(2)(A) 
132 
INTERNAL REVENUE CODE OF 1954 
section 337 (b) to be made by reference to the date of the adoption 
of the plan of Hquidation shall be made by reference to January 1, 
1954; and 
(B) the limitations of section 337 (c) shall apply. 
For purposes of section 453 (d) (4) (B) (relating to disposition of 
installment obligations), nonrecognition of gain or loss under para-
graph (1) of this subsection shall be treated as nonrecognition of 
gain or loss under section 337. 
(3) PLANS OF LIQUIDATION ADOPTED AFTER DECEMBER 31, 
1953, 
AND BEFORE JUNE 22, 1954.—If the plan of complete liquidation was 
adopted after December 31, 1953, and before June 22, 1954, then, 
at the election of the corporation (made at such time and in such 
manner as the Secretary or his delegate may by regulations 
prescribe)— 
(A) the 12-month period beginning on the date of the adoption 
of such plan shall be (i) the period for distribution (in lieu of the 
requirement in paragraph (1) (A) of this subsection that the 
assets be distributed before January 1, 1955), and (ii) the period 
during which, by reason of paragraph (1) of this subsection, gain 
or loss to the corporation is not recognized (in lieu of nonrecogni-
tion of gain or loss during the calendar year 1954); and 
(B) notwithstanding paragraph (2) (A) of this subsection, any 
determination required by section 337 (b) to be made by reference 
to the date of the adoption of the plan of liquidation shall be 
made by reference to such date (and not by reference to January 
1, 1954). 
SEC. 393. EFFECTIVE DATES OF PARTS III AND IV. 
(a) GENERAL RULE.—Except as otherwise provided in this sub-
chapter, parts III and IV shall take effect on June 22, 1954. 
(b) SPECIAL RULES FOR PLANS OF REORGANIZATION.— 
(1) I N GENERAL.—Except as provided in paragraphs (2) and (3), 
parts III and IV shall apply only in respect of plans of reorganiza-
tion adopted on or after June 22, 1954. 
For purposes of this 
paragraph and paragraphs (2) and (3), a plan to make a transfer to 
a controlled corporation described in section 351, or a plan to make 
an exchange or distribution which is described in section 355 (or so 
much of section 356 as relates to section 355) shall be treated as a 
plan of reorganization. 
(2) ELECTION TO HAVE 1939 CODE APPLY.—If— 
(A) a plan of reorganization was submitted to the Secretary 
or his delegate before June 22, 1954, but such plan was not adopted 
before such date, 
(B) the Secretary or his delegate issues (whether before, on, or 
after such date) a ruling with respect to such plan, and 
(C) the corporations which are parties to the reorganization 
elect (at such time and in such manner as the Secretary or his 
delegate may by regulations prescribe) to have this paragraph 
then, if such reorganization is completed in accordance with the 
plan so submitted, the tax treatment of such reorganization (as to 
the corporations which are parties to the reorganization and as to 
1392(b)(2)(A) 
CH. 1 
NORMAL TAXES AND SURTAXES 
133 
their shareholders and security holders) shall be determined under 
the Internal Revenue Code of 1939 (in accordance with the contents 
of such ruhng) and not under this Code. 
(3) ELECTION TO HAVE 1954 CODE APPLY.—If— 
(A) a plan of reorganization— 
(i) was adopted after March 1, 1954, and before June 22, 
1954, or 
(ii) was adopted before June 22, 1954, in pursuance of a 
court order and all distributions under the plan occur after 
March 1, 1954, and before July 1, 1954, and 
(B) the corporations which are parties to the reorganization 
elect (at such time and in such manner as the Secretary or his 
delegate may by regulations prescribe) to have this paragraph 
apply, 
- then the tax treatment of such reorganization (as to the corporations 
which are parties to the reorganization and as to their shareholders 
and security holders) shall be determined under this Code and not 
under the Internal Revenue Code of 1939. 
SEC. 394. EFFECTIVE DATE OF PART V. 
(a) SECTION 381.—Except as otherwise provided in this subchapter, 
section 381 shall apply to liquidations and reorganizations, the tax 
treatment of which is determined under this Code. 
(b) SECTION 382 (a).—For purposes of applying the special limita-
tion on net operating loss carryovers in section 382 (a), the beginning 
of the taxable years specified in clauses (i) and (ii) of section 382 
(a) (1) (A) shall be considered to be the beginning of such taxable 
years or June 22, 1954, whichever occurs later. 
(c) SECTION 382 (b).^—Section 382 (b) shall apply to reorganiza-
tions, the tax treatment of which is determined under this Code, 
SEC. 395. SPECIAL RULES FOR APPLICATION OF THIS SUBCHAPTER. 
(a) TAXABLE YEARS AFFECTED.^—Any provision of this subchapter 
the applicability of which is stated in terms of a specific date shall 
apply with respect to taxable years ending after such date. 
Each 
provision shall, in the case of a taxable year subject to the Internal 
Revenue Code of 1939, be deemed to be included in the Internal Reve-
nue Code of 1939, but shall apply only to taxable years ending after 
such specific date. 
(b) REPEAL AND CONTINUANCE OF INTERNAL REVENUE CODE OF 
1939.—To the extent that the provisions of this subchapter supersede 
the provisions of the Internal Revenue Code of 1939, such provisions 
of the Internal Revenue Code of 1939 are hereby repealed. 
The pro-
visions of the Internal Revenue Code of 1939 shall continue to apply 
with respect to transactions for which rules are provided in this sub-
chapter until such rules take effect. 
§ 395(b) 
134 
INTERNAL REVENUE CODE OF 1954 
Subchapter D—Deferred Compensation, Etc. 
Part I. Pension, profit-sharing, stock bonus plans, etc. 
Part II. Miscellaneous provisions. 
PART I—PENSION, PROFIT-SHARING, STOCK BONUS 
PLANS, ETC. 
Sec. 401. Qualified pension, profit-sharing, and stock bonus plans. 
Sec. 402. Taxability of beneficiary of employees' trust. 
Sec. 403. Taxation of employee annuities. 
Sec. 404. Deduction for contributions of an employer to an em-
ployees' trust or annuity plan and compensation under 
a deferred-payment plan. 
SEC. 401. QUALIFIED PENSION, PROFIT-SHARING, AND STOCK BONUS 
PLANS. 
(a) REQUIREMENTS FOR QUALIFICATION.—A trust created or organ-
ized in the United States and forming part of a stock bonus, pension, 
or profit-sharing plan of an employer for the exclusive benefit of his 
employees or their beneficiaries shall constitute a qualified trust 
under this section— 
(1) if contributions are made to the trust by such employer, or 
employees, or both, or by another employer who is entitled to 
deduct his contributions under section 404 (a) (3) (B) (relating to 
deduction for contributions to profit-sharing and stock bonus 
plans), for the purpose of distributing to such employees or their 
beneficiaries the corpus and income of the fund accumulated by the 
trust in accordance with such plan; 
(2) if under the trust instrument it is impossible, at any time 
prior to the satisfaction of all liabilities with respect to employees 
and their beneficiaries under the trust, for any part of the corpus 
or income to be (within the taxable year or thereafter) used for, or 
diverted to, purposes other than for the exclusive benefit of his 
employees or their beneficiaries; 
(3) if the trust, or two or more trusts, or the trust or trusts and 
annuity plan or plans are designated by the employer as constitut-
ing parts of a plan intended to qualify under this subsection which 
benefits either— 
(A) 70 percent or more of all the employees, or 80 percent or 
more of all the employees who are eligible to benefit under the 
plan if 70 percent or more of all the employees are eligible to 
benefit under the plan, excluding in each case employees who 
have been employed not more than a minimum period prescribed 
by the plan, not exceeding 5 years, employees whose customary 
employment is for not more than 20 hours in any one week, and 
employees whose customary employment is for not more than 
5 months in any calendar year, or 
(B) such employees as qualify under a classification set up by 
the employer and found by the Secretary or his delegate not to 
§ 401 
CH. 1 
NORMAL TAXES AND SURTAXES 
135 
be discriminatory in favor of employees who are officers, share-
holders, persons whose principal duties consist in supervising the 
work of other employees, or highly compensated employees; 
and 
(4) if the contributions or benefits provided under the plan do 
not discriminate in favor of employees who are officers, shareholders, 
persons whose principal duties consist in supervising the work of 
other employees, or highly compensated employees. 
(5) A classification shall not be considered discriminatory within 
the meaning of paragraph (3) (B) or (4) merely because it excludes 
employees the whole of whose remuneration constitutes "wages" 
under section 3121 (a) (1) (relating to the Federal Insurance Con-
tributions Act) or merely because it is limited to salaried or clerical 
employees. 
Neither shall a plan be considered discriminatory 
within the meaning of such provisions merely because the contribu-
tions or benefits of or on behalf of the employees under the plan 
bear a uniform relationship to the total compensation, or the basic 
or regular rate of compensation, of such employees, or merely 
because the contributions or benefits based on that part of an 
r employee's remuneration which is excluded from "wages" by 
section 3121 (a) (1) differ from the contributions or benefits based 
on employee's remuneration not so excluded, or differ because of 
any retirement benefits created under State or Federal law. 
(6) A plan shall be considered as meeting the requirements of 
paragraph (3) during the whole of any taxable year of the plan if 
on one day in each quarter it satisfied such requirements. 
(b) CERTAIN RETROACTIVE CHANGES IN PLAN.—^A stock bonus, 
pension, profit-sharing, or annuity plan shall be considered as satisfy-
ing the requirements of paragraphs (3), (4), (5), and (6) of subsection 
(a) for the period beginning with the date on which it was put into 
effect and ending with the 15th day of the third month following the 
close of the taxable year of the employer in which the plan was put in 
effect, if all provisions of the plan which are necessary to satisfy such 
requirements are in effect by the end of such period and have been 
made effective for all purposes with respect to the whole of such period. 
(c) CROSS REFERENCE.— 
For exemption from tax of a trust qualified under this section, see 
section 501 (a). 
SEC. 402. TAXABILITY OF BENEFICIARY OF EMPLOYEES' TRUST. 
(a) TAXABILITY OF BENEFICIARY OF EXEMPT TRUST.— 
(1) GENERAL RULE.—Except as provided in paragraph (2), the 
amount actually distributed or made available to any distributee 
by any employees' trust described in section 401 (a) which is exempt 
from tax under section 501 (a) shall be taxable to him, in the year 
in which so distributed or made available, under section 72 (relating 
to annuities) except that section 72 (e) (3) shall not apply. 
The 
amount actually distributed or made available to any distributee 
shall not include net unrealized appreciation in securities of the 
employer corporation attributable to the amount contributed by the 
employee. 
Such net unrealized appreciation and the resulting ad-
justments to basis of such securities shall be determined in accord-
ance with regulations prescribed by the Secretary or his delegate. 
§ 402(a)(1) 
136 
INTERNAL REVENUE CODE OF 1954 
: 
(2) CAPITAL GAINS TREATMENT FOR CERTAIN DISTRIBUTIONS.— 
In the case of an employees' trust described in section 401 (a), 
which is exempt from tax under section 501 (a), if the total distri-
butions payable with respect to any employee are paid to the 
distributee within 1 taxable year of the distributee on account of 
the employee's death or other separation from the service, or on 
account of the death of the employee after his separation from the 
service, the amount of such distribution, to the extent exceeding 
the amounts contributed by the employee (determined by applying 
section 72 (f)), which employee contributions shall be reduced by 
any amounts theretofore distributed to him which were not includi-
ble in gross income, shall be considered a gain from the sale or 
exchange of a capital asset held for more than 6 months. 
Where 
such total distributions include securities of the employer corpora-
tion, there shall be excluded from such excess the net unrealized 
appreciation attributable to that part of the total distributions 
which consists of the securities of the employer corporation so 
distributed. The amount of such net unrealized appreciation and 
the resulting adjustments to basis of the securities of the employer 
corporation so distributed shall be determined in accordance with 
regulations prescribed by the Secretary or his delegate. 
(3) DEFINITIONS.—For purposes of this subsection— 
(A) The term "securities" means only shares of stock and 
bonds or debentures issued by a corporation with interest coupons 
or in registered form. 
(B) The term "securities of the employer corporation" in-
cludes securities of a parent or subsidiary corporation (as defined 
in section 421 (d) (2) and (3)) of the employer corporation. 
(C) The term "total distributions payable" means the balance 
to the credit of an employee which becomes payable to a dis-
tributee on account of the employee's death or other separation 
from the service, or on account of his death after separation from 
the service. 
(b) TAXABILITY OF BENEFICIARY OF NON-EXEMPT TRUST.—Contri-
butions to an employees' trust made by an employer during a taxable 
year of the employer which ends within or with a taxable year of the 
trust for which the trust is not exempt from tax under section 501 (a) 
shall be included in the gross income of an employee for the taxable 
year in which the contribution is made to the trust in the case of an 
employee whose beneficial interest in such contribution is nonfor-
feitable at the time the contribution is made. 
The amount actually 
distributed or made available to any distributee by any such trust 
shall be taxable to him, in the year in which so distributed or made 
available, under section 72 (relating to annuities) except that section 
72 (e) (3) shall not apply. 
(c) TAXABILITY OF BENEFICIARY OF CERTAIN FOREIGN 
SITUS 
TRUSTS.—For purposes of subsections (a) and (b), a stock bonus, 
pension, or profit-sharing trust which would qualify for exemption 
from tax under section 501 (a) except for the fact that it is a trust 
created or organized outside the United States shall be treated as if 
it were a trust exempt from tax under section 501 (a). 
§ 402(a)(2) 
CH. 1 
NORMAL TAXES AND SURTAXES 
137 
(d) CERTAIN EMPLOYEES' ANNUITIES.—Notwithstanding subsec-
tion (b) or any other provision of this subtitle, a contribution to 
a trust by an employer shall not be included in the gross income of 
the employee in the year in which the contribution is made if— 
(1) such contribution is to be applied by the trustee for the 
purchase of annuity contracts for the benefit of such employee; 
(2) such contribution is made to the trustee pursuant to a written 
agreement entered into prior to October 21, 1942, between the em-
ployer and the trustee, or between the employer and the employee; 
and 
(3) under the terms of the trust agreement the employee is not 
entitled during his lifetime, except with the consent of the trustee, 
to any payments under annuity contracts purchased by the trustee 
other than annuity payments. 
The employee shall include in his gross income the amounts received 
under such contracts for the year received as provided in section 72 
(relating to annuities) except that section 72 (e) (3) shall not apply. 
This subsection shall have no application with respect to amounts 
contributed to a trust after June 1, 1949, if the trust on such date 
was exempt under section 165 (a) of the Internal Revenue Code of 
1939. 
For purposes of this subsection, amounts paid by an employer 
for the purchase of annuity contracts which are transferred to the 
trustee shall be deemed to be contributions made to a trust or trustee 
and contributions applied by the trustee for the purchase of annuity 
contracts; the term "annuity contracts purchased by the trustee" 
shall include annuity contracts so purchased by the employer and 
transferred to the trustee; and the term "employee" shall include 
only a person who was in the employ of the employer, and was covered 
by the agreement referred to in paragraph (2), prior to October 21, 
1942. 
(e) CERTAIN PLAN TERMINATIONS.—For purposes of subsection (a) 
(2), distributions made after December 31, 1953, and before January 
1, 1955, as a result of the complete termination of a stock bonus, 
pension, or profit-sharing plan of an employer which is a corporation, 
if the termination of the plan is incident to the complete liquidation, 
occurring before the date of enactment of this title, of the corporation, 
whether or not such liquidation is incident to a reorganization as 
defined in section 368 (a), shall be considered to be distributions on 
account of separation from service. 
SEC. 403. TAXATION OF EMPLOYEE ANNUITIES. 
(a) TAXABILITY OF BENEFICIARY UNDER A QUALIFIED ANNUITY 
PLAN.— 
(1) GENERAL RULE.—Except as provided in paragraph (2), if an 
annuity contractus purchased by an employer for an employee under 
a plan with respect to which the employer's contribution is deduct-
ible under section 404 (a) (2), or if an annuity contract is pur-
chased for an employee by an employer described in section 501 
(c) (3) which is exempt from tax under section 501 (a), the employee 
shall include in his gross income the amounts received under such 
contract for the year received as provided in section 72 (relating to 
annuities) except that section 72 (e) (3) shall not apply. 
§ 403(a)(1) 
49012°—54 
12 
138 
INTERNAL REVENUE CODE OF 1954 
(2) CAPITAL GAINS TREATMENT FOR CERTAIN DISTRIBUTIONS.— 
(A) GENERAL RULE.—If— 
(i) an annuity contract is purchased by an employer for an 
employee under a plan which meets the requirements of section 
401 (a) (3), (4), (5), and (6); 
(ii) such plan requires that refunds of contributions with 
respect to annuity contracts purchased under such plan be 
used to reduce subsequent premiums on the contracts under 
the plan; and 
(iii) the total amounts payable by reason of an employee's 
death or other separation from the service, or by reason of the 
death of an employee after the employee's separation from the 
service, are paid to the payee within one taxable year of the 
payee, 
then the amount of such payments, to the extent exceeding the 
amount contributed by the employee (determined by applying 
section 72 (f)), which employee contributions shall be reduced by 
any amounts theretofore paid to him which were not includible in 
gross income, shall be considered a gain from the sale or exchange 
of a capital asset held for more than 6 months. 
(B) DEFINITION.—For purposes of subparagraph (A), the term 
"total amounts" means the balance to the credit of an employee 
which becomes payable to the payee by reason of the employee's 
death or other separation from the service, or by reason of his 
death after separation from the service. 
(b) TAXABILITY OF BENEFICIARY UNDER A NONQUALIFIED A N -
NUITY.—If an annuity contract purchased by an employer for an 
employee is not subject to subsection (a) and the employee's rights 
under the contract are nonforfeitable, except for failure to pay future 
premiums, the amount contributed by the employer for such annuity 
contract on or after such rights become nonforfeitable shall be included 
in the gross income of the employee in the year in which the amount is 
contributed. 
The employee shall include in his gross income the 
amounts received under such contract for the year received as pro-
vided in section 72 (relating to annuities) except that section 72 (e) (3) 
shall not apply. 
SEC. 404. DEDUCTION FOR CONTRIBUTIONS 
OF AN EMPLOYER 
TO 
AN EMPLOYEES' TRUST OR ANNUITY PLAN AND COM-
PENSATION UNDER A DEFERRED-PAYMENT 
PLAN. 
(a) GENERAL KULE.—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 
compensation shall not be deductible under section 162 (relating to 
trade or business expenses) or section 212 (relating to expenses for the 
production of income) but if they satisfy the conditions of either of 
such sections, they shall be deductible under this section, subject, 
however, to the following limitations as to the amounts deductible in 
any year: 
(1) PENSION TRUSTS.^—In the taxable year when paid, if the 
contributions are paid into a pension trust, and if such taxable year 
§ 403(a) (2) 
of..__|,'.,_";. to 
CH. 1—NORMAL TAXES AND SURTAXES 
139 
ends within or with a taxable year of the trust for which the trust is 
exempt under section 501 (a), in an amount determined as follows: 
(A) an amount not in excess of 5 percent of the compensation 
otherwise paid or accrued during the taxable year to all the 
employees under the trust, but such amount may be reduced for 
future years if found by the Secretary or his delegate upon periodi-
cal examinations at not less than 5-year intervals to be more than 
the amount reasonably necessary to provide the remaining un-
funded cost of past and current service credits of all employees 
under the plan, plus 
(B) any excess over the amount allowable under subparagraph 
(A) necessary to provide with respect to all of the employees 
under the trust the remaining unfunded cost of their past and 
current service credits distributed as a level amount, or a level 
percentage of compensation, over the remaining future service 
of each such employee, as determined under regulations pre-
scribed by the Secretary or his delegate, but if such remaining 
unfunded cost with respect to any 3 individuals is more than 50 
percent of such remaining unfunded cost, the amount of such 
unfunded cost attributable to such individuals shall be distributed 
over a period of at least 5 taxable years, or 
(C) in lieu of the amounts allowable under subparagraphs (A) 
and (B) above, an amount equal to the normal cost of the plan, 
as determined under regulations prescribed by the Secretary or 
his delegate, plus, if past service or other supplementary pension 
or annuity credits are provided by the plan, an amount not in 
excess of 10 percent of the cost which would be required to com-
pletely fund or purchase such pension or annuit}'' credits as of 
the date when they are included in the plan, as determined under 
regulations prescribed by the Secretary or his delegate, except 
that in no case shall a deduction be allowed for any amount 
(other than the normal cost) paid in after such pension or 
annuity credits are completely funded or purchased. 
(D) Any amount paid in a taxable year in excess of the amount 
deductible in such year under the foregoing limitations shall be 
deductible in the succeeding taxable years in order of time to 
the extent of the difference between the amount paid and deduct-
ible in each such succeeding year and the maximum amount 
deductible for such year in accordance with the foregoing limita-
tions. 
(2) EMPLOYEES' ANNUITIES.—In the taxable year when paid, in 
an amount determined in accordance with paragraph (1), if the 
contributions are paid toward the purchase of retirement annuities 
and such purchase is a part of a plan which meets the requirements 
of section 401 (a) (3), (4), (5), and (6), and if refunds of premiums, 
if any, are applied within the current taxable year or next succeed-
ing taxable year towards the purchase of such retirement annuities. 
(3) STOCK BONUS AND PROFIT-SHARING TRUSTS.— 
(A) 
LIMITS ON DEDUCTIBLE CONTRIBUTIONS.—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 
§ 404(a) (3) (A) 
140 
INTERNAL REVENUE CODE OF 1954 
is exempt under section 501 (a), in an amount not in excess of 
15 percent of the compensation otherwise paid or accrued during 
the taxable year to all employees under the stock bonus or profit-
sharing plan. If in any taxable year there is paid into the trust, 
or a similar trust then in effect, amounts less than the amounts 
deductible under the preceding sentence, the excess, or if no 
amount is paid, the amounts deductible, shall be carried forward 
and be deductible when paid in the succeeding taxable years in 
order of time, but the amount so deductible under this sentence 
in any such succeeding taxable year shall not exceed 15 percent 
of the compensation otherwise paid or accrued during such suc-
ceeding taxable year to the beneficiaries under the plan. 
In 
addition, any amount paid into the trust in any taxable year 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 percent of the 
compensation otherwise paid or accrued during such taxable year 
to the beneficiaries under the plan. 
The term "stock bonus or 
profit-sharing trust", as used in this subparagraph, shall not 
include any trust designed to provide benefits upon retirement 
and covering a period of years, if under the plan the amounts to 
be contributed by the employer can be determined actuarially as 
provided in paragraph (1). If the contributions are made to 2 
or more stock bonus or profit-sharing trusts, such trusts shall be 
considered a single trust for purposes of applying the hmitations 
in this subparagraph. 
(B) PROFIT-SHAKING PLAN OF AFFILIATED GROUP.—In the case 
of a profit-sharing plan, or a stock bonus plan in which contribu-
tions are determined with reference to profits, of a group of corpo-
rations which is an affiliated group within the meaning of section 
1504, if any member of such affiliated group is prevented from 
making a contribution which it would otherwise have made 
under the plan, by reason of having no current or accumulated 
earnings or profits or because such earnings or profits are less 
than the contributions which it would otherwise have made, then 
so much of the contribution which such member was so prevented 
from making may be made, for the benefit of the employees of 
such member, by the other members of the group, to the extent 
of current or accumulated earnings or profits, except that such 
contribution by each such other member shall be limited, where 
the group does not file a consolidated return, to that proportion 
of its total current and accumulated earnings or profits remaining 
after adjustment for its contribution deductible without regard 
to this subparagraph which the total prevented contribution 
bears to the total current and accumulated earnings or profits of 
all the members of the group remaining after adjustment for all 
contributions deductible without regard to this subparagraph. 
Contributions made under the preceding sentence shall be 
deductible under subparagraph (A) of this paragraph by the 
employer making such contribution, and, for the purpose of 
§ 404(a) (3) (A) 
CH. 1—NORMAL TAXES AND SURTAXES 
141 
determining amounts which may be carried forward and deducted 
under the second sentence of subparagraph (A) of this paragraph 
in succeeding taxable years, shall be deemed to have been made 
by the employer on behalf of whose employees such contributions 
were made. 
(4) TRUSTS 
CREATED 
OR 
ORGANIZED 
OUTSIDE 
THE 
UNITED 
STATES.—If a stock bonus, pension, or profit-sharing trust would 
qualify for exemption under section 501 (a) except for the fact that 
it is a trust created or organized outside the United States, con-
tributions to such a trust by an employer which is a resident, or 
corporation, or other entity of the United States, shall be deductible 
under the preceding paragraphs. 
(5) OTHER PLANS.—In the taxable year when paid, if the plan is 
not one included in paragraph (1), (2), or (3), if the employees' 
rights to or derived from such employer's contribution or such com-
pensation are nonforfeitable at the time the contribution or compen-
sation is paid. 
(6) TAXPAYERS ON ACCRUAL BASIS.—For purposes of paragraphs 
(1), (2), and (3), a taxpayer on the accrual basis shall be deemed to 
have made a payment on the last day of the year of accrual if the 
payment is on account of such taxable year and is made not later 
than the time prescribed by law for filing the return for such 
taxable year (including extensions thereof). 
(7) LIMIT OF DEDUCTION.—If amounts are deductible under 
paragraphs (1) and (3), or (2) and (3), or (1), (2), and (3), in 
connection with 2 or more trusts, or one or more trusts and an 
annuity plan, the total amount deductible in a taxable year under 
such trusts and plans shall not exceed 25 percent of the compensa-
tion otherwise paid or accrued during the taxable year to the 
persons who are the beneficiaries of the trusts or plans. 
In addi-
tion, any amount paid into such trust or under such annuity plans 
in any taxable year in excess of the amount allowable with respect 
to such year under the preceding provisions of this paragraph 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 paragraph shall not exceed 30 percent of 
the compensation otherwise paid or accrued during such taxable 
years to the beneficiaries under the trusts or plans. 
This para-
graph shall not have the effect of reducing the amount otherwise 
deductible under paragraphs (1), (2), and (3), if no employee is a 
beneficiary under more than one trust, or a trust and an annuity 
plan. 
(b) METHOD OF GONTRIBUTIONS, ETC., HAVING THE EFFECT OF A 
PLAN.^—If there is no plan but a method of employer contributions or 
compensation has the effect of a stock bonus, pension, profit-sharing, 
or annuity plan, or similar plan deferring the receipt of compensation, 
subsection (a) shall apply as if there were such a plan. 
(c) CERTAIN NEGOTIATED PLANS.—If contributions are paid by an 
employer— 
(1) under a plan under which such contributions are held in 
trust for the purpose of paying (either from principal or income or 
both) for the benefit of employees and their families and dependents 
§ 404(c)(1) 
142 
INTERNAL REVENUE CODE OF 1954 
at least medical or hospital care, and pensions on retirement or 
death of employees; and 
(2) such plan was established prior to January 1, 1954, as a 
result of an agreement between employee representatives and the 
Government of the United States during a period of Government 
operation, under seizure powers, of a major part of the productive 
facilities of the industry in which such employer is engaged, 
such contributions shall not be deductible under this section nor be 
made nondeductible by this section, but the deductibility thereof 
shall be governed solely by section 162 (relating to trade or business 
expenses). 
This subsection shall have no application with respect to 
amounts contributed to a trust on or after any date on which such 
trust is qualified for exemption from tax under section 501 (a). 
(d) CARRYOVER OF UNUSED DEDUCTIONS.—The amount of any 
unused deductions or contributions in excess of the deductible amounts 
for taxable years to which this part does not apply which under 
section 23 (p) of the Internal Revenue Code of 1939 would be allowable 
as deductions in later years had such section 23 (p) remained in effect, 
shall be allowable as deductions in taxable years to which this part 
applies as if such section 23 (p) were continued in effect for such years. 
However, the deduction under the preceding sentence shall not exceed 
an amount which, when added to the deduction allowable under 
subsection (a) for contributions made in taxable years to which this 
part applies, is not greater than the amount which would be deductible 
under subsection (a) if the contributions which give rise to the deduc-
tion under the preceding sentence were made in a taxable year to 
which this part applies. 
PART II—MISCELLANEOUS PROVISIONS 
Sec. 421. Employee stock options. 
SEC. 421. EMPLOYEE STOCK OPTIONS. 
(a) TREATMENT OF RESTRICTED STOCK OPTIONS.—If a share of 
stock is transferred to an individual pursuant to his exercise after 
1949 of a restricted stock option, and no disposition of such share is 
made by him within 2 years from the date of the granting of the 
option nor within 6 months after the transfer of such share to him— 
(1) no income shall result at the time of the transfer of such share 
to the individual upon his exercise of the option with respect to such 
share; 
(2) no deduction under section 162 (relating to trade or business 
expenses) shall be allowable at any time to the employer corpora-
tion, a parent or subsidiary corporation of such corporation, or a 
corporation issuing or assuming a stock option in a transaction to 
which subsection (g) is applicable, with respect to the share so 
transferred; and 
(3) no amount other than the price paid under the option shall 
be considered as received by any of such corporations for the share 
so transferred. 
This subsection and subsection (b) shall not apply unless (A) the 
individual, at the time he exercises the restricted stock option, is an 
employee of either the corporation granting such option, a parent or 
§ 404(c)(1) 
CH. 1—NORMAL TAXES AND SURTAXES 
143 
subsidiary corporation of such corporation, or a corporation or a 
parent or subsidiary of such corporation issuing or assuming a stock 
option in a transaction to which subsection (g) is apphcable, or (B) the 
option is exercised by him within 3 months after the date he ceases to 
be an employee of such corporations. 
(b) 
SPECIAL RULE WHEEE OPTION PEICE IS BETWEEN 85 PERCENT 
AND 95 PERCENT OF VALUE OF STOCK.—If no disposition of a share of 
stock acquired by an individual on his exercise after 1949 of a re-
stricted stock option is made by him within 2 years from the date of 
the granting of the option nor within 6 months after the transfer of 
such share to him, but, at the time the restricted stock option was 
granted, the option price (computed under subparagraph (d) (1) (A)) 
was less than 95 percent of the fair market value at such time of such 
share, then, in the event of any disposition of such share by him, or in 
the event of his death (whenever occurring) while owning such share, 
there shall be included as compensation (and not as gain upon the 
sale or exchange of a capital asset) in his gross income, for the taxable 
year in which falls the date of such disposition or for the taxable year 
closing with his death, whichever applies— 
(1) in the case of a share of stock acquired under an option 
qualifying under clause (i) of subparagraph (d) (1) (A), an amount 
equal to the amount (if any) by which the option price is exceeded 
by the lesser of— 
(A) the fair market value of the share at the time of such dis-
position or death, or 
(B) the fair market value of the share at the time the option 
was granted; or 
(2) in the case of stock acquired under an option qualifying under 
clause (ii) of subparagraph (d) (1) (A), an amount equal to the 
lesser of— 
(A) the excess of the fair market value of the share at the 
time of such disposition or death over the price paid under the 
option, or 
(B) the excess of the fair market value of the share at the 
time the option was granted over the option price (computed as 
if the option had been exercised at such time). 
In the case of the disposition of such share by the individual, the 
basis of the share in his hands at the time of such disposition shall be 
increased by an amount equal to the amount so includible in his 
gross income. 
(c) ACQUISITION OF N E W STOCK.—If stock is received by an indi-
vidual in a distribution to which section 305, 354, 355, 356, or 1036, 
or so much of section 1031 as relates to section 1036, applies and such 
distribution was made with respect to stock transferred to him upon 
his exercise of the option, such stock shall be considered as having 
been transferred to him on his exercise of such option. 
A similar 
rule shall be applied in the case of a series of such distributions. 
(d) DEFINITIONS.—For purposes of this section— 
(1) RESTRICTED STOCK OPTION.—The term "restricted stock 
option" means an option granted after February 26, 1945, to an 
individual, for any reason connected with his employment by a 
corporation, if granted by the employer corporation or its parent 
§ 421(d)(1) 
144 
INTERNAL REVENUE CODE OF 1954 
or subsidiary corporation, to purchase stock of any of such cor-
porations, but only if— 
(A) at the time such option is granted— 
(i) the option price is at least 85 percent of the fair market 
value at such time of the stock subject to the option, or 
(ii) in case the purchase price of the stock under the option 
is fixed or determinable under a formula in which the only 
variable is the value of the stock at any time during a period 
of 6 months which includes the time the option is exercised, 
the option price (computed as if the option had been exercised 
when granted) is at least 85 percent of the value of the stock 
at the time such option is granted; and 
(B) such option by its terms is not transferable by such indi-
vidual otherwise than by will or the laws of descent and distri-
bution, and is exercisable, during his lifetime, only by him; and 
(C) such individual, at the time the option is granted, does 
not own stock possessing more than 10 percent of the total com-
bined voting power of all classes of stock of the employer corpora-
tion or of its parent or subsidiary corporation. 
This subpara-
graph shall not apply if at the time such option is granted the 
option price is at least 110 percent of the fair market value of the 
stock subject to the option and such option either by its terms 
is not exercisable after the expiration of 5 years from the date 
such option is granted or is exercised within one year after the 
date of enactment of this title. 
For purposes of this subpara-
graph— 
(i) such individual shall be considered as owning the stock 
owned, directly or indirectly, by or for his brothers and sisters 
(whether by the whole or half blood), spouse, ancestors, and 
lineal descendants; and 
(ii) stock owned, directly or indirectly, by or for a corpora-
tion, partnership, estate, or trust, shall be considered as being 
owned proportionately by or for its shareholders, partners, 
or beneficiaries; and 
(D) such option by its terms is not exercisable after the expi-
ration of 10 years from the date such option is granted, if such 
option has been granted on or after June 22, 1954. 
(2) PARENT 
CORPORATION.—The term 
"parent 
corporation" 
means any corporation (other than the employer corporation) in 
an unbroken chain of corporations ending with the employer corpo-
ration if, at the time of the granting of the option, each of the 
corporations other than the employer corporation owns stock pos-
sessing 50 percent or more of the total combined voting power of 
all classes of stock in one of the other corporations in such chain. 
(3) SUBSIDIARY CORPORATION.—The term "subsidiary corpora-
tion" means any corporation (other than the employer corporation) 
in an unbroken chain of corporations beginning with the employer 
corporation if, at the time of the granting of the option, each of 
the corporations other than the last corporation in the unbroken 
chain owns stock possessing 50 percent or more of the total 
combined voting power of all classes of stock in one of the other 
corporations in such chain. 
. 
. 
. 
1421(d)(1) 
CH. 1—NORMAL TAXES AND SURTAXES 
1 4 5 
(4) DISPOSITION.— 
(A) GENERAL RULE.—Except as provided in subparagraph (B), 
the term "disposition" includes a sale, exchange, gift, or a transfer 
of legal title, but does not include— 
(i) a transfer from a decedent to an estate or a transfer by-
bequest or inheritance; 
QfiJ 
(ii) an exchange to which section 354, 355, 356, or 1036 (or 
so much of section 1031 as relates to section 1036) applies; or 
(iii) a mere pledge or hypothecation. 
(B) JOINT TENANCY.—The acquisition of a share of stock in 
the name of the employee and another jointly with the right of 
survivorship or a subsequent transfer of a share of stock into 
such joint ownership shall not be deemed a disposition, but a 
termination of such joint tenancy (except to the extent such em-
ployee acquires ownership of such stock) shall be treated as a 
disposition by him occurring at the time such joint tenancy is 
terminated. 
(5) STOCKHOLDER APPROVAL.—If the grant of an option is subject 
to approval by stockholders, the date of grant of the option shall 
be determined as if the option had not been subject to such approval. 
(6) EXERCISE BY ESTATE.— 
(A) I N GENERAL.—If a restricted stock option is exercised 
subsequent to the death of the employee by the estate of the 
decedent, or by a person who acquired the right to exercise such 
option by bequest or inheritance or by reason of the death of the 
decedent, the provisions of this section shall apply to the same 
extent as if the option had been exercised by the decedent, except 
that— 
(i) the holding period and employment requirements of sub-
section (a) shall not apply, and 
(ii) any transfer by the estate of stock acquired shall be con-
sidered a disposition of such stock for purposes of subsection (b). 
(B) DEDUCTION FOR ESTATE TAX.—If an amount is required to 
be included under subsection (b) in gross income of the estate of 
the deceased employee or of a person described in subparagraph 
(A), there shall be allowed to the estate or such person a deduc-
tion with respect to the estate tax attributable to the inclusion in 
the taxable estate of the deceased employee of the net value for 
estate tax purposes of the restricted stock option. For this pur-
pose, the deduction shall be determined under section 691 (c) as 
if the option acquired from the deceased employee were an item 
of gross income in respect of the decedent under section 691 and 
as if the amount includible in gross income under subsection (b) 
of this section were an amount included in gross income under 
section 691 in respect of such item of gross income. 
(e) MODIFICATION, EXTENSION, OR RENEWAL OF OPTION,—• 
(1) RULES OF APPLICATION.—For purposes of subsection (d), if 
the terms of any option to purchase stock are modified, extended, 
or renewed, the following rules shall be applied with respect to 
transfers of stock made on the exercise of the option after the making 
of such modification, extension, or renewal— 
§421 (e)(1) 
146 
INTERNAL REVENUE CODE OF 1954 
(A) such modification, extension, or renewal shall be con-
sidered as the granting of a new option, 
(B) the fair market value of such stock at the time of the grant-
ing of such option shall be considered as— 
(i) the fair market value of such stock on the date of the 
original granting of the option, 
(ii) the fair market value of such stock on the date of the 
making of such modification, extension, or renewal, or 
(iii) the fair market value of such stock at the time of the 
making of any intervening modification, extension, or renewal, 
whichever is the highest. 
Subparagraph (B) shall not apply if the aggregate of the monthly 
average fair market values of the stock subject to the option for the 
12 consecutive calendar months before the date of the modification, 
extension, or renewal, divided by 12, is an amount less than 80 per-
cent of the fair market value of such stock on the date of the original 
granting of the option or the date of the making of any intervening 
modification, extension, or renewal, whichever is the highest. 
(2) DEFINITION OF MODIFICATION.—The term 
"modification" 
means any change in the terms of the option which gives the em-
ployee additional benefits under the option, but such term shall not 
include a change in the terms of the option— 
(A) attributable to the issuance or assumption of an option 
under subsection (g); or 
(B) to permit the option to qualify under subsection (d) (1) 
(B). 
If an option is exercisable after the expiration of 10 years from the 
date such option is granted, subparagraph (B) shall not apply unless 
the terms of the option are also changed to make it not exercisable 
after the expiration of such period. 
(f) EFFECT OF DISQUALIFYING DISPOSITION.—If a share of stock, 
acquired by an individual pursuant to his exercise of a restricted 
stock option, is disposed of by him within 2 years from the date of 
the granting of the option or within 6 months after the transfer of 
such share to him, then any increase in the income of such individual 
or deduction from the income of his employer corporation for the 
taxable year in which such exercise occurred attributable to such 
disposition, shall be treated as an increase in income or a deduction 
from income in the taxable year of such individual or of such em-
ployer corporation in which such disposition occurred. 
(g) CORPORATE REORGANIZATIONS, LIQUIDATIONS, ETC.^—^For pur-
poses of this section, the term "issuing or assuming a stock option in a 
transaction to which subsection (g) is applicable" means a substitu-
tion of a new option for the old option, or an assumption of the old 
option, by an employer corporation, or a parent or subsidiary of such 
corporation, by reason of a corporate merger, consolidation, acquisi-
tion of property or stock, separation, reorganization, or liquidation, 
if— 
(1) the excess of the aggregate fair market value of the shares 
subject to the option immediately after the substitution or assump-
tion over the aggregate option price of such shares is not more than 
§ 421(e)(1)(A) 
CH. 1—NORMAL TAXES AND SURTAXES 
H T 
the excess of the aggregate fair market value of all shares subject 
to the option immediately before such substitution or assumption 
over the aggregate option price of such shares, and 
(2) the new option or the assumption of the old option does not 
give the employee additional benefits which he did not have under 
the old option. 
For purposes of this subsection, the parent-subsidiary relationship 
shall be determined at the time of any such transaction under this 
subsection. 
e i 
• ; • 
§ 421(g) 
148 
INTERNAL EEVENUE CODE OF 1954 
Subchapter E—Accounting Periods and Methods of 
Accounting 
Part 
I. Accounting periods. 
Part 
II. Methods of accounting. 
Part III. Adjustments. 
PART I—ACCOUNTING PERIODS 
Sec. 441. Period for computation of taxable income. 
Sec. 442. Change of annual accounting period. 
Sec. 443. Returns for a period of less than 12 months. 
' 
SEC. 441. PERIOD FOR COMPUTATION OF TAXABLE INCOME. 
(a) COMPUTATION OF TAXABLE INCOME.^—Taxable income shall be 
computed on the basis of the taxpayer's taxable year. 
(b) TAXABLE YEAR.—For purposes of this subtitle, the term 
"taxable year" means— 
(1) the taxpayer's annual accounting period, if it is a calendar 
year or a fiscal year; 
(2) the calendar year, if subsection (g) applies; or 
(3) the period for which the return is made, if a return is made 
for a period of less than 12 months. 
(c) ANNUAL ACCOUNTING PERIOD.—For purposes of this subtitle, 
the term "annual accounting period" means the annual period on 
the basis of which the taxpayer regularly computes his income in 
keeping his books, 
(d) CALENDAR YEAR.—For purposes of this subtitle, the term 
"calendar year" means a period of 12 months ending on December 31. 
(e) FISCAL YEAR.—For purposes of this subtitle, the term "fiscal 
year" means a period of 12 months ending on the last day of any 
month other than December. 
In the case of any taxpayer who has 
made the election provided by subsection (f), the term means the 
annual period (varying from 52 to 53 weeks) so elected. 
(f) ELECTION OF YEAR CONSISTING OF 52-53 WEEKS.— 
(1) GENERAL RULE.—A taxpayer who, in keeping his books, 
regularly computes his income on the basis of an annual period 
which varies from 52 to 53 weeks and ends always on the same day 
of the week and ends always— 
(A) on whatever date such same day of the week last occurs in 
a calendar month, or 
(B) on whatever date such same day of the week falls which is 
nearest to the last day of a calendar month, 
may (in accordance with the regulations prescribed under para-
graph (3)) elect to compute his taxable income for purposes of this 
subtitle on the basis of such annual period. 
This paragraph shall 
apply to taxable years ending after the date of the enactment of 
this title. 
§441 
CH. 1—NORMAL TAXES AND SURTAXES 
14^ 
(2) SPECIAL RULES FOR 52-53-WEEK 
Y E A R , — 
(A) EFFECTIVE DATES.—In any case in which the effective date 
or the applicabihty of any provision of this title is expressed 
in terms of taxable years beginning or ending with reference to a 
specified date which is the first or last day of a month, a taxable 
year described in paragraph (1) shall (except for purposes of the 
computation under section 21) be treated— 
(i) as beginning with the first day of the calendar month 
beginning nearest to the first day of such taxable year, or 
(ii) as ending with the last day of the calendar month ending 
nearest to the last day of such taxable year, 
as the case may be. 
(B) CHANGE IN ACCOUNTING PERIOD.—In the case of a change 
from or to a taxable year described in paragraph (1)— 
(i) if such change results in a short period (within the mean-
ing of section 443) of 359 days or more, or of less than 7 days, 
section 443 (b) (relating to alternative tax computation) shall 
not apply; 
(ii) if such change results in a short period of less than 7 days, 
such short period shall, for purposes of this subtitle, be added 
to and deemed a part of the following taxable year; and 
(iii) if such change results in a short period to which subsec-
tion (b) of section 443 applies, the taxable income for such 
short period shall be placed on an annual basis for purposes 
of such subsection by multiplying such income by 365 and 
dividing the result by the number of days in the short period, 
and the tax shall be the same part of the tax computed on the 
annual basis as the number of days in the short period is of 
365 days. 
(3) KEGULATIONS.—The Secretary or his delegate shall prescribe 
such regulations as he deems necessary for the application of this 
subsection. 
(g) No BOOKS K E P T ; No ACCOUNTING PERIOD.—Except as pro-
vided in section 443 (relating to returns for periods of less than 12 
months), the taxpayer's taxable year shall be the calendar year if— 
(1) the taxpayer keeps no books; 
(2) the taxpayer does not have an annual accounting period; or 
(3) the taxpayer has an annual accounting period, but such period 
does not qualify as a fiscal year. 
SEC. 442. CHANGE OF ANNUAL ACCOUNTING PERIOD. 
If a taxpayer changes his annual accounting period, the new ac-
counting period shall become the taxpayer's taxable year only if the 
change is approved by the Secretary or his delegate. 
For purposes 
of this subtitle, if a taxpayer to whom section 441 (g) applies adopts 
an annual accounting period (as defined in section 441 (c)) other than 
a calendar year, the taxpayer shall be treated as having changed his 
annual accounting period. 
SEC. 443. RETURNS FOR A PERIOD OF LESS THAN 12 MONTHS. 
(a) RETURNS FOR SHORT PERIOD.—A return for a period of less 
than 12 months (referred to in this section as "short period") shall 
be made under any of the following circumstances: 
§ 443(a) 
150 
INTERNAL REVENUE CODE OF 1954 
(1) CHANGE OF ANNUAL ACCOUNTING PERIOD.—When the tax-
payer, with the approval of the Secretary or his delegate, changes 
his annual accounting period. 
In such a case, the return shall be 
made for the short period beginning on the day after the close of 
the former taxable year and ending at the close of the day before 
the day designated as the first day of the new taxable year. 
(2) TAXPAYER NOT IN EXISTENCE FOR ENTIRE TAXABLE YEAR.— 
When the taxpayer is in existence during only part of what would 
otherwise be his taxable year. 
(3) TERMINATION OF TAXABLE YEAR FOR JEOPARDY.—When 
the 
Secretary or his delegate terminates the taxpayer's taxable year 
under section 6851 (relating to tax in jeopardy). 
(b) COMPUTATION OF TAX ON CHANGE OF ANNUAL ACCOUNTING 
PERIOD.— 
(1) GENERAL RULE.—If a return is made under paragraph (1) 
of subsection (a), the taxable income for the short period shall be 
placed on an annual basis by multiplying such income by 12 and 
dividing the result by the number of months in the short period. 
The tax shall be the same part of the tax computed on the annual 
basis as the number of months in the short period is of 12 months. 
(2) EXCEPTION.— 
(A) COMPUTATION BASED ON 12-MONTH PERIOD.—If the tax-
payer applies for the benefits of this paragraph and establishes 
the amount of his taxable income for the 12-month period 
described in subparagraph (B), computed as if that period were 
a taxable year and under the law applicable to that year, then 
the tax for the short period, computed under paragraph (1), shall 
be reduced to the greater of the following: 
(i) an amount which bears the same ratio to the tax com-
puted on the taxable income for the 12-month period as the 
taxable income computed on the basis of the short period bears 
to the taxable income for the 12-month period; or 
(ii) the tax computed on the taxable income for the short 
period without placing the taxable income on an annual basis. 
The taxpayer (other than a taxpayer to whom subparagraph 
(B) (ii) applies) shall compute the tax and file his return without 
the application of this paragraph. 
(B) 12-MONTH PERIOD.—The 12-month period referred to in 
subparagraph (A) shall be— 
(i) the period of 12 months beginning on the first day of 
the short period, or 
(ii) the period of 12 months ending at the close of the last 
day of the short period, if at the end of the 12 months 
referred to in clause (i) the taxpayer is not in existence or 
(if a corporation) has theretofore disposed of substantially 
all of its assets. 
(C) APPLICATION FOR BENEFITS.—Application for the benefits 
of this paragraph shall be made in such manner and at such time 
as the regulations prescribed under subparagraph (D) may 
require; except that the time so prescribed shall not be later 
than the time (including extensions) for filing the return for the 
first taxable year which ends on or after the day which is 12 
§ 443(a)(1) 
CH. 1—NORMAL TAXES AND SURTAXES 
151 
months after the first day of the short period. 
Such applica-
tion, in case the return was filed without regard to this paragraph, 
shall be considered a claim for credit or refund with respect 
to the amount by which the tax is reduced under this paragraph. 
(D) REGULATIONS.—The Secretary or his delegate shall pre-
scribe such regulations as he deems necessary for the application 
of this paragraph. 
(c) ADJUSTMENT IN DEDUCTION FOE PERSONAL EXEMPTION.—In 
the case of a taxpayer other than a corporation, if a return is made 
for a short period by reason of subsection (a) (1) and if the tax is 
not computed under subsection (b) (2), then the exemptions allowed 
as a deduction under section 151 (and any deduction in lieu thereof) 
shall be reduced to amounts which bear the same ratio to the full 
exemptions as the number of months in the short period bears to 12. 
(d) CROSS REFERENCES.— 
For inapplicability of subsection (b) in computing— 
(1) Accumulated earnings tax, see section 536. 
(2) Personal holding company tax, see section 546. 
(3) Undistributed foreign personal holding company income, see 
section 557. 
(4) The taxable income of a regulated investment company, see 
section 852 (b) (2) (E). 
PART II—METHODS OF ACCOUNTING 
Subpart A. Methods of accounting in general. 
Subpart B. Taxable year for which items of gross income included. 
Subpart C. Taxable year for which deductions taken. 
Subpart D. Inventories. 
Subpart A—Methods of Accounting in General 
Sec. 446. General rule for methods of accounting. 
SEC. 446. GENERAL RULE FOR METHODS OF ACCOUNTING. 
(a) GENERAL RULE.—Taxable income shall be computed under the 
method of accounting on the basis of which the taxpayer regularly 
computes his income in keeping his books. 
(b) EXCEPTIONS.—If no method of accounting has been regularly 
used by the taxpayer, or if the method used does not clearly reflect 
income, the computation of taxable income shall be made under such 
method as, in the opinion of the Secretary or his delegate, does clearly 
reflect income. 
(c) PERMISSIBLE METHODS.—Subject to the provisions of subsec-
tions (a) and (b), a taxpayer may compute taxable income under any 
of the following methods of accounting— 
(1) the cash receipts and disbursements method; 
(2) an accrual method; 
(3) any other method permitted by this chapter; or 
(4) any combination of the foregoing methods permitted under 
regulations prescribed by the Secretary or his delegate. 
(d) TAXPAYER ENGAGED IN MORE THAN ONE BUSINESS.—A tax-
payer engaged in more than one trade or business may, in computing 
taxable income, use a different method of accounting for each trade 
or business. 
§ 446(d) 
152 
INTERNAL REVENUE CODE OF 1954 
(e) REQUIREMENT RESPECTING CHANGE OF ACCOUNTING METHOD.— 
Except as otherwise expressly provided in this chapter, a taxpayer 
who changes the method of accounting on the basis of which he regu-
larly computes his income in keeping his books shall, before computing 
his taxable income under the new method, secure the consent of the 
Secretary or his delegate. 
Subpart B—Taxable Year for Which Items of Gross Income Included 
Sec. 451. General rule for taxable year of inclusion. 
Sec. 452. Prepaid income. 
Sec. 453. Installment method. 
Sec. 454. Obligations issued at discount. 
SEC. 451. GENERAL RULE FOR TAXABLE YEAR OF INCLUSION. 
(a) GENERAL RULE.—The amount of any item of gross income shall 
be included in the gross income for the taxable year in which received 
by the taxpayer, unless, under the method of accounting used in 
computing taxable income, such amount is to be properly accounted 
for as of a different period. 
(b) SPECIAL RULE IN CASE OF DEATH.—In the case of the death 
of a taxpayer whose taxable income is computed under an accrual 
method of accounting, any amount accrued only by reason of the 
death of the taxpayer shall not be included in computing taxable 
income for the period in which falls the date of the taxpayer's death. 
SEC. 452. PREPAID INCOME. 
(a) PREPAID INCOME T O B E EARNED OVER SHORT OR INDEFINITE 
PERIOD.— 
(1) SHORT PERIOD.—In the case of any prepaid income to which 
this section applies, if the liability described in subsection (e) (2) is 
(at the time the income is received) to end before the first day of 
the sixth taxable year after the taxable year in which such income 
is received, then such income shall be included in gross income for 
the taxable year in which received, and for each of the 5 succeeding 
taxable years, to the extent proper under the method of accounting 
used under section 446 in computing taxable income for such year. 
If the liability does not in fact end before the first day of such 
sixth taxable year, such income shall be included in gross income 
for the taxable years specified in the preceding sentence except 
that with the consent of the Secretary or his delegate it shall be 
included in gross income in such proportions, and for such taxable 
years, as are specified in such consent. 
(2) INDEFINITE PERIOD.^—^In the case of any prepaid income to 
which this section applies, if the liability described in subsection 
(e) (2) is (at the time the income is received) of indefinite duration, 
then such income shall be included in gross income for the taxable 
year in which received and for each of the 5 succeeding taxable 
years, consistently with the principles prescribed in paragraph (1) 
and subsection (b), under regulations prescribed by the Secretary 
or his delegate. 
With the consent of the Secretary or his delegate 
the prepaid income shall be included in gross income in such pro-
portions, and for such taxable years, as are specified in such consent. 
(b) PREPAID INCOME T O B E EARNED OVER LONG PERIOD.—In 
the case of any prepaid income to which this section applies, if the 
§ 446(e) 
CH. 1—NORMAL TAXES AND SURTAXES 
153 
liability described in subsection (e) (2) is (at the time the income is 
received) to end after the close of the fifth taxable year after the tax-
able year in which such income is received, then— 
(1) one-sixth of the prepaid income shall be included in gross 
income for the taxable year in which received, and one-sixth shall 
be included in gross income for each of the 5 succeeding taxable 
years; except that 
(2) with the consent of the Secretary or his delegate, the prepaid 
income shall be included in gross income in such proportions, and 
for such taxable years, as are specified in such consent. 
(c) WHERE TAXPAYER'S LIABILITY CEASES.—In the case of any 
prepaid income to which this section applies— 
(1) If the liability described in subsection (e) (2) ends, then so 
much of such income as was not includible in gross income under 
subsections (a) and (b) for preceding taxable years shall be included 
in gross income for the taxable year in which the liability ends. 
(2) If the taxpayer dies or ceases to exist, then so much of such 
income as was not includible in gross income under subsections (a) 
and (b) for preceding taxable years shall be included m gross income 
for the taxable year in which such death, or such cessation of exist-
ence, occurs. 
(d) PREPAID INCOME TO WHICH THIS SECTION APPLIES.— 
(1) ELECTION OF BENEFITS.—This section shall apply to prepaid 
income if and only if the taxpayer makes an election under this 
section with respect to the trade or business in connection with 
which such income is received. 
The election shall be made in such 
manner as the Secretary or his delegate may by regulations pre-
scribe. 
No election may be made with respect to a trade or business 
if in computing taxable income the cash receipts and disbursements 
method of accounting is used with respect to such trade or business. 
(2) SCOPE OF ELECTION.—An election made under this section 
shall apply to all prepaid income received in connection with the 
trade or business with respect to which the taxpayer has made the 
election; except that the taxpayer may, to the extent permitted 
under regulations prescribed by the Secretary or his delegate, in-
clude in gross income for the taxable year of receipt the entire 
amount of any prepaid income if the liability from which it arose 
is to end within 12 months after the date of receipt. 
An election 
made under this section shall not apply to any prepaid income 
received before the first taxable year for which the election is.made. 
(3) W H E N ELECTION MAY BE MADE.— 
(A) WITHOUT CONSENT.—A taxpayer may, without the con-
sent of the Secretary or his delegate, make an election under this 
section for his first taxable year (i) which begins after December 
31, 1953, and ends after the date on which this title is enacted, 
and (ii) in which he receives prepaid income in the trade or busi-
ness. 
Such an election shall be made not later than the time 
prescribed by this subtitle for filing the return for such year (in-
cluding extensions thereof). 
(B) W I T H CONSENT.—A taxpayer may, with the consent of the 
Secretary or his delegate, make an election under this section at 
any time. 
§ 452(d)(3)(B) 
49012°—54 
13 
154 
INTERNAL REVENUE CODE OF 1954 
(e) DEFINITIONS.^—For purposes of this section— 
(1) PREPAID INCOME.—The term "prepaid income" means any 
amount (includible in gross income) which is received in connection 
with, and is directly attributable to, a liability which extends 
beyond the close of the taxable year in which such amount is 
received. 
Such term does not include any income treated as gain 
from the sale or other disposition of a capital asset. 
(2) LIABILITY TO RENDER SERVICES, ETC.—The term "liability" 
means a liability to render services, furnish goods or other property, 
or allow the use of property. 
(3) KECEIPT 
OF PREPAID INCOME.—Prepaid income shall be 
treated as received during the taxable year for which it is includible 
in gross income under section 451 (without regard to this section). 
SEC. 453. INSTALLMENT METHOD. 
(a) DEALERS IN PERSONAL PROPERTY.—Under regulations pre-
scribed by the Secretary or his delegate, a person who regularly sells 
or otherwise disposes of personal property on the installment plan 
may return as income therefrom in any taxable year that proportion 
of the installment payments actually received in that year which the 
gross profit, realized or to be realized when payment is completed, 
bears to the total contract price. 
(b) SALES OF REALTY AND CASUAL SALES OF PERSONALTY.— 
(1) GENERAL RULE.—Income from— 
(A) a sale or other disposition of real property, or 
(B) a casual sale or other casual disposition of personal prop-
erty (other than property of a kind which would properly be 
included in the inventory of the taxpayer if on hand at the close 
of the taxable year) for a price exceeding $1,000, 
may (under regulations prescribed by the Secretary or his dele-
gate) be returned on the basis and in the manner prescribed in sub-
section (a). 
(2) LIMITATION.—Paragraph (1) shall appl^— 
(A) In the case of a sale or other disposition during a taxable 
year beginning after December 31, 1953 (whether or not such 
taxable year ends after the date of enactment of this title), 
only if in the taxable year of the sale or other disposition— 
(i) there are no payments, or 
(ii) the payments (exclusive of evidences of indebtedness of 
the purchaser) do not exceed 30 percent of the selling price. 
•(B) In the case of a sale or other disposition during a taxable 
year beginning before January 1, 1954, only if the income was 
(by reason of section 44 (b) of the Internal Revenue Code of 1939) 
returnable on the basis and in the manner prescribed in section 
44 (a) of such code. 
(c) CHANGE FROM ACCRUAL TO INSTALLMENT BASIS.— 
(1) GENERAL RULE.—If a taxpayer entitled to the benefits of 
subsection (a) elects for any taxable year to report his taxable in-
come on the installment basis, then in computing his taxable in-
come for such year (referred to in this subsection as "year of 
change") or for any subsequent year— 
(A) installment payments actually received during any such 
year on account of sales or other dispositions of property made 
§ 452(e) 
CH. 1—NORMAL TAXES AND SURTAXES 
165 
in any taxable year before the year of change shall not be ex-
cluded; but 
(B) the tax imposed by this chapter for any taxable year (re-
ferred to in this subsection as "adjustment year") beginning 
after December 31, 1953, shall be reduced by the adjustment 
computed under paragraph (2). 
(2) ADJUSTMENT IN TAX FOR AMOUNTS PREVIOUSLY TAXED.— 
In determining the adjustment referred to in paragraph (1) (B), 
first determine, for each taxable year before the year of change, 
the amount which equals the lesser of— 
(A) the portion of the tax for such prior taxable year which 
is attributable to the gross profit which was included in gross 
income for such prior taxable year, and which by reason of para-
graph (1) (A) is includible in gross income for the taxable year, 
or 
(B) the portion of the tax for the adjustment year which is 
attributable to the gross profit described in subparagraph (A). 
The adjustment referred to in paragraph (1) (B) for the adjustment 
year is the sum of the amounts determined under the preceding 
sentence. 
(3) R U L E FOR APPLYING PARAGRAPH (2).—For purposes of para-
graph (2), the portion of the tax for a prior taxable year, or for the 
adjustment year, which is attributable to the gross profit described 
in such paragraph is that amount which bears the same ratio to 
the tax imposed by this chapter (or by the corresponding provisions 
of prior revenue laws) for such taxable year (computed without 
regard to paragraph (2)) as the gross profit described in such para-
graph bears to the gross income for such taxable year. 
For pur-
poses of the preceding sentence, the provisions of chapter 1 (other 
than of subchapter D, relating to excess profits tax, and of subchap-
ter E, relating to self-employment income) of the Internal Revenue 
Code of 1939 shall be treated as the corresponding provisions of 
the Internal Revenue Code of 1939. 
(d) GAIN OR Loss ON DISPOSITION OF INSTALLMENT OBLIGATIONS.— 
(1) GENERAL RULE.—If an installment obligation is satisfied at 
other than its face value or distributed, transmitted, sold, or other-
wise disposed of, gain or loss shall result to the extent of the differ-
ence between the basis of the obligation and— 
(A) the amount realized, in the case of satisfaction at other 
than face value or a sale or exchange, or 
(B) the fair market value of the obligation at the time of 
distribution, transmission, or disposition, in the case of the dis-
tribution, transmission, or disposition otherwise than by sale or 
exchange. 
Any gain or loss so resulting shall be considered as resulting from 
the sale or exchange of the property in respect of which the install-
ment obligation was received. 
(2) BASIS OF OBLIGATION.—The basis of an installment obligation 
shall be the excess of the face value of the obligation over an amount 
equal to the income which would be returnable were the obligation 
satisfied in full. 
(3) SPECIAL RULE FOR TRANSMISSION AT DEATH.—Except as pro-
vided in section 691 (relating to recipients of income in respect of 
§ 453(d)(3) 
156 
INTERNAL REVENUE CODE OF 1954 
decedents), this subsection shall not apply to the transmission of 
installment obligations at death. 
(4) EFFECT OF DISTRIBUTION IN CERTAIN LIQUIDATIONS.—• 
(A) 
LIQUIDATIONS TO WHICH SECTION 332 APPLIES.—If— 
(i) an installment obligation is distributed by one corpora-
tion to another corporation in the course of a liquidation, and 
(ii) under section 332 (relating to complete liquidations of 
subsidiaries) no gain or loss with respect to the receipt of such 
obligation is recognized in the case of the recipient corporation, 
then no gain or loss with respect to the distribution of such 
obligation shall be recognized in the case of the distributing 
corporation. 
(B) 
LIQUIDATIONS TO WHICH SECTION 337 APPLIES.—If— 
(i) an installment obligation is distributed by a corporation 
in the course of a liquidation, and 
(ii) under section 337 (relating to gain or loss on sales or 
exchanges in connection with certain liquidations) no gain or 
loss would have been recognized to the corporation if the 
corporation had sold or exchanged such installment obligation 
on the day of such distribution, 
then no gain or loss shall be recognized to such corporation by 
reason of such distribution, 
SEC. 454. OBLIGATIONS ISSUED AT DISCOUNT. 
(a) NON-INTEREST-BEARING OBLIGATIONS ISSUED AT A DISCOUNT.— 
If, in the case of a taxpayer owning any non-interest-bearing obligation 
issued at a discount and redeemable for fixed amounts increasing at 
stated intervals or owning an obligation described in paragraph (2) 
of subsection (c), the increase in the redemption price of such obliga-
tion occurring in the taxable year does not (under the method of 
accounting used in computing his taxable income) constitute income to 
him in such year, such taxpayer may, at his election made in his 
return for any taxable year, treat such increase as income received in 
such taxable year. 
If any such election is made with respect to any 
such obligation, it shall apply also to all such obligations owned by the 
taxpayer at the beginning of the first taxable year to which it applies 
and to all such obligations thereafter acquired by him and shall be 
binding for all subsequent taxable years, unless on application by 
the taxpayer the Secretary or his delegate permits him, subject to such 
conditions as the Secretary or his delegate deems necessary, to change 
to a different method. 
In the case of any such obligations owned by 
the taxpayer at the beginning of the first taxable year to which his 
election applies, the increase in the redemption price of such obligations 
occurring between the date of acquisition (or, in the case of an obliga-
tion described in paragraph (2) of subsection (c), the date of acquisition 
of the series E bond involved) and the first day of such taxable year 
shall also be treated as income received in such taxable year. 
(b) SHORT-TERM OBLIGATIONS ISSUED ON DISCOUNT BASIS.—In 
the case of any obligation— 
(1) of the United States; or 
(2) of a State, a Territory, or a possession of the United States, 
or any political subdivision of any of the foregoing, or of the District 
of Columbia, 
§ 453(d) (3) 
CH. 1—NORMAL TAXES AND SURTAXES 
157 
which is issued on a discount basis and payable without interest at a 
fixed maturity date not exceeding 1 year from the date of issue, 
the amount of discount at which such obHgation is originally sold 
shall not be considered to accrue until the date on which such obliga-
tion is paid at maturity, sold, or otherwise disposed of. 
(c) MATURED UNITED STATES SAVINGS BONDS.—In the case of a 
taxpayer who— 
(1) holds a series E United States savings bond at the date of 
maturity, and 
(2) pursuant to regulations prescribed under the Second Liberty 
Bond Act retains his investment in the maturity value of such series 
E bond in an obligation, other than a current income obligation, 
which matures not more than 10 years from the date of maturity 
of such series E bond, 
the increase in redemption value (to the extent not previously in-
cludible in gross income) in excess of the amount paid for such series E 
bond shall be includible in gross income in the taxable year in which 
the obligation is finally redeemed or in the taxable year of final 
maturity, whichever is earlier. 
This subsection shall not apply to a 
corporation, and shall not apply in the case of any taxable year for 
which the taxpayer's taxable income is computed under an accrual 
method of accounting or for which an election made by the taxpayer 
under subsection (a) applies. 
Subpart C—Taxable Year for Which Deductions Taken 
Sec. 461. General rule for taxable year of deduction. 
Sec. 462. Reserves for estimated expenses, etc. 
SEC. 461. GENERAL RULE FOR TAXABLE YEAR OF DEDUCTION. 
(a) GENERAL RULE.—The amount of any deduction or credit al-
lowed by this subtitle shall be taken for the taxable year which is 
the proper taxable year under the method of accounting used in com-
puting taxable income. 
(b) SPECIAL R U L E IN CASE OF DEATH.—In the case of the death 
of a taxpayer whose taxable income is computed under an accrual 
method of accounting, any amount accrued as a deduction or credit 
only by reason of the death of the taxpayer shall not be allowed in 
computing taxable income for the period in which falls the date of the 
taxpayer's death. 
(c) ACCRUAL OP REAL PROPERTY TAXES.— 
(1) I N GENERAL.—If the taxable income is computed under an 
accrual method of accounting, then, at the election of the taxpayer, 
any real property tax which is related to a definite period of time 
shall be accrued ratably over that period. 
(2) SPECIAL RULES.—Paragraph (1) shall not apply to any real 
property tax, to the extent that such tax was allowable as a deduc-
tion under the Internal Revenue Code of 1939 for a taxable year 
which began before January 1, 1954. 
In the case of any real 
property tax which would, but for this subsection, be allowable as 
a deduction for the first taxable year of the taxpayer which begins 
after December 31, 1953, then, to the extent that such tax is related 
to any period before the first day of such first taxable year, the tax 
shall be allowable as a deduction for such first taxable year. 
§ 461(c)(2) 
158 
INTERNAL REVENUE CODE OF 
1954 
(3) W H E N ELECTION MAY BE MADE.—• 
(A) WITHOUT CONSENT.—-A taxpayer may, without the consent' 
of the Secretary or his delegate, make an election under this 
subsection for his first taxable year which begins after December 
31, 1953, and ends after the date of enactment of this title in 
which the taxpayer incurs real property taxes. Such an election 
shall be made not later than the time prescribed by law for filing 
the return for such year (including extensions thereof). 
(B) WITH CONSENT.—A taxpayer may, with the consent of the 
Secretary or his delegate, make an election under this subsection 
at any time. 
SEC. 462. RESERVES FOR ESTIMATED EXPENSES, ETC. 
(a) GENERAL RULE.—In computing taxable income for the taxable 
year, there shall be taken into account (in the discretion of the Sec-
retary or his delegate) a reasonable addition to each reserve for 
estimated expenses to which this section applies. 
(b) ADJUSTMENTS WHERE RESERVE BECOMES EXCESSIVE.—If it is 
determined that the amount of any reserve for estimated expenses 
to which this section applies is (as of the close of the taxable year) 
excessive, then (under regulations prescribed by the Secretary or his 
delegate) such excess shall be taken into account in computing taxable 
income for the taxable year. 
(c) ESTIMATED EXPENSES TO WHICH THIS SECTION APPLIES.— 
(1) ELECTION OP BENEFITS.—This section shall apply to esti-
mated expenses if and only if the taxpayer makes an election under 
this section with respect to the trade or business to which such 
expenses are attributable. The election shall be made in such 
manner as the Secretary or his delegate may by regulations pre-
scribe. 
No election may be made with respect to a trade or business 
if in computing taxable income the cash receipts and disbursements 
method of accounting is used with respect to such trade or business. 
(2) SCOPE OF ELECTION.—An election made under this section 
shall apply to all estimated expenses attributable to the trade or 
business. 
(3) W H E N ELECTION MAY BE MADE.— 
(A) WITHOUT CONSENT.—A taxpayer may, without the con-
sent of the Secretary or his delegate, make an election under this 
section for his first taxable year (i) which begins after December 
31, 1953, and ends after the date on which this title is enacted, 
and (ii) for which there are estimated expenses attributable to 
the trade or business. 
Such an election shall be made not later 
than the time prescribed by law for filing the return for such 
year (including extensions thereof). 
(B) W I T H CONSENT.—A taxpayer may, with the consent of the 
Secretary or his delegate, make an election under this section at 
any time. 
(d) ESTIMATED EXPENSE DEFINED.— 
(1) GENERAL RULE.—For purposes of this section, the term 
"estimated expense" means a deduction allowable by this subtitle— 
(A) part or all of which would (but for this section) be required 
to be taken into account for a subsequent taxable year; 
§ 461(c)(3) 
CH. 1 
NORMAL TAXES AND SURTAXES 
159 
(B) which is attributable to the income of the taxable year or 
prior taxable years for which an election under this section is 
in effect; and 
(C) which the Secretary or his delegate is satisfied can be 
estimated with reasonable accuracy. 
(2) EXCEPTIONS.—The term 
"estimated 
expense" does not 
include— 
(A) any deduction attributable to income taken into account in 
computing taxable income for taxable years preceding the first 
taxable year for which the election is made; 
(B) any deduction attributable to prepaid income to which 
section 452 applies by reason of an election made under such 
section by the taxpayer; or 
(C) any deduction allowable under section 166 (relating to bad 
debts). 
(e) SPECIAL RULE FOR DEDUCTIONS ATTRIBUTABLE TO PERIOD 
BEFORE ELECTION.—Any deduction attributable to income taken into 
account in computing taxable income for taxable years preceding the 
first taxable year for which the election is made shall be allowable 
in the same manner and to the same extent as if this section had 
not been enacted. 
Subpart D—Inventories 
Sec. 471. General rule for inventories. 
Sec. 472. Last-in, first-out inventories. 
SEC. 471. GENERAL RULE FOR INVENTORIES. 
Whenever in the opinion of the Secretary or his delegate the use of 
inventories is necessary in order clearly to determine the income of 
any taxpayer, inventories shall be taken by such taxpayer on such 
basis as the Secretary or his delegate may prescribe as conforming as 
nearly as may be to the best accounting practice in the trade or 
business and as most clearly reflecting the income. 
SEC. 472. LAST-IN, FIRST-OUT INVENTORIES. 
(a) AUTHORIZATION.—A taxpayer may use the method provided in 
subsection (b) (whether or not such method has been prescribed under 
section 471) in inventorying goods specified in an application to use 
such method filed at such time and in such manner as the Secretary 
or his delegate may prescribe. 
The change to, and the use of, such 
method shall be in accordance with such regulations as the Secretary 
or his delegate may prescribe as necessary in order that the use of such 
method may clearly reflect income. 
(b) METHOD APPLICABLE.—In inventorying goods specified in the 
application described in subsection (a), the taxpayer shall: 
(1) Treat those remaining on hand at the close of the taxable 
year as being: First, those included in the opening inventory of the 
taxable year (in the order of acquisition) to the extent thereof; and 
second, those acquired in the taxable year; 
(2) Inventory them at cost; and 
(3) Treat those included in the opening inventory of the taxable 
year in which such method is first used as having been acquired 
at the same time and determine their cost by the average cost 
method. 
§ 472(b)(3) 
160 
INTERNAL REVENUE CODE OF 
1954 
(c) CONDITION.—Subsection (a) shall apply only if the taxpayer 
establishes to the satisfaction of the Secretary or his delegate that 
the taxpayer has used no procedure other than that specified in para-
graphs (1) and (3) of subsection (b) in inventorying such goods to 
ascertain the income, profit, or loss of the first taxable year for which 
the method described in subsection (b) is to be used, for the purpose 
of a report or statement covering such taxable year— 
(1) to shareholders, partners, or other proprietors, or to benefi-
ciaries, or 
(2) for credit purposes. 
(d) PRECEDING CLOSING INVENTORY.—In determining income for 
the taxable year preceding the taxable year for which the method 
described in subsection (b) is first used, the closing inventory of such 
preceding year of the goods specified in the application referred to in 
subsection (a) shall be at cost. 
(e) SUBSEQUENT INVENTORIES.—If a taxpayer, having complied 
with subsection (a), uses the method described in subsection (b) for 
any taxable year, then such method shall be used LQ all subsequent 
taxable years unless— 
(1) with the appro 
vail of the Secretary or his delegate a change 
to a different method is authorized; or, 
(2) the Secretaiy or his delegate determines that the taxpayer 
has used for any such subsequent taxable year some procedure 
other than that specified in paragraph (1) of subsection (b) in 
inventorying the goods specified in the application to ascertain 
the income, profit, or loss of such subsequent taxable year for the 
purpose of a report or statement covering such taxable year (A) 
to shareholders, partners, or other proprietors, or beneficiaries, 
or (B) for credit purposes; and requires a change to a method 
different from that prescribed in subsection (b) beginning with 
such subsequent taxable year or any taxable year thereafter. 
If paragraph (1) or (2) of this subsection applies, the change to, and 
the use of, the different method shall be in accordance with such regu-
lations as the Secretary or his delegate may prescribe as necessary in 
order that the use of such method may clearly reflect income. 
(f) CROSS REFERENCE.— 
For provisions relating to involuntary liquidation and replacement of 
LIFO inventories, see section 1321. 
PART III—ADJUSTMENTS 
Sec. 481. Adjustments required by changes in method of accounting. 
Sec. 482. Allocation of income and deductions among taxpayers. 
SEC. 481. ADJUSTMENTS 
REQUIRED BY CHANGES IN METHOD OF 
ACCOUNTING. 
(a) GENERAL RULE.—In computing the taxpayer's taxable income 
for any taxable year (referred to in this section as the "year of the 
change")— 
(1) if such computation is under a method of accounting different 
from the method under which the taxpayer's taxable income for 
the preceding taxable year was computed, then 
(2) there shall be taken into account those adjustments which 
are determined to be necessary solely by reason of the change in 
§ 472(c) 
CH. 1—NORMAL TAXES AND SURTAXES 
161 
order to prevent amounts from being duplicated or omitted, except 
there shall not be taken into account any adjustment in respect 
of any taxable year to which this section does not apply, 
(b) LIMITATION ON TAX WHERE ADJUSTMENTS ARE SUBSTAN-
TIAL.-— 
(1) THREE YEAR ALLOCATION.^—If— 
(A) the method of accounting from which the change is made 
was used by the taxpayer in computing his taxable income for 
the 2 taxable years preceding the year of the change, and 
(B) the increase in taxable income for the year of the change 
which results solely by reason of the adjustments required by 
subsection (a) (2) exceeds $3,000, 
then the tax under this chapter attributable to such increase in 
taxable income shall not be greater than the aggregate of the taxes 
under this chapter (or under the corresponding provisions of prior 
revenue laws) which would result if one-third of such increase were 
included in taxable income for the year of the change and one-third 
of such increase were included for each of the 2 preceding taxable 
years. 
(2) ALLOCATION UNDER NEW METHOD OF ACCOUNTING.—If— 
(A) the increase in taxable income for the year of the change 
which results solely by reason of the adjustments required by 
subsection (a) (2) exceeds $3,000, and 
(B) the taxpayer establishes his taxable income (under the 
new method of accounting) for one or more taxable years con-
secutively preceding the taxable year of the change for which 
the taxpayer in computing taxable income used the method of 
accounting from which the change is made, 
then the tax under this chapter attributable to such increase in 
taxable income shall not be greater than the net increase in the 
taxes under this chapter which would result if the adjustments 
required by subsection (a) (2) were allocated to the taxable year 
or years specified in subparagraph (B) to which.they are properly 
allocable under the new method of accounting and the balance of 
the adjustments required by subsection (a) (2) was allocated to the 
taxable year of the change. 
(3) SPECIAL 
RULES 
FOR 
COMPUTATIONS UNDER 
PARAGRAPHS 
(1) AND (2) .•—For purposes of this subsection-— 
(A) There shall be taken into account the increase or decrease 
in tax for any taxable year preceding the year of the change to 
which no adjustment is allocated under paragraph (2) but which 
is affected by a net operating loss (as defined in section 172) or 
by a capital loss carryover (as defined in section 1212), determined 
with reference to taxable years with respect to which adjustments 
under paragraph (2) are allocated. 
(B) The increase or decrease in the tax for any taxable year 
for which an assessment of any deficiency, or a credit or refund 
of any overpayment, is prevented by any law or rule of law, shall 
be determined by reference to the tax previously determined 
(within the meaning of section 1314 (a)) for such year. 
(C) In applying section 7807 (b) (1), the provisions of chapter 
1 (other than subchapter E, relating to self-employment income) 
§ 481(b)(3)(C) 
162 
INTERNAL REVENUE CODE OF 1954 
and chapter 2 of the Internal Revenue Code of 1939 shall be 
treated as the corresponding provisions of the Internal Revenue 
Code of 1939. 
(c) ADJUSTMENTS UNDER REGULATIONS.—In the case of any change 
described in subsection (a), the taxpayer may, in such manner and 
subject to such conditions as the Secretary or his delegate may by 
regulations prescribe, take the adjustments required by subsection 
(a) (2) into account in computing the tax imposed by this chapter for 
the taxable year or years permitted under such regulations. 
(d) EXCEPTION FOR CHANGE TO INSTALLMENT BASIS.—This section 
shall not apply to a change to which section 453 (relating to change 
to installment method) applies. 
SEC. 482. ALLOCATION OF INCOME AND DEDUCTIONS AMONG TAX. 
PAYERS. 
In any case of two or more organizations, trades, or businesses 
(whether or not incorporated, whether or not organized in the United 
States, and whether or not affiliated) owned or controlled directly or 
indirectly by the same interests, the Secretary or his delegate may 
distribute, apportion, or allocate gross income, deductions, credits, or 
allowances between or among such organizations, trades, or businesses, 
if he determines that such distribution, apportionment, or allocation 
is necessary in order to prevent evasion of taxes or clearly to reflect 
the income of any of such organizations, trades, or businesses. 
,§ 481(b)(3)(C) 
CH. 1—NORMAL TAXES AND SURTAXES 
'1^3 
Subchapter F—Exempt Organizations 
Part 
I. General rule. 
Part II. Taxation of business income of certain exempt organiza-
tions. 
Part III- Farmers' cooperatives. 
Part IV. Shipowners' protection and indemnity associations. 
PART I—GENERAL RULE 
Sec. 501. Exemption from tax on corporations, certain trusts, etc. 
Sec. 502. Feeder organizations. 
Sec. 503. Requirements for exemption. 
Sec. 504. Denial of exemption. 
SEC. 501. EXEMPTION 
FROM TAX ON CORPORATIONS, 
CERTAIN 
TRUSTS, ETC. 
(a) EXEMPTION FROM TAXATION.—An organization described in 
subsection (c) or (d) or section 401 (a) shall be exempt from taxa-
tion under this subtitle unless such exemption is denied under section 
502, 503, or 504. 
(b) TAX ON UNRELATED 
BUSINESS 
INCOME.—An organization 
exempt from taxation under subsection (a) shall be subject to tax 
to the extent provided in part II of this subchapter (relating to tax on 
unrelated income), but, notwithstanding part II, shall be considered 
an organization exempt from income taxes for the purpose of any 
law which refers to organizations exempt from income taxes. 
(c) LIST OP EXEMPT ORGANIZATIONS.—The following organizations 
are referred to in subsection (a): 
(1) Corporations organized under Act of Congress, if such cor-
porations are instrumentahties of the United States and if, under 
such Act, as amended and supplemented, such corporations are 
exempt from Federal income taxes. 
(2) Corporations organized for the exclusive purpose of holding 
title to property, collecting income therefrom, and turning over the 
entire amount thereof, less expenses, to an organization which itself 
is exempt under this section. 
(3) Corporations, and any community chest, fund, or founda-
tion, organized and operated exclusively for religious, charitable, 
scientific, testing for public safety, literary, or educational pur-
poses, or for the prevention of cruelty to children or animals, no 
part of the net earnings of which inures to the benefit of any 
private shareholder or individual, no substantial part of the activi-
ties of which is carrying on propaganda, or otherwise attempting, 
to influence legislation, and which does not participate in, or 
intervene in (including the publishing or distributing of statements), 
any political campaign on behalf of any candidate for public office. 
(4) Civic leagues or organizations not organized for profit but 
operated exclusively for the promotion of social welfare, or local 
associations of employees, the membership of which is limited to 
the employees of a designated person or persons in a particular 
§ 501(c)(4) 
164 
INTERNAL REVENUE CODE OF 1954 
municipality, and the net earnings of which are devoted exclusively 
to charitable, educational, or recreational purposes. 
(5) Labor, agricultural, or horticultural organizations. 
(6) Business leagues, chambers of commerce, real-estate boards, 
or boards of trade, not organized for profit and no part of the net 
earnings of which inures to the benefit of any private shareholder 
or individual. 
(7) Clubs organized and operated exclusively for pleasure, recrea-
tion, and other nonprofitable purposes, no part of the net earnings 
of which inures to the benefit of any private shareholder. 
(8) Fraternal beneficiary societies, orders, or associations— 
(A) operating under the lodge system or for the exclusive bene-
fit of the members of a fraternity itself operating under the lodge 
system, and 
(B) providing for the payment of life, sick, accident, or other 
benefits to the members of such society, order, or association or 
their dependents, 
(9) Voluntary employees' beneficiary associations providing for 
the payment of life, sick, accident, or other benefits to the members 
of such association or their dependents, if— 
(A) no part of their net earnings inures (other than through 
such payments) to the benefit of any private shareholder or indi-
vidual, and 
(B) 85 percent or more of the income consists of amounts 
collected from members and amounts contributed to the associa-
tion by the employer of the members for the sole purpose of 
making such payments and meeting expenses. 
(10) Voluntary employees' beneficiary associations providing for 
the payment of life, sick, accident, or other benefits to the members 
of such association or their dependents or their designated bene-
ficiaries, if— 
(A) admission to membership in such association is limited to 
individuals who are officers or employees of the United States 
Government, and 
(B) no part of the net earnings of such association inures (other 
than through such payments) to the benefit of any private share-
holder or individual. 
(11) Teachers' retirement fund associations of a purely local 
character, if— 
(A) no part of their net earnings inures (other than through 
payment of retirement benefits) to the benefit of any private 
shareholder or individual, and 
(B) the income consists solely of amounts received from public 
taxation, amounts received from assessments on the teaching 
salaries of members, and income in respect of investments. 
(12) Benevolent life insurance associations of a purely local char-
acter, mutual ditch or irrigation companies, mutual or cooperative 
telephone companies, or like organizations; but only if 85 percent 
or more of the income consists of amounts collected from members 
for the sole purpose of meeting losses and expenses. 
(13) Cemetery companies owned and operated exclusively for 
the benefit of their members or which are not operated for profit; 
§ 501(c)(4) 
CH. 1—NORMAL TAXES AND SURTAXES 
,165 
and any corporation chartered solely for burial purposes as a 
cemetery corporation and not permitted by its charter to engage 
in any business not necessarily incident to that purpose, no part 
of the net earnings of which inures to the benefit of any private 
shareholder or individual, 
(14) Credit unions without capital stock organized and operated 
for mutual purposes and without profit; and corporations or asso-
ciations without capital stock organized before September 1, 1951, 
and operated for mutual purposes and without profit for the purpose 
of providing reserve funds for, and insurance of, shares or deposits 
in— 
(A) domestic building and loan associations, 
(B) cooperative banks without capital stock organized and 
operated for mutual purposes and without profit, or 
(C) mutual savings banks not having capital stock represented 
by shares. 
(15) Mutual insurance companies or associations other than 
life or marine (including interinsurers and reciprocal underwriters) 
if the gross amount received during the taxable year from interest, 
dividends, rents, and premiums (including deposits and assess-
ments) does not exceed $75,000. 
(16) Corporations organized by an association subject to part III 
of this subchapter or members thereof, for the purpose of financing 
the ordinary crop operations of such members or other producers, 
and operated in conjunction with such association. Exemption shall 
not be denied any such corporation because it has capital stock, if 
the dividend rate of such stock is fixed at not to exceed the legal 
rate of interest in the State of incorporation or 8 percent per annum, 
whichever is greater, on the value of the consideration for which 
the stock was issued, and if substantially all such stock (other 
than nonvoting preferred stock, the owners of which are not entitled 
or permitted to participate, directly or indirectly, in the profits 
of the corporation, on dissolution or otherwise, beyond the fixed 
dividends) is owned by such association, or members thereof; nor 
shall exemption be denied any such corporation because there is 
accumulated and maintained by it a reserve required by State law 
or a reasonable reserve for any necessary purpose. 
(d) RELIGIOUS AND APOSTOLIC ORGANIZATIONS.—The following 
organizations are referred to in subsection (a): Religious or apostolic 
associations or corporations, if such associations or corporations have 
a common treasury or community treasury, even if such associations 
or corporations engage in business for the common benefit of the 
members, but only if the members thereof include (at the time of 
filing their returns) in their gross income their entire pro rata shares, 
whether distributed or not, of the taxable income of the association or 
corporation for such year. 
Any amount so included in the gross 
income of a member shall be treated as a dividend received. 
(e) CROSS REFERENCE.— 
For 
nonexemption 
of 
Communist-controlled 
organizations, 
see 
section 11 (b) of the Internal Security Act of 1950 (64 Stat. 997; 50 
U. S. C. 790 (b)). 
§ 501 (e) 
166 
INTERNAL REVENUE CODE OF 1954 
SEC. 502. FEEDER ORGANIZATIONS. 
An organization operated for the primary purpose of carrying on 
a trade or business for profit shall not be exempt under section 501 on 
the ground that all of its profits are payable to one or more organiza-
tions exempt under section 501 from taxation. 
For purposes of this 
section, the term "trade or business" shall not include the rental 
by an organization of its real property (including personal property 
leased with the real property). 
SEC. 503. REQUIREMENTS FOR EXEMPTION. 
(a) DENIAL OP EXEMPTION TO ORGANIZATIONS ENGAGED IN PRO-
HIBITED TRANSACTIONS.— 
(1) GENERAL RULE.—An organization described in section 501 
. (c) (3) which is subject to the provisions of this section shall not be 
exempt from taxation under section 501 (a) if it has engaged in a 
prohibited transaction after July 1, 1950; and an organization 
described in section 401 (a) which is subject to the provisions of 
this section shall not be exempt from taxation under section 501 (a) 
if it has engaged in a prohibited transaction after March 1, 1954. 
(2) TAXABLE YEARS AFFECTED.—An organization described in 
section 501 (c) (3) or section 401 (a) shall be denied exemption from 
taxation under section 501 (a) by reason of paragraph (1) only for 
taxable years after the taxable year during which it is notified 
by the Secretary or his delegate that it has engaged in a prohibited 
transaction, unless such organization entered into such prohibited 
transaction with the purpose of diverting corpus or income of 
the organization from its exempt purposes, and such trans-
action involved a substantial part of the corpus or income of such 
organization. 
(b) ORGANIZATIONS TO WHICH SECTION APPLIES.—This section shall 
apply to any organization described in section 501 (c) (3) or section 
401 (a) except— 
(1) a religious organization (other than a trust); 
(2) an educational organization which normally maintains a reg-
ular faculty and curriculum and normally has a regularly enrolled 
body of pupils or students in attendance at the place where its 
educational activities are regularly carried on; 
(3) an organization which normally receives a substantial part of 
its support (exclusive of income received in the exercise or perform-
ance by such organization of its charitable, educational, or other 
purpose or function constituting the basis for its exemption under 
section 501 (a)) from the United States or any State or political 
subdivision thereof or from direct or indirect contributions from the 
general public; 
(4) an organization which is operated, supervised, controlled, or 
principally supported by a religious organization (other than a trust) 
which is itself not subject to the provisions of this section; and 
(5) an organization the principal purposes or functions of which 
are the providing of medical or hospital care or medical education 
or medical research or agricultural research. 
(c) PROHIBITED TRANSACTIONS.—For purposes of this section, the 
term "prohibited transaction" means any transaction in which an 
organization subject to the provisions of this section— 
§ 502 
CH. 1—NORMAL TAXES AND SURTAXES 
167 
' 
(1) lends any part of its income or corpus, without the receipt of 
adequate security and a reasonable rate of interest, to; 
(2) pays any compensation, in excess of a reasonable allowance 
for salaries or other compensation for personal services actually 
rendered, to; 
(3) makes any part of its services available on a preferential 
basis to; 
(4) makes any substantial purchase of securities or any other 
property, for more than adequate consideration in money or money's 
worth, from; 
(5) sells any substantial part of its securities or other property, 
for less than an adequate consideration in money or money's worth, 
to; or 
(6) engages in any other transaction which results in a substantial 
diversion of its income or corpus to; 
the creator of such organization (if a trust); a person who has made a 
substantial contribution to such organization; a member of the family 
(as defined in section 267 (c) (4)) of an individual who is the creator 
of such trust or who has made a substantial contribution to such organ-
ization; or a corporation controlled by such creator or person through 
the ownership, directly or indirectly, of 50 percent or more of the 
total combined voting power of all classes of stock entitled to vote or 
50 percent or more of the total value of shares of all classes of stock 
of the corporation. 
(d) 
FUTURE STATUS OF ORGANIZATIONS DENIED EXEMPTION.—Any 
organization described in section 501 (c) (3) or section 401 (a) which is 
denied exemption under section 501 (a) by reason of subsection (a) of 
this section, with respect to any taxable year following the taxable year 
in which notice of denial of exemption was received, may, under reg-
ulations prescribed by the Secretary or his delegate, file claim for 
exemption, and if the Secretary or his delegate, pursuant to such reg-
ulations, is satisfied that such organization will not knowingly again 
engage in a prohibited transaction, such organization shall be exempt 
with respect to taxable years after the year in which such claim is 
filed. 
(e) DISALLOWANCE OF CERTAIN CHARITABLE, ETC., DEDUCTIONS.— 
No gift or bequest for religious, charitable, scientific, literary, or educa-
tional purposes (including the encouragement of art and the prevention 
of cruelty to children or animals), otherwise allowable as a deduction 
under section 170, 642 (c), 545 (h) (2), 2055, 2106 (a) (2), or 2522, 
shall be allowed as a deduction if made to an organization described 
in section 501 (c) (3) which, in the taxable year of the organization 
in which the gift or bequest is made, is not exempt under section 501 
(a) by reason of this section. 
With respect to any taxable year of 
the organization for which the organization is not exempt pursuant to 
subsection (a) by reason of having engaged in a prohibited transac-
tion with the purpos^of diverting the corpus or income of such organ-
ization from its exempt purposes and such transaction involved a sub-
stantial part of such corpus or income, and which taxable year is the 
same, or prior to the, taxable year of the organization in which such 
transaction occurred, such deduction shall be disallowed the donor 
only if such donor or (if such donor is an individual) any member 
§ 503(e) 
168 
INTERNAL REVENUE CODE OF 1954 
of his family (as defined in section 267 (c) (4)) was a party to such 
prohibited transaction. 
(f) DEFINITION.—For purposes of this section, the term "gift or 
bequest" means any gift, contribution, bequest, devise, legacy, or 
transfer. 
(g) SPECIAL R U L E FOR LOANS.—For purposes of the application of 
subsection (c) (1), in the case of a loan by a trust described in section 
401 (a), the following rules shall apply with respect to a loan made 
before March 1, 1954, which would constitute a prohibited transaction 
if made on or after March 1, 1954: 
(1) If any part of the loan is repayable prior to December 31, 
1955, the renewal of such part of the loan for a period not extending 
beyond December 31, 1955, on the same terms, shall not be con-
sidered a prohibited transaction. 
(2) If the loan is repayable on demand, the continuation of the 
loan without the receipt of adequate security and a reasonable rate 
of interest beyond December 31, 1955, shall be considered a pro-
hibited transaction. 
SEC. 504. DENIAL OF EXEMPTION. 
(a) GENERAL RULE.—In the case of any organization described in 
section 501 (c) (3) to which section 503 is applicable, exemption 
under section 501 shall be denied for the taxable year if the amounts 
accumulated out of income during the taxable year or any prior 
taxable year and not actually paid out by the end of the taxable year— 
(1) are unreasonable in amount or duration in order to carry out 
the charitable, educational, or other purpose or function constitut-
ing the basis for exemption under section 501 (a) of an organization 
described in section 501 (c) (3); or 
(2) are used to a substantial degree for purposes or functions 
other than those constituting the basis for exemption under sec-
tion 501 (a) of an organization described in section 501 (c) (3); or 
(3) are invested in such a manner as to jeopardize the carrying 
out of the charitable, educational, or other purpose or function 
constituting the basis for exemption under section 501 (a) of an 
organization described in section 501 (c) (3). 
Paragraph (1) shall not apply to income attributable to property of a 
decedent dying before January 1, 1951, which is transferred under 
his will to a trust created by such will. 
In the case of a trust created 
by the will of a decedent dying on or after January 1, 1951, if income 
is required to be accumulated pursuant to the mandatory terms of 
the will creating the trust, paragraph (1) shall apply only to income 
accumulated during a taxable year of the trust beginning more than 
21 years after the date of death of the last life in being designated in 
the trust instrument. 
(b) 
CROSS REFERENCES.— 
For limitation on charitable contributions ^ case of unreasonable 
accumulations by certain trusts, see section 681 (c) (2). 
§ 503(e) 
CH. 1—NORMAL TAXES AND SURTAXES 
169 
PART II—TAXATION OF BUSINESS INCOME OF CERTAIN 
EXEMPT ORGANIZATIONS 
Sec. 511. Imposition of tax on unrelated business income of char-
itable organizations, etc. 
Sec. 512. Unrelated business taxable income. 
Sec. 513. Unrelated trade or business. 
Sec. 514. Business leases. 
Sec. 515. Taxes of foreign countries and possessions of the United 
States. 
SEC. 511. IMPOSITION OF TAX ON UNRELATED BUSINESS INCOME 
OF CHARITABLE, ETC., ORGANIZATIONS. 
(a) CHARITABLE, ETC., ORGANIZATIONS TAXABLE AT CORPORATION 
RATES.— 
(1) IMPOSITION OF TAX.—There is hereby imposed for each tax-
able year on the unrelated business taxable income (as defined in 
section 512) of every organization described in paragraph (2) a 
normal tax and a surtax computed as provided in section 11. 
In 
making such computation for purposes of this section, the term 
"taxable income" as used in section 11 shall be read as "unrelated 
business taxable income". 
(2) ORGANIZATIONS SUBJECT TO TAX.— 
(A) ORGANIZATIONS DESCRIBED IN SECTION 501 (C) (2), 
(3), 
(5), AND (6), AND SECTION 401 (a).—The taxes imposed by paragraph 
(1) shall apply in the case of any organization (other than a 
church, a convention or association of churches, or a trust de-
scribed in subsection (b)) which is exempt, except as provided in 
this part, from taxation under this subtitle by reason of section 
401 (a) or of paragraph (3), (5), or (6) of section 501 (c). 
Such 
taxes shall also apply in the case of a corporation described in 
section 501 (c) (2) if the income is payable to an organization 
which itself is subject to the taxes imposed by paragraph (1) or 
to a church or to a convention or association of churches. 
(B) STATE COLLEGES AND UNIVERSITIES.—The taxes imposed 
by paragraph (1) shall apply in the case of any college or uni-
versity which is an agency or instrumentality of any government 
or any political subdivision thereof, or which is owned or operated 
by a government or any political subdivision thereof, or by any 
agency or instrumentality of one or more governments or political 
subdivisions. 
Such taxes shall also apply in the case of any cor-
poration wholly owned by one or more such colleges or universities. 
(b) TAX ON CHARITABLE, ETC.. TRUSTS.— 
(1) IMPOSITION OF TAX.—^There is hereby imposed for each 
taxable year on the unrelated business taxable income of every 
trust described in paragraph (2) a tax computed as provided in 
section 1. 
In making such computation for purposes of this section, 
the term "taxable income" as used in section 1 shall be read as 
"unrelated business taxable income" as defined in section 512. 
(2) CHARITABLE, ETC., TRUSTS SUBJECT TO TAX.—The tax 
im-
posed by paragraph (1) shall apply in the case of any trust which 
is exempt, except as provided in this part, from taxation under this 
subtitle by reason of section 501 (c) (3) or section 401 (a) and which, 
if it were not for such exemption, would be subject to subchapter J 
§ 511(b)(2) 
49012°—54 
14 
170 
INTERNAL REVENUE CODE OF 
1954 
(sec. 641 and following, relating to estates, trusts, beneficiaries, 
and decedents). 
(c) EFFECTIVE DATE.—The tax imposed by this section shall 
^PPly> ill the case of a trust described in section 401 (a), only for 
taxable years beginning after June 30, 1954. 
SEC. 512. UNRELATED BUSINESS TAXABLE INCOME. 
(a) DEFINITION.—The term "unrelated business taxable income" 
means the gross income derived by any organization from any un-
related trade or business (as defined in section 513) regularly carried 
on by it, less the deductions allowed by this chapter which are directly 
connected with the carrying on of such trade or business, both com-
puted with the exceptions, additions, and limitations provided in 
subsection (b). In the case of an organization described in section 
511 which is a foreign organization, the unrelated business taxable 
income shall be its unrelated business taxable income derived from 
sources within the United States determined under subchapter N 
(sec. 861 and following, relating to tax based on income from sources 
within or without the United States). 
(b) EXCEPTIONS, ADDITIONS, AND LIMITATIONS.—The exceptions, 
additions, and limitations applicable in determining unrelated business 
taxable income are the following: 
(1) There shall be excluded all dividends, interest, and annuities, 
and all deductions directly connected with such income. 
(2) There shall be excluded all royalties (including overriding 
royalties) whether measured by production or by gross or taxable 
income from the property, and all deductions directly connected 
with such income. 
(3) There shall be excluded all rents from real property (including 
personal property leased with the real property), and all deductions 
directly connected with such rents. 
(4) Notwithstanding paragraph (3), in the case of a business 
lease (as defined in section 514) there shall be included, as an 
item of gross income derived from an unrelated trade or business, 
the amount ascertained under section 514 (a) (1), and there shall 
be allowed, as a deduction, the amount ascertained under section 
514 (a) (2). 
(5) There shall be excluded all gains or losses from the sale, 
exchange, or other disposition of property other than— 
(A) stock in trade or other property of a kind which would 
properly be includible in inventory if on hand at the close of the 
taxable year, or 
(B) property held primarily for sale to customers in the 
ordinary course of the trade or business. 
This paragraph shall not apply with respect to the cutting of timber 
which is considered, on the application of section 631, as a sale or 
exchange of such timber. 
(6) The net operating loss deduction provided in section 172 
shall be allowed, except that — 
(A) the net operating loss for any taxable year, the amount 
of the net operating loss carryback or carryover to any taxable 
year, and the net operating loss deduction for any taxable year 
shall be determined under section 172 without taking into account 
§ 511(b)(2) 
CH. 1—NORMAL TAXES AND SURTAXES 
171 
any amount of income or deduction which is excluded under this 
part in computing the unrelated business taxable income; and 
(B) the terms "preceding taxable year" and "preceding taxable 
years" as used in section 172 shall not include any taxable year 
for which the organization was not subject to the provisions of 
this part. 
(7) There shall be excluded all income derived from research 
for (A) the United States, or any of its agencies or instrumentalities, 
or (B) any State or political subdivision thereof; and there shall 
be excluded all deductions directly connected with such income. 
(8) In the case of a college, university, or hospital, there shall 
be excluded all income derived from research performed for any 
person, and all deductions directly connected with such income. 
(9) In the case of an organization operated primarily for purposes 
of carrying on fundamental research the results of which are freely 
available to the general public, there shall be excluded all income 
derived from research performed for any person, and all deductions 
directly connected with such income. 
(10) In the case of any organization described in section 511 (a), 
the deduction allowed by section 170 (relating to charitable etc. 
contributions and gifts) shall be allowed (whether or not directly 
connected with the carrying on of the trade or business), but shall 
not exceed 5 percent of the unrelated business taxable income 
computed without the benefit of this paragraph. 
(11) In the case of any trust described in section 511 (b), the 
deduction allowed by section 170 (relating to charitable etc. con-
tributions and gifts) shall be allowed (whether or not directly 
connected with the carrying on of the trade or business), and for 
such purpose a distribution made by the trust to a beneficiary 
described in section 170 shall be considered as a gift or contribution. 
The deduction allowed by this paragraph shall be allowed with the 
limitations prescribed in section 170 (b) (1) (A) and (B) determined 
with reference to the unrelated business taxable income computed 
without the benefit of this paragraph (in lieu of with reference to 
adjusted gross income). 
(12) There shall be allowed a specific deduction of $1,000. 
(c) SPECIAL RULES APPLICABLE TO PARTNERSHIPS.—If a trade or 
business regularly carried on by a partnership of which an organization 
is a member is an unrelated trade or business with respect to such 
organization, such organization in computing its unrelated business 
taxable income shall, subject to the exceptions, additions, and limita-
tions contained in subsection (b), include its share (whether or not dis-
tributed) of the gross income of the partnership from such unrelated 
trade or business and its share of the partnership deductions directly 
connected with such gross income. If the taxable year of the organi-
zation is different from that of the partnership, the amounts to be so 
included or deducted in computing the unrelated business taxable in-
come shall be based upon the income and deductions of the partnership 
for any taxable year of the partnership ending within or with the 
taxable year of the organization. 
§ 512(c) 
172 
INTERNAL REVENUE CODE OF 
1964 
SEC. 513. UNRELATED TRADE OR BUSINESS. 
(a) GENERAL RULE,—The term "unrelated trade or business" 
means, in the case of any organization subject to the tax imposed by 
section 511, any trade or business the conduct of which is not sub-
stantially related (aside from the need of such organization for income 
or funds or the use it makes of the profits derived) to the exercise or 
performance by such organization of its charitable, educational, or 
other purpose or function constituting the basis for its exemption 
under section 501 (or, in the case of an organization described in 
section 511 (a) (2) (B), to the exercise or performance of any purpose 
or function described in section 501 (c) (3)), except that such term 
does not include any trade or business— 
(1) in which substantially all the work in carrjdng on such trade 
or business is performed for the organization without compensation; 
or 
(2) wliich is carried on, in the case of an organization described in 
section 501 (c) (3) or in the case of a college or university described 
in section 511 (a) (2) (B), by the organization primarily for the 
convenience of its members, students, patients, officers, or employ-
ees; or 
(3) wliich is the selling of merchandise, substantially all of which 
has been received by the organization as gifts or contributions. 
(b) SPECIAL RULE FOR TRUSTS.—The term "unrelated trade or 
business" means, in the case of— 
(1) a trust computing its unrelated business taxable income under 
section 512 for purposes of section 681; or 
(2) a trust described in section 401 (a) which is exempt from tax 
under section 501 (a); 
any trade or business regularly carried on by such trust or by a partner-
ship of which it is a member. 
(c) SPECIAL RULE FOR CERTAIN PUBLISHING BUSINESSES.—If a 
publishing business carried on by an organization during a taxable 
year beginning before January 1, 1953, is, without regard to this 
subsection, an unrelated trade or business, but before the beginning 
of the third succeeding taxable year the business is carried on by it 
(or by a successor who acquired such business in a liquidation which 
would have constituted a tax-free exchange under section 112 (b) (6) 
of the Internal Revenue Code of 1939) in such manner that the con-
duct thereof is substantially related to the exercise or performance 
by such organization (or such successor) of its educational or other 
purpose or function described in section 501 (c) (3), such publishing 
business shall not be considered, for the taxable year, as an unrelated 
trade or business. 
SEC. 514. BUSINESS LEASES. 
(a) BUSINESS LEASE 
RENTS 
AND DEDUCTIONS.—In computing 
under section 512 the unrelated business taxable income for any taxable 
year— 
(1) PERCENTAGE OF RENTS TAKEN INTO ACCOUNT.—There shall 
be included with respect to each business lease, as an item of gross 
income derived from an unrelated trade or business, an amount 
which is the same percentage (but not in excess of 100 percent) 
of the total rents derived during the taxable year under such lease 
§513 
CH. 1—NORMAL TAXES AND SURTAXES 
173 
as (A) the business lease indebtedness, at the close of the taxable 
year, with respect to the premises covered by such lease is of 
(B) the adjusted basis, at the close of the taxable year, of such 
premises. 
(2) PERCENTAGE OF DEDUCTIONS TAKEN INTO ACCOUNT.—There 
shall be allowed with respect to each business lease, as a deduction 
to be taken into account in computing unrelated business taxable 
income, an amount determined by applying the percentage derived 
under paragraph (1) to the sum determined under paragraph (3). 
(3) DEDUCTIONS ALLOWABLE.—The sum referred to in paragraph 
(2) is the sum of the following deductions allowable under this 
chapter: 
(A) Taxes and other expenses paid or accrued during the tax-
able year on or with respect to the real property subject to the 
business lease. 
(B) Interest paid or accrued during the taxable year on the 
business lease indebtedness. 
(C) A reasonable allowance for exhaustion, wear and tear (in-
cluding a reasonable allowance for obsolescence) of the real 
property subject to such lease. 
Where only a portion of the real property is subject to the busi-
ness lease, there shall be taken into account under subparagraphs 
(A), (B), and (C) only those amounts which are properly allocable 
to the premises covered by such lease, 
(b) DEFINITION OF BUSINESS LEASE.— 
(1) GENERAL RULE.—For purposes of this section, the term 
"business lease" means a lease for a term of more than 5 years of 
real property by an organization (or by a partnership of which it 
is a member), if at the close of the lessor's taxable year there is a 
business lease indebtedness (as defined in subsection (c)) with 
respect to such property. 
(2) SPECIAL RULES FOR APPLYING PARAGRAPH (i).—For purposes 
of paragraph (1)— 
(A) In computing the term of a lease which contains an option 
for renewal or extension, the term of such lease shall be considered 
as including any period for which such option may be exercised; 
and the term of any lease made pursuant to an exercise of such 
option shall include the period during which the prior lease was 
in effect. If real property is acquired subject to a lease, the term 
of such lease shall be considered to begin on the date of such 
acquisition. 
(B) If the property has been occupied by the same lessee for 
a total period of more than 5 years commencing not earlier than 
the date of acquisition of the property by the organization or 
trust (whether such occupancy is under one or more leases, 
renewals, extensions, or continuations thereof), the occupancy 
of such lessee shall be considered to be under a lease for a term 
of more than 5 years within the meaning of paragraph (1), 
However, subsection (a) shall apply in the case of a tenancy 
described in this subparagraph (and not within subparagraph 
(A)) only with respect to the sixth and succeeding years of 
occupancy by the same lessee. For purposes of this subpara-
graph, the term ''same lessee" shall include any lessee of the 
§ 514(b)(2)(B) 
174 
INTERNAL REVENUE CODE OF 1964 
property whose relationship with a lessee of the same property 
is such that losses in respect of sales or exchanges of property 
between.the 2 lessees woidd be disallowed under section 267 (a). 
(3) EXCEPTIONS.— 
(A) No lease shall be considered a business lease if— 
(i) such lease is entered into primarily for purposes which 
are substantially related (aside from the need of such organi-
zation for income or funds or the use it makes of the rents 
derived) to the exercise or performance by such organization 
of its charitable, educational, or other purpose or function con-
stituting the basis for its exemption under section 501, or 
(ii) the lease is of premises in a building primarily designed 
for occupancy, and occupied, by the organization. 
(B) If a lease for more than 5 years to a tenant is for only 
a portion of the real property, and space in the real property is 
rented during the taxable year under a lease for not more than 
5 years to any other tenant of the organization, leases of the real 
property for more than 5 years shall be considered as business 
leases during the taxable year only if— 
(i) the rents derived from the real property during the tax-
able year under leases for more than 5 years (not including, as 
a lease for more than 5 years, an occupancy which is considered 
as such a lease by reason of paragraph (2) (B)) represent 50 
percent or more of the total rents derived during the taxable 
year from the real property; or the area of the premises occu-
pied under leases for more than 5 years (not including, as a 
lease for more than 5 years, an occupancy which is considered 
as such a lease by reason of paragraph (2) (B)) represents, 
at any time during the taxable year, 50 percent or more of the 
total area of the real property rented at such time; or 
(ii) the rent derived from the real property during the tax-
able year from any tenant under a lease for more than 5 years 
(including as a lease for more than 5 years an occupancy which 
is considered as such a lease by reason of paragraph (2) (B)), 
or from a group of tenants (under such leases) who are either 
members of an affiliated group (as defined in section 1504) 
or partners, represents more than 10 percent of the total 
rents derived during the taxable year from such property; or 
the area of the premises occupied by any one such tenant, or 
by any such group of tenants, represents at any time during 
the taxable year more than 10 percent of the total area of the 
real property^ rented at such time. 
In the application of clause (i), if during the last half of the term 
of a lease a new lease is made to take effect after the expiration of 
such lease, the unexpired portion of such lease on the date the 
second lease is made shall not be treated as a part of the term of 
the second lease, 
(c) BUSINESS LEASE INDEBTEDNESS.— 
(1) GENERAL RULE.—The term "business lease indebtedness" 
means, with respect to any real property leased for a term of more 
than 5 years, the unpaid amount of— 
§ 514(b)(2)(B) 
CH. 1—NORMAL TAXES AND SURTAXES 
175 
(A) the indebtedness incurred by the lessor in acquiring or 
improving such property; 
(B) the indebtedness incurred before the acquisition or im-
provement of such property if such indebtedness would not have 
been incurred but for such acquisition or improvement; and 
(C) the indebtedness incurred after the acquisition or improve-
ment of such property if such indebtedness would not have 
been incurred but for such acquisition or improvement and 
the incurrence of such indebtedness was reasonably foreseeable 
at the time of such acquisition or improvement. 
(2) PROPERTY ACQUIRED SUBJECT TO MORTGAGE, ETC.—Where 
real property is acquired subject to a mortgage or other similar lien, 
the amount of the indebtedness secured by such mortgage or lien 
shall be considered (whether the acquisition was by gift, devise, or 
purchase) as an indebtedness of the lessor incurred in acquiring such 
property even though the lessor did not assume or agree to pay such 
indebtedness, except that where real property was acquired by gift, 
bequest, or devise before July 1, 1950, subject to a mortgage or other 
similar lien, the amount of such mortgage or other similar lien shall 
not be considered as an indebtedness of the lessor incurred in 
acquiring such property. 
(3) CERTAIN 
PROPERTY ACQUIRED BY GIFT, ETC.—Where real 
property was acquired by gift, bequest, or devise before July 1, 
1950, subject to a lease requiring improvements in such property on 
the happening of stated contingencies, indebtedness incurred in 
improving such property in accordance with the terms of such 
lease shall not be considered as an indebtedness for purposes of this 
subsection. 
(4) CERTAIN CORPORATIONS DESCRIBED IN SECTION 501 (C) (2).—In 
the case of a corporation described in section 501 (c) (2), all of the 
stock of which was acquired before July 1, 1950, by an organization 
described in paragraph (3), (5), or (6) of section 501 (c) (and more 
than one-third of such stock was acquired by such organization 
by gift or bequest), any indebtedness incurred by such corporation 
before July 1, 1950, and any indebtedness incurred by such cor-
poration on or after such date in improving real property in accord-
ance with the terms of a lease entered into before such date, shall 
not be considered as an indebtedness with respect to such corpora-
tion or such organization for purposes of this subsection. 
(5) CERTAIN TRUSTS DESCRIBED IN SECTION 401 (a).—In the case 
of a trust described in section 401 (a), or in the case of a corporation 
described in section 501 (c) (2) all of the stock of which was acquired 
prior to March 1, 1954, by a trust described in section 401 (a), any 
indebtedness incurred by such trust or such corporation before 
March 1, 1954, in connection with real property which is leased 
before March 1, 1954, and any indebtedness incurred by such trust 
or such corporation on or after such date necessary to carry out the 
terms of such lease, shall not be considered as an indebtedness with 
respect to such trust or such corporation for purposes of this 
subsection. 
(6) BUSINESS LEASE ON PORTION OF PROPERTY.—In determining 
the amount of the business lease indebtedness where only a portion 
§ 514(c) (6) 
176 
INTERNAL REVENUE CODE OF 
1954 
of the real property is subject to a business lease, proper allocation 
to the premises covered by such lease shall be made of the indebted-
ness incurred by the lessor with respect to the real property. 
(7) SPECIAL RULE APPLICABLE TO TRUSTS DESCRIBED IN SEC-
TION 401 (a).—In the application of paragraph (1), if a trust de-
scribed in section 401 (a) forming part of a stock bonus, pension, 
or profit-sharing plan of an employer lends any money to another 
trust described in section 401 (a) forming part of a stock bonus, 
pension, or profit-sharing plan of the same employer, such loan shall 
not be treated as an indebtedness of the borrowing trust, except to 
the extent that the loaning trust— 
(A) incurs any indebtedness in order to make such loan; 
(B) incurred indebtedness before the making of such loan 
which would not have been incurred but for the making of such 
loan; or 
(C) incurred indebtedness after the making of such loan which 
would not have been incurred but for the making of such loan 
and which was reasonably foreseeable at the time of making such 
loan. 
(d) PERSONAL PROPERTY LEASED WITH REAL PROPERTY.—Eor 
purposes of this section, the term "real property" and the term 
"premises" include personal property of the lessor leased by it to a 
lessee of its real estate if the lease of such personal property is made 
under, or in connection with, the lease of such real estate. 
SEC. 515. TAXES OF FOREIGN COUNTRIES AND POSSESSIONS OF 
THE UNITED STATES. 
The amount of taxes imposed by foreign countries and possessions 
of the United States shall be allowed as a credit against the tax of an 
organization subject to the tax imposed by section 511 to the extent 
provided in section 901; and in the case of the tax imposed by section 
511, the term "taxable income" as used in section 901 shall be read 
as "unrelated business taxable income". 
PART III—FARMERS' COOPERATIVES 
Sec. 521. Exemption of farmers' cooperatives from tax. 
Sec. 522. Tax on farmers' cooperatives. 
SEC. 521. EXEMPTION OF FARMERS' COOPERATIVES FROM TAX. 
(a) EXEMPTION FROM TAX.—A farmers' cooperative organization 
described in subsection (b) (1) shall be exempt from taxation under 
this subtitle except as otherwise provided in section 522. 
Notwith-
standing section 522, such an organization shall be considered an 
organization exempt from income taxes for purposes of any law which 
refers to organizations exempt from income taxes. 
(b) APPLICABLE RULES.— 
(1) EXEMPT FARMERS' COOPERATIVES.—The farmers' coopera-
tives exempt from taxation to the extent provided in subsection 
(a) are farmers', fruit growers', or like associations organized and 
operated on a cooperative basis (A) for the purpose of marketing 
the products of members or other producers, and turning back to 
them the proceeds of sales, less the necessary marketing expenses, 
on the basis of either the quantity or the value of the products 
§ 514(c)(6) 
CH. 1—NORMAL TAXES AND SURTAXES 
177 
furnished by them, or (B) for the purpose of purchasing supplies 
and equipment for the use of members or other persons, and turn-
ing over such suppUes and equipment to them at actual cost, plus 
necessary expenses. 
(2) ORGANIZATIONS HAVING CAPITAL STOCK.—Exemption shall 
not be denied any such association because it has capital stock, if 
the dividend rate of such stock is fixed at not to exceed the legal 
rate of interest in the State of incorporation or 8 percent per 
annum, whichever is greater, on the value of the consideration for 
which the stock was issued, and if substantially all such stock (other 
than nonvoting preferred stock, the owners of which are not entitled 
or permitted to participate, directly or indirectly, in the profits of 
the association, upon dissolution or otherwise, beyond the fixed 
dividends) is owned by producers who market their products or 
purchase their supplies and equipment through the association. 
(3) ORGANIZATIONS MAINTAINING RESERVE.—Exemption shall not 
be denied any such association because there is accumulated and 
maintained by it a reserve required by State law or a reasonable 
reserve for any necessary purpose. 
(4) TRANSACTIONS WITH NONMEMBERS.—Exemption shall not be 
denied any such association which markets the products of non-
members in an amount the value of which does not exceed the value 
of the products marketed for members, or which purchases supplies 
and equipment for nonmembers in an amount the value of which 
does not exceed the value of the supplies and equipment purchased 
for members, provided the value of the purchases made for persons 
who are neither members nor producers does not exceed 15 per-
cent of the value of all its purchases. 
(5) BUSINESS FOR THE UNITED STATES.—Business done for the 
United States or any of its agencies shall be disregarded in deter-
mining the right to exemption under this section. 
SEC. 522. TAX ON FARMERS' COOPERATIVES. 
(a) IMPOSITION OF TAX.—An organization exempt from taxation 
under section 521 shall be subject to the taxes imposed by section 11 
or section 1201. 
(b) COMPUTATION OF TAXABLE INCOME.— 
(1) GENERAL RULE.—In computing the taxable income of such 
an organization there shall be allowed as deductions from gross in-
come (in addition to other deductions allowable under this chap-
ter)— 
(A) amounts paid as dividends during the taxable year on its 
capital stock, and 
(B) amounts allocated during the taxable year to patrons with 
respect to its income not derived from patronage (whether or not 
such income was derived during such taxable year) whether paid 
in cash, merchandise, capital stock, revolving fund certificates, 
retain certificates, certificates of indebtedness, letters of advice, 
or in some other manner that discloses to each patron the dollar 
amount allocated to him. 
Allocations made after the close of 
the taxable year and on or before the 15th day of the 9th month 
following the close of such year shall be considered as made on 
§ 522(b)(1)(B) 
178 
INTERNAL REVENUE CODE OF 1954 
the last day of such taxable year to the extent the allocations are 
attributable to income derived before the close of such year, 
(2) PATRONAGE DIVIDENDS, ETC.—Patronage dividends, refunds, 
and rebates to patrons with respect to their patronage in the same 
or preceding years (whether paid in cash, merchandise, capital 
stock, revolving fund certificates, retain certificates, certificates of 
indebtedness, letters of advice, or in some other manner that dis-
closes to each patron the dollar amount of such dividend, refund, 
or rebate) shall be taken into account in computing taxable income 
in the same manner as in the case of a cooperative organization not 
exempt under section 521. Such dividends, refunds, and rebates 
made after the close of the taxable year and on or before the 15th 
day of the 9th month following the close of such year shall be 
considered as made on the last day of such taxable year to the 
extent the dividends, refunds, or rebates, are attributable to patron-
age occurring before the close of such year. 
PART IV—SHIPOWNERS' PROTECTION AND INDEMNITY 
ASSOCIATIONS 
Sec. 526. Shipowners' protection and indemnity associations. 
SEC. 526. SHIPOWNERS' PROTECTION AND INDEMNITY ASSOCIA-
TIONS. 
There shall not be included in gross income the receipts of ship-
owners' mutual protection and indemnity associations not organized 
for profit, and no part of the net earnings of which inures to the 
benefit of any private shareholder; but such corporations shall be 
subject as other persons to the tax on their taxable income from 
interest, dividends, and rents. 
1522(b)(1)(B) 
CH. 1—NORMAL TAXES AND SURTAXES 
1-79 
Subchapter G—Corporations Used to Avoid Income Tax on 
Shareholders 
Part 
I. Corporations improperly accumulating surplus. 
Part 
II. Personal holding companies. 
Part III. Foreign personal holding companies. 
Part IV. Deduction for dividends paid. 
PART I—CORPORATIONS IMPROPERLY ACCUMULATING 
SURPLUS 
Sec. 531. Imposition of accumulated earnings tax. 
Sec. 532. Corporations subject to accumulated earnings tax. 
Sec. 533. Evidence of purpose to avoid income tax. 
Sec. 634. Burden of proof. 
Sec. 535. Accumulated taxable income. 
Sec. 536. Income not placed on annual basis. 
Sec. 537. Reasonable needs of the business. 
SEC. 531. IMPOSITION OF ACCUMULATED EARNINGS TAX. 
In addition to other taxes imposed by this chapter, there is hereby 
imposed for each taxable year on the accumulated taxable income 
(as defined in section 535) of every corporation described in section 
532, an accumulated earnings tax equal to the sum of— 
(1) 27}^ percent of the accumulated taxable income not in excess 
of $100,000, plus 
(2) 38)^ percent of the accumulated taxable income in excess of 
$100,000. 
SEC. 532. CORPORATIONS SUBJECT TO ACCUMULATED EARNINGS 
TAX. 
(a) GENERAL RULE.—The accumulated earnings tax imposed by 
section 531 shall apply to every corporation (other than those de-
scribed in subsection (b)) formed or availed of for the purpose of 
avoiding the income tax with respect to its shareholders or the share-
holders of any other corporation, by permitting earnings and profits 
to accumulate instead of being divided or distributed. 
(b) EXCEPTIONS.—The accumulated earnings tax imposed by sec-
tion 531 shall not apply to— 
(1) a personal holding company (as defined in section 542). 
(2) a foreign personal holding company (as defined in section 
552), or 
(3) a corporation exempt from tax under subchapter F (section 
501 and following). 
SEC. 533. EVIDENCE OF PURPOSE TO AVOID INCOME TAX. 
(a) UNREASONABLE ACCUMULATION DETERMINATIVE OF PURPOSE.— 
For purposes of section 532, the fact that the earnings and profits 
of a corporation are permitted to accumulate beyond the reasonable 
needs of the business shall be determinative of the purpose to avoid 
the income tax with respect to shareholders, u*nless the corporation 
by the preponderance of the evidence shall prove to the contrary. 
§ 533(a) 
180 
INTERNAL REVENUE CODE OF 
1954 
(b) HOLDING OR INVESTMENT COMPANY.—The fact that any corpo-
ration is a mere holding or investment company shall be prima facie 
evidence of the purpose to avoid the income tax with respect to 
shareholders. 
SEC. 534. BURDEN OF PROOF. 
(a) GENERAL KULE.—In any proceeding before the Tax Court 
involving a notice of deficiency based in whole or in part on the 
allegation that all or any part of the earnings and profits have been 
permitted to accumulate beyond the reasonable needs of the business, 
the burden of proof with respect to such allegation shall— 
(1) if notification has not been sent in accordance with subsection 
(b), be on the Secretary or his delegate, or 
(2) if the taxpayer has submitted the statement described in 
subsection (c), be on the Secretary or his delegate with respect 
to the grounds set forth in such statement in accordance with the 
provisions of such subsection. 
(b) NOTIFICATION BY SECRETARY.—Before mailing the notice of 
deficiency referred to in subsection (a), the Secretary or his delegate 
may send by registered mail a notification informing the taxpayer that 
the proposed notice of deficiency includes an amount with respect to 
the accumulated earnings tax imposed by section 531. 
(c) STATEMENT BY TAXPAYER.—Within such time (but not less than 
30 days) after the mailing of the notification described in subsection 
(b) as the Secretary or his delegate may prescribe by regulations, the 
taxpayer may submit a statement of the grounds (together with facts 
sufficient to show the basis thereof) on which the taxpayer relies to 
establish that all or any part of the earnings and profits have not 
been permitted to accumulate beyond the reasonable needs of the 
business. 
(d) JEOPARDY ASSESSMENT.—If pursuant to section 6861 (a) a 
jeopardy assessment is made before the mailing of the notice of de-
ficiency referred to in subsection (a), for purposes of this section 
such notice of deficiency shall, to the extent that it informs the tax-
payer that such deficiency includes the accumulated earnings tax im-
posed by section 531, constitute the notification described in subsection 
(b), and in that event the statement described in subsection (c) may 
be included in the taxpayer's petition to the Tax Court. 
(e) EFFECTIVE DATE.—This section shall apply only with respect 
to a notice of deficiency for a taxable year to which this subchapter 
applies which is mailed more than 90 days after the date of enactment 
of this title. 
SEC. 535. ACCUMULATED TAXABLE INCOME. 
(a) DEFINITION.—For purposes of this subtitle, the term "accumu-
lated taxable income" means the taxable income, adjusted in the 
manner provided in subsection (b), minus the sum of the dividends 
paid deduction (as defined in section 561) and the accumulated 
earnings credit (as defined in subsection (c)). 
(b) ADJUSTMENTS TO TAXABLE INCOME.—For purposes of sub-
section (a), taxable income shall be adjusted as follows: 
(1) TAXES.—There shall be allowed as a deduction Federal in-
come and excess profits taxes (other than the excess profits tax im-
posed by subchapter E of chapter 2 of the Internal Revenue 
§ 533(b) 
CH. 1 
NORMAL TAXES AND SURTAXES 
181 
Code of 1939 for taxable years beginning after December 31, 1940) 
and income, war profits, and excess profits taxes of foreign coun-
tries and possessions of the United States (to the extent not allow-
able as a deduction under section 164 (b) (6)), accrued during the 
taxable year, but not including the accumulated earnings tax im-
posed by section 531, the personal holding company tax imposed 
by section 541, or the taxes imposed by corresponding sections of a 
prior income tax law. 
(2) CHARITABLE CONTRIBUTIONS.—The deduction for charitable 
contributions provided under section 170 shall be allowed without 
regard to the limitation in section 170 (b) (2). 
(3) SPECIAL DEDUCTIONS DISALLOWED.—The special deductions 
for corporations provided in part VIII (except section 248) of 
subchapter B (section 241 and following, relating to the deduction 
for dividends received by corporations, etc.) shall not be allowed. 
(4) N E T OPERATING LOSS.—The net operating loss deduction 
provided in section 172 shall not be allowed. 
(5) CAPITAL LOSSES.—There shall be allowed as deductions losses 
from sales or exchanges of capital assets during the taxable year 
which are disallowed as deductions under section 1211 (a). 
(6) LONG-TERM CAPITAL GAINS.—There shall be allowed as a de-
duction the excess of the net long-term capital gain for the taxable 
year over the net short-term capital loss for such year (determined 
without regard to the capital loss carryover provided in section 
1212) minus the taxes imposed by this subtitle attributable to such 
excess. The taxes attributable to such excess shall be an amount 
equal to the difference between— 
(A) the taxes imposed by this subtitle (except the tax imposed 
by this part) for such year, and 
(B) such taxes computed for such year without including such 
excess in taxable income. 
(7) CAPITAL LOSS CARRYOVER.—No allowance shall be made for 
the capital loss carryover provided in section 1212. 
(8) BANK AFFILIATES.—There shall be allowed the deduction de-
scribed in section 601 (relating to bank affiliates). 
(c) ACCUMULATED EARNINGS CREDIT.—• 
(1) GENERAL RULE.—For purposes of subsection (a), in the case 
of a corporation other than a mere holding or investment company 
the accumulated earnings credit is (A) an amount equal to such 
part of the earnings and profits for the taxable year as are retained 
for the reasonable needs of the business, minus (B) the deduction 
allowed by subsection (b) (6). 
For purposes of this paragraph, the 
amount of the earnings and profits for the taxable year which are 
retained is the amount by which the earnings and profits for the 
taxable year exceed the dividends paid deduction (as defined in 
section 561) for such year. 
(2) MINIMUM CREDIT.—The credit allowable under paragraph (1) 
shall in no case be less than the amount by which $60,000 exceeds 
the accumulated earnings and profits of the corporation at the close 
of the preceding taxable year. 
(3) HOLDING AND INVESTMENT COMPANIES.—In the case of a 
corporation which is a mere holding or investment company, the 
§ 535(c)(3) 
182 
INTERNAL REVENUE CODE OF 1954 
accumulated earnings credit is the amount (if any) by which 
$60,000 exceeds the accumulated earnings and profits of the cor-
poration at the close of the preceding taxable year. 
(4) ACCUMULATED 
EARNINGS AND PROFITS.—For purposes of 
paragraphs (2) and (3), the accumulated earnings and profits at the 
close of the preceding taxable year shall be reduced by the dividends 
which under section 563 (a) (relating to dividends paid after the 
close of the taxable year) are considered as paid during such taxable 
year. 
(5) CROSS REFERENCE.— 
For denial of credit provided in paragraph (2) or (3) where multiple 
corporations are formed to avoid tax, see section 1551. 
SEC. 536. INCOME NOT PLACED ON ANNUAL BASIS. 
Section 443 (b) (relating to computation of tax on change of annual 
accounting period) shall not apply in the computation of the accumu-
lated earnings tax imposed by section 531. 
SEC. 537. REASONABLE NEEDS OF THE BUSINESS. 
For purposes of this part, the term "reasonable needs of the busi-
ness" includes the reasonably anticipated needs of the business. 
PART II—PERSONAL HOLDING COMPANIES 
Sec. 541. Imposition of personal holding company tax. 
Sec. 542. Definition of personal holding company. 
Sec. 543. Personal holding company income. 
Sec. 544. Rules for determining stock ownership. 
Sec. 545. Undistributed personal holding company income. 
Sec. 546. Income not placed on annual basis. 
Sec. 547. Deduction for deficiency dividends. 
SEC. 541. IMPOSITION OF PERSONAL HOLDING COMPANY TAX. 
In addition to other taxes imposed by this chapter, there is hereby 
imposed for each taxable year on the undistributed personal holding 
company income (as defined in section 545) of every personal hold-
ing company (as defined in section 542) a personal holding company 
tax equal to the sum of— 
(1) 75 percent of the undistributed personal holding company 
income not in excess of $2,000, plus 
(2) 85 percent of the undistributed personal holding company 
income in excess of $2,000. 
SEC. 542. DEFINITION OF PERSONAL HOLDING COMPANY. 
(a) GENERAL RULE.—For purposes of this subtitle, the term 
"personal holding company" means any corporation (other than a 
corporation described in subsection (c)) if— 
(1) GROSS INCOME REQUIREMENT.—At least 80 percent of its 
gross income for the taxable year is personal holding company 
income as defined in section 543, and 
(2) STOCK OWNERSHIP REQUIREMENT.—At any time during the 
last half of the taxable year more than 50 percent in value of its 
outstanding stock is owned, directly or indirectly, by or for not 
more than 5 individuals. 
For purposes of this paragraph, an 
organization described in section 503 (b) or a portion of a trust 
1535(c)(3) 
CH. 
1—NORMAL TAXES AND SURTAXES 
183 
permanently set aside or to be used exclusively for the purposes 
described in section 642 (c) or a corresponding provision of a prior 
income tax law shall be considered an individual. 
(b) CORPORATIONS FILING CONSOLIDATED RETURNS.— 
(1) GENERAL RULE.—In the case of an affiliated group of cor-
porations filing or required to file a consolidated return under 
section 1501 for any taxable year, the gross'income requirement of 
subsection (a) (1) of this section shall, except as provided in para-
graphs (2) and (3), be applied for such year with respect to the 
consolidated gross income and the consolidated personal holding 
company income of the affiliated group. 
No member of such an 
affiliated group shall be considered to meet such gross income 
requirement unless the affiliated group meets such requirement. 
(2) INELIGIBLE AFFILIATED GROUP.—Paragraph (1) shall not 
apply to an affiliated group of corporations, other than an affiliated 
group of railroad corporations the common parent of which would 
be eligible to file a consolidated return under section 141 of the 
Internal Revenue Code of 1939 prior to its amendment by the 
Revenue Act of 1942, if— 
(A) any member of the affiliated group of corporations (includ-
ing the common parent corporation) derived 10 percent or more 
of its gross income for the taxable year from sources outside the 
affiliated group, and 
(B) 
80 percent or more of the amount described in subpara-
graph (A) consists of personal holding company income (as 
defined in section 543). 
For purposes of this paragraph, section 543 shall be applied as if 
the amoiint described in subparagraph (A) were the gross income of 
the corporation. 
(3) EXCLUDED CORPORATIONS.^—Paragraph (1) shall not apply to 
an affiliated group of corporations if any member of the affiliated 
group (including the common parent corporation) is a corporation 
excluded from the definition of personal holding company under 
subsection (c). 
(4) CERTAIN DIVIDEND INCOME RECEIVED BY A COMMON PARENT.— 
In applying paragraph (2) (A) and (B), personal holding company 
income and gross income shall not include dividends received by 
a common parent corporation from another corporation if— 
(A) the common parent corporation owns, directly or indirectly, 
more than 50 percent of the outstanding voting stock of such other 
corporation, and 
(B) such other corporation is not a personal holding company 
for the taxable year in which the dividends are paid. 
(c) EXCEPTIONS.—The term "personal holding company" as defined 
in subsection (a) does not include— 
(1) a corporation exempt from tax under subchapter F (sec. 501 
and following); 
(2) a bank as'defined in section 581; 
(3) a life insurance company; 
(4) a surety company; 
(5) a foreign personal holding company as defined in section 552; 
§ 542(c)(5) 
184 
INTERNAL REVENUE CODE OF 1954 
(6) a licensed personal finance company under State supervi-
sion, 80 percent or more of the gross income of which is lawful 
interest received from loans made to individuals in accordance 
with the provisions of applicable State law if at least 60 percent of 
such gross income is lawful interest— 
(A) received from individuals each of whose indebtedness to 
such company did'not at any time during the taxable year exceed 
in principal amount the limit prescribed for small loans by such 
law (or, if there is no such limit, $500), and 
(B) not payable in advance or compounded and computed only 
on unpaid balances, and if the loans to a person, who is a share-
holder in such company during the taxable year by or for whom 
10 percent or more in value of its outstanding stock is owned 
directly or indirectly (including, in the case of an individual, stock 
owned by the members of his family as defined in section 544 
(a) (2)), outstanding at any time during such year do not exceed 
$5,000 in principal amount; 
(7) a lending company, not otherwise excepted by this sub-
section, authorized to engage in the small loan business under one 
or more State statutes providing for the direct regulation of such 
business, 80 percent or more of the gross income of which is lawful 
interest, discount or other authorized charges— 
(A) received from loans maturing in not more than 36 months 
made to individuals in accordance with the provisions of appli-
cable State law, and 
(B) which do not, in the case of any individual loan, exceed in 
the aggregate an amount equal to simple interest at the rate of 
3 percent per month not payable in advance and computed only 
on unpaid balances, if at least 60 percent of the gross income is 
lawful interest, discount or other authorized charges received 
from individuals each of whose indebtedness to such company did 
not at any time during the taxable year exceed in principal amount 
the limit prescribed for small loans by such law (or, if there is no 
such limit, $500), and if the deductions allowed to such company 
under section 162 (relating to trade or business expenses), other 
than for compensation for personal services rendered by share-
holders (including members of the shareholder's family as de-
scribed in section 544 (a) (2)) constitute 15 percent or more of 
its gross income, and the loans to a person, who is a shareholder 
in such company during the- taxable year by or for whom 10 
percent or more in value of its outstanding stock is owned directly 
or indirectly (including, in the case of an individual, stock owned 
by the members of his family as defined in section 544 (a) (2)), 
outstanding at any time during such year do not exceed $5,000 
in principal amount; 
(8) a loan or investment corporation, a substantial part of the 
business of which consists of receiving funds not subject to check 
and evidenced by installment or fully paid certificates of indebted-
ness or investment, and making loans and discounts, and the 
loans to a person who is a shareholder in such corporation during 
such taxable year by or for whom 10 percent or more in value 
§ 542(c)(6) 
CH. 1—NORMAL TAXES AND SURTAXES 
185 
of its outstanding stock is owned directly or indirectly (including, 
in the case of an individual, stock owned by the members of his 
family as defined in section 544 (a) (2)) outstanding at any time 
during such year do not exceed $5,000 in principal amount; 
(9) a finance company, actively and regularly engaged in the 
business of purchasing or discounting accounts or notes receivable 
or installment obligations, or making loans secured by any of the 
foregoing or by tangible personal property, at least 80 percent 
of the gross income of which is derived from such business in accord-
ance with the provisions of applicable State law or does not con-
stitute personal holding company income as defined in section 543, 
if 60 percent of the gross income is derived from one or more of 
the following classes of transactions— 
(A) purchasing or discounting accounts or notes receivable, 
or installment obligations evidenced or secured by contracts of 
conditional sale, chattel mortgages, or chattel lease agreements, 
arising out of the sale of goods or services in th6 course of the 
transferor's trade or business; 
(B) making loans, maturing in not more than 36 months, to, 
and for the business purposes of, persons engaged in trade or 
business, secured by— 
(i) accounts or notes receivable, or installment obligations, 
described in subpara^aph (A); 
(ii) warehouse receipts, bills of lading, trust receipts, chattel 
mortgages, bailments, or factor's liens, covering or evidencing 
the borrower's inventories; 
(iii) a chattel mortgage on property used in the borrower's 
trade or business; 
except loans to any single borrower which for more than 90 days 
in the taxable year of the company exceed 15 percent of the 
average funds employed by the company during such taxable 
year; 
(C) making loans, in accordance with the provisions of appli-
cable State law, secured by chattel mortgages on tangible personal 
property, the original amount of each of which is not less than 
the limit referred to in, or prescribed by, paragraph (6) (A), 
and the aggregate principal amount of which owing by any one 
borrower to the company at any time during the taxable year of 
the company does not exceed $5,000; and 
(D) if 30 percent or more of the gross income of the company 
is derived from one or more of the classes of transactions de-
scribed in subparagraphs (A), (B), and (C), purchasing, dis-
counting, or lending upon the security of, installment obligations 
of individuals where the transferor or borrower acquired such 
obligations either in transactions of the classes described in 
subparagraphs (A) and (C) or as a result of loans made by such 
transferor or borrower iu accordance with the provisions of sub-
paragraphs (A) and (B) of paragraph (6) or of subparagraphs (A) 
and (B) of paragraph (7) of this subsection, if the funds so supplied 
at all times bear an agreed ratio to the unpaid balance of the 
assigned installment obligations, and documents evidencing such 
obligations are held by the company; 
§ 542(c)(9)(D) 
49012°—54 
15 
186 
INTERNAL REVENUE CODE OF 1954 
provided that the deductions allowable under section 162 (relating 
to trade or business expenses), other than compensation for personal 
services rendered by shareholders (including members of the share-
holder's family as described in section 544 (a) (2)), constitute 15 
percent or more of the gross income, and that loans to a person who 
is a shareholder in such company during such taxable year by or for 
whom 10 percent or more in value of its outstanding stock is owned 
directly or indirectly (including, in the case of an individual, stock 
owned by members of his family as defined in section 544 (a) (2)), 
outstanding at any time during such year do not exceed $5,000 in 
principal amount; 
(10) a foreign corporation if— 
(A) its gross income from sources within the United States for 
the period specified in section 861 (a) (2) (B) is less than 50 per-
cent of its total gross income from all sources, and 
(B) all of its stock outstanding during the last half of the tax-
able year us owned by nonresident alien individuals, whether 
directly or indirectly through other foreign corporations. 
SEC. 543. PERSONAL HOLDING COMPANY INCOME. 
(a) GENERAL RULE.—For purposes of this subtitle, the term 
"personal holding company income" means the portion of the gross 
income which consists of: 
(1) DIVIDENDS, ETC.—Dividends, interest, royalties (other than 
mineral, oil, or gas royalties), and annuities. 
This paragraph 
shall not apply to interest constituting rent as defined in para-
graph (7) or to interest on amounts set aside in a reserve fund 
under section 511 or 607 of the Merchant Marine Act, 1936. 
(2) STOCK AND SECURITIES TRANSACTIONS.—Except in the case 
of regular dealers in stock or securities, gains from the sale or 
exchange of stock or securities. 
(3) COMMODITIES TRANSACTIONS,—Gains from futures transac-
tions in any commodity on or subject to the rules of a board of 
trade or commodity exchange. 
This paragraph shall not apply to 
gains by a producer, processor, merchant, or handler of the com-
modity which arise out of bona fide hedging transactions reasonably 
necessary to the conduct of its business in the manner in which such 
business is customarily and usually conducted by others. 
(4) ESTATES AND TRUSTS.—Amounts includible in computing 
the taxable income of the corporation under part I of subchapter J 
(sec. 641 and following, relating to estates, trusts, and beneficiaries); 
and gains from the sale or other disposition of any interest in an 
estate or trust. 
(5) PERSONAL SERVICE CONTRACTS.— 
(A) Amounts received under a contract under which the 
corporation is to furnish personal services; if some person other 
than the corporation has the right to designate (by name or by 
description) the individual who is to perform the services, or if 
the individual who is to perform the services is designated (by 
name or by description) in the contract; and 
(B) amounts received from the sale or other disposition of 
such a contract. 
§ 542(c)(9) 
CH. 1 
NORMAL TAXES AND SURTAXES 
187 
This paragraph shall apply with respect to amounts received for 
services under a particular contract only if at some time during 
the taxable year 25 percent or more in value of the outstanding 
stock of the corporation is owned, directly or indirectly, by or for 
the individual who has performed, is to perform, or may be desig-
nated (by name or by description) as the one to perform, such 
' 
services. 
(6) U S E OF COEPORATION PROPERTY BY SHAREHOLDER.—Amounts 
^ received as compensation (however designated and from whomso-
ever received) for the use of, or right to use, property of the cor-
poration in any case where, at any time during the taxable year, 
: 25 percent or more in value of the outstanding stock of the cor-
poration is owned, directly or indirectly, by or for an individual 
entitled to the use of the property; whether such right is obtained 
directly from the corporation or by means of a sublease or other 
arrangement. 
This paragraph shall apply only to a corporation 
which has personal holding company income for the taxable year, 
computed without regard to this paragraph and paragraph (7), in 
excess of 10 percent of its gross income. 
(7) RENTS.—Rents, unless constituting 50 percent or more of 
the gross income. 
For purposes of this paragraph, the term 
"rents" means compensation, however designated, for the use of, 
or right to use, property, and the interest on debts owed to the 
corporation, to the extent such debts represent the price for which 
. real property held primarily for sale to customers in the ordinary 
course of its trade or business was sold or exchanged by the corpora-
tion; but does not include amounts constituting personal holding 
company income under paragraph (6). 
(8) MINERAL, OIL, OR GAS ROYALTIES.—Mineral, oil, 
or 
gas 
royalties, unless— 
(A) such royalties constitute 50 percent or more of the gross 
income, and 
(B) the deductions allowable under section 162 (relating to trade 
or business expenses) other than compensation for personal serv-
ices rendered by the shareholders, constitute 15 percent or more 
of the gross income. 
(b) LIMITATION ON GROSS INCOME IN CERTAIN TRANSACTIONS.— 
For purposes of this part— 
(1) gross income and personal holding company income deter-
mined with respect to transactions described in section 543 (a) (2) 
(relating to gains from stock and security transactions) shall include 
only the excess of gains over losses from such transactions, and 
(2) gross income and personal holding company income deter-
mined with respect to transactions described in section 543 (a) (3) 
(relating to gains from commodity transactions) shall include only 
the excess of gains over losses from such transactions. 
(c) GROSS INCOME OF INSURANCE COMPANIES OTHER THAN L I F E 
OR MUTUAL.—In the case of an insurance company other than life 
or mutual, the term "gross income" as used in this part means the 
gross income, as defined in section 832 (b) (1), increased by the amount 
of losses incurred, as defined in section 832 (b) (5), and the amount of 
expenses incurred, as defined in section 832 (b) (6), and decreased by 
§ 543(c) 
188 
INTERNAL REVENUE CODE OF 
1954 
the amount deductible under section 832 (c) (7) (relating to tax-free 
interest). 
SEC. 544. RULES FOR DETERMINING STOCK OWNERSHIP. 
(a) CONSTRUCTIVE 
OWNERSHIP.—For purposes of determining 
whether a corporation is a personal holding company, insofar as such 
determination is based on stock ownership under section 542 (a) (2), 
section 543 (a) (5), or section 543 (a) (6)— 
(1) STOCK NOT OWNED BY INDIVIDUAL.—Stock owned, directly 
or indirectly, by or for a corporation, partnership, estate, or trust 
shall be considered as being owned proportionately by its share-
holders, partners, or beneficiaries. 
(2) FAMILY AND PARTNERSHIP OWNERSHIP.—An individual shall 
be considered as owning the stock owned, directly or indirectly, by 
or for his family or by or for his partner. 
For purposes of this 
paragraph, the ifamily of an individual includes only his brothers 
and sisters (whether by the whole or half blood), spouse, ancestors, 
and lineal descendants. 
(3) OPTIONS.—If any person has an option to acquire stock, such 
stock shall be considered as owned by such person. 
For purposes 
of this paragraph, an option to acquire such an option, and each 
one of a series of such options, shall be considered as an option to 
acquire such stock. 
(4) APPLICATION OF FAMILY-PARTNERSHIP AND OPTION RULES.— 
Paragraphs (2) and (3) shall be applied— 
(A) for purposes of the stock ownership requirement provided 
in section 542 (a) (2), if, but only if, the effect is to make the 
corporation a personal holding company; 
(B) for purposes of section 543 (a) (5) (relating to personal 
service contracts), or of section 543 (a) (6) (relating to the use of 
property by shareholders), if, but only if, the effect is to make the 
amounts therein referred to includible under such paragraph as 
personal holding company income. 
(5) CONSTRUCTIVE OWNERSHIP AS ACTUAL OWNERSHIP.—Stock 
constructively owned by a person by reason of the application of 
paragraph (1) or (3) shall, for purposes of applying paragraph 
(1) or (2), be treated as actually owned by such person; but stock 
constructively owned by an individual by reason of the application 
of paragraph (2) shall not be treated as owned by him for purposes 
of again applying such paragraph in order to make another the 
constructive owner of such stock. 
(6) OPTION RULE IN LIEU OF FAMILY AND PARTNERSHIP RULE.— 
If stock may be considered as owned by an individual under either 
paragraph (2) or (3) it shall be considered as owned by him under 
paragraph (3). 
(b) CONVERTIBLE SECURITIES.—Outstanding securities convertible 
into stock (whether or not convertible during the taxable year) shall 
be considered as outstanding stock— 
(1) for purposes of the stock ownership requirement provided 
in section 542 (a) (2), but only if the effect of the inclusion of all 
such securities is to make the corporation a personal holding com-
§ 543(c) 
. 
CH. 1—NORMAL TAXES AND SURTAXES 
189 
(2) for purposes of section 543 (a) (5) (relating to personal service 
contracts), but only if the effect of the inclusion of all such securities 
is to make the amounts therein referred to includible under such 
paragraph as personal holding company income; and 
(3) for purposes of section 543 (a) (6) (relating to the use of 
property by shareholders), but only if the effect of the inclusion of 
all such securities is to make the amounts therein referred to includ-
ible under such paragraph as personal holding company income. 
The requirement in paragraphs (1), (2), and (3) that all convertible 
securities must be included if any are to be included shall be subject 
to the exception that, where some of the outstanding securities are 
convertible only after a later date than in the case of others, the class 
having the earlier conversion date may be included although the others 
are not included, but no convertible securities shall be included unless 
all outstanding securities having a prior conversion date are also 
included. 
SEC. 545. UNDISTRIBUTED PERSONAL HOLDING COMPANY INCOME. 
(a) DEFINITION.—For purposes of this part, the term "undis-
tributed personal holding company income" means the taxable 
income of a personal holding company adjusted in the manner 
provided in subsection (b), minus the dividends paid deduction as 
defined in section 561. 
(b) ADJUSTMENTS TO TAXABLE INCOME.—For the purposes of sub-
section (a), the taxable income shall be adjusted as follows: 
(1) TAXES.—There shall be allowed as a deduction Federal in-
come and excess profits taxes (other than the excess profits tax 
imposed by subchapter E of chapter 2 of the Internal Kevenue 
Code of 1939 for taxable years beginning after December 31, 1940) 
and income, war profits and excess profits taxes of foreign countries 
and possessions of the United States (to the extent not allowable as a 
deduction under section 164 (b) (6)), accrued during the taxable year, 
but not including the accumulated earnings tax imposed by section 
531, the personal holding company tax imposed by section 541, 
or the taxes imposed by corresponding sections of a prior income 
tax law. 
A taxpayer which, for each taxable year in which it was 
subject to the tax imposed by section 500 of the Internal Revenue 
Code of 1939, deducted Federal income and excess profits taxes 
when paid for the purpose of computing subchapter A net income 
under such Code, shall deduct taxes under this paragraph when 
paid, unless the taxpayer elects, in its return for a taxable year 
ending after June 30, 1954, to deduct the taxes described in this 
paragraph when accrued. 
Such an election shaU be irrevocable 
and shall apply to the taxable year for which the election is made 
and to all subsequent taxable years. 
(2) CHARITABLE CONTRIBUTIONS.—The deduction for charitable 
contributions provided under section 170 shall be allowed but with 
the limitations in section 170 (b) (1) (A) and (B) (in lieu of the 
limitation in section 170 (b) (2)). For purposes of this paragraph, 
the term "adjusted gross income" when used in section 170 (b) (1) 
means the taxable income computed with the adjustments provided 
in section 170 (b) (2) and without the deduction of the amount 
disallowed under paragraph (8) of this subsection. 
§ 545(b)(2) 
190 
INTERNAL REVENUE CODE OF 
1954 
(3) SPECIAL DEDUCTIONS DISALLOWED.—The special deductions 
for corporations provided in part VIII (except section 248) of sub-
chapter B (section 241 and following, relating to the deduction 
for dividends received by corporations, etc.) shall not be allowed. 
(4) N E T OPERATING LOSS.—The net operating loss deduction 
provided in section 172 shall not be allowed, but there shall be 
allowed as a deduction the amount of the net operating loss (as 
defined in section 172 (c)) for the preceding taxable year. 
(5) LONG-TERM CAPITAL GAINS,—There shall be allowed as a 
deduction the excess of the net long-term capital gain for the tax-
able year over the net short-term capital loss for such year, minus 
the taxes imposed by this subtitle attributable to such excess. The 
taxes attributable to such excess shall be an amount equal to the 
difference between—• 
(A) the taxes imposed by this subtitle (except the tax imposed 
by this part) for such year, and 
(B) such taxes computed for such year without including such 
excess in taxable income. 
(6) BANK AFFILIATES.—There shall be allowed the deduction 
described in section 601 (relating to bank affiliates). 
(7) PAYMENT OP INDEBTEDNESS INCURRED PRIOR TO JANUARY l, 
1934.—There shall be allowed as a deduction amounts used or irrev-
ocably set aside to pay or to retire indebtedness of any kind 
incurred before January 1, 1934, if such amounts are reasonable 
with reference to the size and terms of such indebtedness. 
(8) EXPENSES AND DEPRECIATION APPLICABLE TO PROPERTY OP 
THE TAXPAYER.—The aggregate of the deductions allowed under 
section 162 (relating to trade or business expenses) and section 167 
(relating to depreciation), which are allocable to the operation and 
maintenance of property owned or operated by the corporation, 
shall be allowed only in an amount equal to the rent or other com-
pensation received for the use of, or the right to use, the property, 
unless it is established (under regulations prescribed by the Sec-
retary or his delegate) to the satisfaction of the Secretary or his 
delegate— 
(A) that the rent or other compensation received was the 
highest obtainable, or, if none was received, that none was 
obtainable; 
(B) that the property was held in the course of a business 
carried on bona fide for profit; and 
(C) either that there was reasonable expectation that the opera-
tion of the property would result in a profit, or that the property 
was necessary to the conduct of the business. 
(9) AMOUNT OF A LIEN IN FAVOR OF THE UNITED STATES.— 
There shall be allowed as a deduction the amount, not to exceed 
the taxable income of the taxpayer, of any lien in favor of the 
United States (notice of which has been filed as provided in section 
6323 (a) (1), (2), or (3)) to which the taxpayer is subject at the 
close of the taxable year. The sum of the amounts deducted 
under this paragraph with respect to any lien shall, for the purposes 
of this section, be added to the taxable income of the taxpayer for 
545(b)(3) 
CH. 1 
NORMAL TAXES AND SURTAXES 
191 
the taxable year in which such Hen is satisfied or released. 
Where 
an amount is added to the taxable income of a corporation by 
reason of the preceding sentence of this paragraph, the shareholders 
of the corporation may, pursuant to regulations prescribed by the 
Secretary or his delegate, elect to compute the income tax with 
respect to such dividends as are attributable to such amount as 
though they were received ratably over the period the lien was in 
effect, 
SEC. 546. INCOME NOT PLACED ON ANNUAL BASIS. 
Section 443 (b) (relating to computation of tax on change of annual 
accounting period) shall not apply in the computation of the personal 
holding company tax imposed by section 541. 
SEC. 547. DEDUCTION FOR DEFICIENCY DIVIDENDS. 
(a) GENERAL KULE.—If a determination (as defined in subsection 
(c)) with respect to a taxpayer establishes liability for personal holding 
company tax imposed by section 541 (or by a corresponding provision 
of a prior income tax law) for any taxable year, a deduction shall be 
allowed to the taxpayer for the amount of deficiency dividends (as 
defined in subsection (d)) for the purpose of determining the personal 
holding company tax for such year, but not for the purpose of deter-
mining interest, additional amounts, or assessable penalties computed 
with respect to such personal holding company tax. 
(b) RULES FOR APPLICATION OF SECTION.— 
(1) ALLOWANCE OF DEDUCTION.—The deficiency dividend deduc-
tion shall be allowed as of the date the claim for the deficiency 
dividend deduction is filed. 
(2) CREDIT OR REFUND.—If the allowance of a deficiency dividend 
deduction results in an overpayment of personal holding company 
tax for any taxable year, credit or refund with respect to such over-
payment shall be made as if on the date of the determination 2 years 
remained before the expiration of the period of limitation on the 
filing of claim ior refund for the taxable year to which the overpay-
ment relates. 
No interest shall be allowed on a credit or refund 
arising from the application of this section. 
(c) DETERMINATION.—For purposes of this section, the term 
"determination" means— 
(1) a decision by the Tax Court or a judgment, decree, or other 
order by any court of competent jurisdiction, which has become 
final; 
(2) a closing agreement made under section 7121; or 
(3) under regulations prescribed by the Secretary or his delegate, 
an agreement signed by the Secretary or his delegate and by, or on 
behalf of, the taxpayer relating to the liability of such taxpayer for 
personal holding company tax. 
(d) DEFICIENCY DIVIDENDS.— 
(1) DEFINITION.—For purposes of this section, the term "defi-
ciency dividends" means the amount of the dividends paid by the 
corporation on or after the date of the determination and before 
filing claim under subsection (e), which would have been includible 
in the computation of the deduction for dividends paid under sec-
§ 547(d)(1) 
192 
INTERNAL REVENUE CODE OF 1954 
tidn 561 for the taxable year with respect to which the liabihty for 
personal holding company tax exists, if distributed during such tax-
able year. 
No dividends shall be considered as deficiency dividends 
for purposes of subsection (a) unless distributed within 90 days after 
the determination. 
(2) EFFECT ON DIVIDENDS PAID DEDUCTION.— 
(A) FOR TAXABLE YEAR IN WHICH PAID.—Deficiency dividends 
paid in any taxable year (to the extent of the portion thereof 
taken into account under subsection (a) in determining personal 
holding company tax) shall not be included in the amount of 
dividends paid for such year for purposes of computing the divi-
dends paid deduction for such year and succeeding years. 
(B) FOR PRIOR TAXABLE YEAR.—Deficiency dividends paid in 
any taxable year (to the extent of the portion thereof taken into 
account under subsection (a) in determining personal holding 
company tax) shall not be allowed for purposes of section 563 
(b) in the computation of the dividends paid deduction for the 
taxable year preceding the taxable year in which paid. 
(e) CLAIM REQUIRED.—No deficiency dividend deduction shall be 
allowed under subsection (a) unless (under regulations prescribed by 
the Secretary or his delegate) claim therefor is filed within 120 days 
after the determination. 
(f) SUSPENSION OF STATUTE OF LIMITATIONS AND STAY OF COL-
LECTION.— 
(1) SUSPENSION OF RUNNING OF STATUTE.^—If the corporation 
files a claim, as provided in subsection (e), the running of the 
statute of limitations provided in section 6501 on the making of 
assessments, and the bringing of distraint or a proceeding in court 
for collection, in respect of the deficiency and all interest, additional 
amounts, or assessable penalties, shall be suspended for a period 
of 2 years after the date of the determination. 
(2) STAY OF COLLECTION.—In the case of any deficiency with 
respect to the tax imposed by section 541 established by a deter-
mination under this section— 
(A) the collection of the deficiency and all interest, additional 
amounts, and assessable penalties shall, except in cases of jeop-
ardy, be stayed until the expiration of 120 days after the date 
of the determination, and 
(B) if claim for deficiency dividend deduction is filed under 
subsection (e), the collection of such part of the deficiency as is 
not reduced by the deduction for deficiency dividends provided 
in subsection (a) shall be stayed until the date the claim is dis-
allowed (in whole or in part), and if disallowed in part collection 
shall be made only with respect to the part disallowed. 
No distraint or proceeding in court shall be begun for the collection 
of an amount the collection of which is stayed under subparagraph 
(A) or (B) during the period for which the collection of such amount 
is stayed. 
(g) DEDUCTION DENIED IN CASE OF FRAUD, ETC.—No deficiency 
dividend deduction shall be allowed under subsection (a) if the deter-
mination contains a finding that any part of the deficiency is due to 
§ 547(d)(1) 
CH. 1 
NORMAL TAXES AND SURTAXES 
193 
fraud with intent to evade tax, or to wilful failure to file an income 
tax return within the time prescribed by law or prescribed by the 
Secretary or his delegate in pursuance of law. 
(h) EFFKCTIVE DATE.—Subsections (a) through (f), inclusive, shall 
apply only with respect to determinations made more than 90 days 
after the date of enactment of this title. 
If the taxable year with 
respect to which the deficiency is asserted began before January 1, 
1954, the term "deficiency dividend" includes only amounts which 
would have been includible in the computation under the Internal 
Revenue Code of 1939 of the basic surtax credit for such taxable year. 
Subsection (g) shall apply only if the taxable year with respect to 
which the deficiency is asserted begins after December 31, 1953. 
PART III—FOREIGN PERSONAL HOLDING COMPANIES 
Sec. 551. Foreign personal holding company income taxed to United 
States shareholders. 
Sec. 552. Definition of foreign personal holding company. 
Sec. 653. Foreign personal holding company income. 
Sec. 554. Stock ownership. 
Sec. 555. Gross income of foreign personal holding companies. 
Sec. 556. Undistributed foreign personal holding company income. 
Sec. 557. Income not placed on annual basis. 
SEC. 551. FOREIGN PERSONAL HOLDING COMPANY INCOME TAXED 
TO UNITED STATES SHAREHOLDERS. 
(a) GENERAL RULE.—The undistributed foreign personal holding 
company income of a foreign personal holding company shall be 
included in the gross income of the citizens or residents of the United 
States, domestic corporations, domestic partnerships, and estates or 
trusts (other than estates or trusts the gross income of which under 
this subtitle includes only income from sources within the United 
States), who are shareholders in such foreign personal holding com-
pany (hereinafter called "United States shareholders") in the manner 
and to the extent set forth in this part. 
(b) AMOUNT INCLUDED IN GROSS INCOME.—Each United States 
shareholder, who was a shareholder on the day in the taxable year 
of the company which was the last day on which a United States 
group (as defined in section 552 (a) (2)) existed with respect to the 
company, shall include in his gross income, as a dividend, for the 
taxable year in which or with which the taxable year of the company 
ends, the amount he would have received as a dividend if on such 
last day there had been distributed by the company, and received by 
the shareholders, an amount which bears the same ratio to the undis-
tributed foreign personal holding company income of the company for 
the taxable year as the portion of such taxable year up to and including 
such last day bears to the entire taxable year. 
(c) DEDUCTION FOR OBLIGATIONS OF UNITED STATES AND ITS 
INSTRUMENTALITIES.—Each United States shareholder shall take into 
account in determining his income tax his proportionate share of 
partially tax-exempt interest on obligations described in section 35 or 
242 which is included in the gross income of the company otherwise 
than by the application of the provisions of section 555 (b) (relating 
to the inclusion in the gross income of a foreign personal holding 
§ 551(c) 
194 
INTERNAL REVENUE CODE OF 1954 
company of its distributive share of the undistributed foreign personal 
holding company income of another foreign personal holding company 
in which it is a shareholder). 
If the foreign personal holding company 
elects under section 171 to amortize the premiums on such obligations, 
for purposes of the preceding sentence each United States shareholder's 
proportionate share of such interest received by the foreign personal 
holding company shall be his proportionate share of such interest 
(determined without regard to this sentence) reduced by so much of 
the deduction under section 171 as is attributable to such share. 
(d) INFORMATION IN RETURN.—Every United States shareholder 
who is required under subsection (b) to include in his gross income 
any amount with respect to the undistributed foreign personal holding 
company income of a foreign personal holding company and who, on 
the last day on which a United States group existed with respect to the 
company, owned 5 percent or more in value of the outstanding stock 
of such company, shall set forth in his return in complete detail the 
gross income, deductions and credits, taxable income, foreign personal 
holding company, and undistributed foreign personal holding company 
income of such company. 
(e) EFFECT ON CAPITAL ACCOUNT OF FOREIGN PERSONAL HOLDING 
COMPANY.—An amount which bears the same ratio to the undistrib-
uted foreign personal holding company income of the foreign personal 
holding company for its taxable year as the portion of such taxable 
year up to and including the last day on which a United States group 
existed with respect to the company bears to the entire taxable year, 
shall, for the purpose of determining the effect of distributions in 
subsequent taxable years by the corporation, be considered as paid-in 
surplus or as a contribution to capital, and the accumulated earnings 
and profits as of the close of the taxable year shall be correspondingly 
reduced, if such amount or any portion thereof is required to be 
included as a dividend, directly or indirectly, in the gross income of 
United States shareholders, 
(f) BASIS OF STOCK IN HANDS OF SHAREHOLDERS.—The amount 
required to be included in the gross income of a United States share-
holder under subsection (b) shall, for the purpose of adjusting the 
basis of his stock with respect to which the distribution would have 
been made (if it had been made), be treated as having been reinvested 
by the shareholder as a contribution to the capital of the corporation; 
but only to the extent to which such amount is included in his gross 
income in his return, increased or decreased by any adjustment of 
such amount in the last determination of the shareholder's tax lia-
bility, made before the expiration of 6 years after the date prescribed 
by law for filing the return. 
(g) CROSS REFERENCES.— 
(1) For basis of stock or securities in a foreign personal holding com-
pany acquired from a decedent, see section 1014 (b) (5). 
(2) For period of limitation on assessment and collection without 
assessment, in case of failure to include in gross income the amount 
properly includible therein under subsection (b), see section 6501. 
(3) For treatment of gain on liquidation of certain foreign personal 
holding companies, see section 342. 
1551(c) 
CH. 1—NORMAL TAXES AND SURTAXES 
195 
SEC. 552. DEFINITION OF FOREIGN PERSONAL HOLDING COMPANY. 
(a) GENERAL RULE.—For purposes of this subtitle, the term 
"foreign personal holding company" means any foreign corporation 
if— 
(1) GROSS INCOME REQUIREMENT.—At least 60 percent of its 
gross income (as defined in section 555 (a)) for the taxable year 
is foreign personal holding company income as defined in section 
i; 553; but if the corporation is a foreign personal holding company 
with respect to any taxable year ending after August 26, 1937, 
^,. then, for each subsequent taxable year, the minimum percentage 
shall be 50 percent in lieu of 60 percent, until a taxable year 
during the whole of which the stock ownership required by para-
graph (2) does not exist, or until the expiration of three consecutive 
taxable years in each of which less than 50 percent of the gross 
income is foreign personal holding company income. 
For purposes 
of this paragraph, there shall be included in the gross income the 
amount includible therein as a dividend by reason of the applica-
tion of section 555 (c) (2); and 
(2) STOCK OWNERSHIP REQUIREMENT.—At any time during the 
taxable year more than 50 percent in value of its outstanding 
stock is owned, directly or indirectly, by or for not more than five 
individuals who are citizens or residents of the United States, 
hereinafter called "United States group". 
(b) EXCEPTIONS.—The term "foreign personal holding company" 
does not include— 
(1) a corporation exempt from tax under subchapter F (sec. 501 
and following); and 
(2) a corporation organized and doing business under the bank-
ing and credit laws of a foreign country if it is established (annually 
or at other periodic intervals) to the satisfaction of the Secretary 
or his delegate that such corporation is not formed or availed of 
for the purpose of evading or avoiding United States income taxes 
which would otherwise be imposed upon its shareholders. 
If the 
Secretary or his delegate is satisfied that such corporation is not so 
formed or availed of, he shall issue to such corporation annually 
or at other periodic intervals a certification that the corporation is 
not a foreign personal holding company. 
Each United States shareholder of a foreign corporation which would, 
except for the provisions of paragraph (2), be a foreign personal 
holding company, shall attach to and file with his income tax return for 
the taxable year a copy of the certification by the Secretary or his 
delegate made pursuant to paragraph (2). 
Such copy shall be filed 
with the taxpayer's return for the taxable year if he has been a share-
holder of such corporation for any part of such year. 
SEC. 553. FOREIGN PERSONAL HOLDING COMPANY 
INCOME. 
For purposes of this subtitle, the term "foreign personal holding 
company income" means the portion of the gross income, determined 
for purposes of section 552, which consists of personal holding com-
pany income, as defined in section 543, except that all interest, whether 
or not treated as rent, and all royalties, whether or not mineral, oil, 
or gas royalties, shall constitute "foreign personal holding company 
income". 
§ 563 
WQ 
INTERNAL REVENUE CODE OF 1954 > 
SEC. 554. STOCK 
OWNERSHIP. 
For purposes of determining whether a foreign corporation is a 
foreign personal holding company, insofar as such determination is 
based on stock ownership, the rules provided in section 544 shall be 
applicable as if any reference in such section to a personal holding 
company was a reference to a foreign personal holding company and 
as if any reference in such section to a provision of part II (relating 
to personal holding companies) was a reference to the corresponding 
provision of this part. 
SEC. 555. GROSS INCOME OF FOREIGN PERSONAL HOLDING 
COM-
PANIES. 
(a) GENERAL RULE.—For purposes of this part, the term "gross 
income" means, with respect to a foreign corporation, gross income 
computed (without regard to the provisions of subchapter N (sec. 861 
and following)) as if the foreign corporation were a domestic corpora-
tion which is a personal holding company. 
(b) ADDITIONS TO GROSS INCOME.—In the case of a foreign personal 
holding company (whether or not a United States group, as defined 
in section 552 (a) (2), existed with respect to such company on the 
last day of its taxable year) which was a shareholder in another 
foreign personal holding company on the day in the taxable year of the 
second company which was the last day on which a United States 
group existed with respect to the second company, there shall be in-
cluded,, as a dividend, in the gross income of the first company, for the 
taxable year in which or with which the taxable year of the second 
company ends, the amount the first company would have received as 
a dividend if on such last day there had been distributed by the second 
company, and received by the shareholders, an amount which bears 
the same ratio to the undistributed foreign personal holding company 
income of the second company for its taxable year as the portion of 
such taxable year up to and including such last day bears to the 
entire taxable year. 
(c) APPLICATION OF SUBSECTION (b).—The rule provided in sub-
section (b)— 
(1) shall be applied in the case of a foreign personal holding com-
pany for the purpose of determining its undistributed foreign per-
sonal holding company income which, or a part of which, is to be 
included in the gross income of its shareholders, whether United 
States shareholders or other foreign personal holding companies; 
(2) shall be applied in the case of every foreign corporation with 
respect to which a United States group exists on some day of its 
taxable year, for the purpose of determining whether such corpora-
tion meets the gross income requirements of section 552 (a) (1). 
SEC. 556. UNDISTRIBUTED FOREIGN PERSONAL HOLDING COMPANY 
INCOME. 
(a) DEFINITION.—For purposes of this part, the term "undistrib-
uted foreign personal holding company income" means the taxable 
income of a foreign personal holding company adjusted in the manner 
provided in subsection (b), minus the dividends paid deduction (as 
defined in section 561). 
(b) ADJUSTMENTS TO TAXABLE INCOME.—For the purposes of sub-
section (a), the taxable income shall be adjusted as follows: 
§ 554 
CH. 1 
NORMAL TAXES AND SURTAXES 
197 
(1) TAXES.—There shall be allowed as a deduction Federal 
income and excess profits taxes (other than the excess profits tax 
imposed by subchapter E of chapter 2 of the Internal Revenue 
Code of 1939 for taxable years beginning after December 31, 1940) 
and income, war profits, and excess-profits taxes of foreign countries 
and possessions of the United States (to the extent not allowable as a 
deduction under section 164 (b) (6)), accrued during the taxable 
year, but not including the accumulated earnings tax imposed by 
section 531, the personal holding company tax imposed by section 
541, or the taxes imposed by corresponding sections of a prior income 
tax law. A taxpayer which, for each taxable year in which it was 
subject to the provisions of supplement P of the Internal Revenue 
Code of 1939, deducted Federal income and excess profits taxes 
when paid for the purpose of computing undistributed supplement P 
net income under such code, shall deduct taxes under this paragraph 
when paid, unless the corporation elects, under regulations pre-
scribed by the Secretary or his delegate, after the date of enact-
ment of this title to deduct the taxes described in this paragraph 
when accrued. 
Such election shall be irrevocable and shall apply 
to the taxable year for which the election is made and to all sub-
sequent taxable years. 
(2) CHAEITABLE CONTRIBUTIONS.—The deduction for charitable 
contributions provided under section 170 shall be allowed, but with 
the limitation in section 170 (b) (1) (A) and (B) (in lieu of the 
limitation in section 170 (b) (2)). For purposes of this paragraph, 
the term "adjusted gross income" when used in section 170 (b) (1) 
means the taxable income computed with the adjustments provided 
in section 170 (b) (2) and without the deduction of the amounts 
disallowed under paragraphs (5) and (6) of this subsection or the 
inclusion in gross income of the amounts includible therein as divi-
dends by reason of the application of the provisions of section 
555 (b) (relating to the inclusion in gross income of a foreign per-
sonal holding company of its distributive share of the undistributed 
foreign personal holding company income of another company in 
which it is a shareholder). 
(3) SPECIAL DEDUCTIONS DISALLOWED.—The special deductions 
for corporations provided in part VIII (except sections 242 and 248) 
of subchapter B (section 241 and following, relating to the deduc-
tion for dividends received by corporations, etc.) shall not be 
allowed. 
(4) N E T OPERATING LOSS.—The net operating loss deduction pro-
vided in section 172 shall not be allowed, but there shall be allowed 
as a deduction the amount of the net operating loss (as defined in 
section 172 (c)) for the preceding taxable year. 
(5) EXPENSES AND DEPRECIATION APPLICABLE TO PROPERTY OF 
THE TAXPAYER,—The aggregate of the deductions allowed under 
section 162 (relating to trade or business expenses) and section 167 
(relating to depreciation) which are allocable to the operation and 
maintenance of property owned or operated by the company, shall 
be allowed only in an amount equal to the rent or other compensa-
tion received for the use of, or the right to use, the property, unless 
it is established (under regulations prescribed by the Secretary or 
his delegate) to the satisfaction of the Secretary or his delegate— 
§ 556(b)(5) 
198 
INTERNAL REVENUE CODE OF 1954 
' 
(A) that the rent or other compensation received was the 
highest obtainable, or, if none was received, that none was 
obtainable; 
(B) that the property was held in the course of a business 
carried on bona fide for profit; and 
(C) either that there was reasonable expectation that the 
operation of the property would result in a profit, or that the 
property was necessary to the conduct of the business. 
(6) TAXES AND CONTRIBUTIONS TO PENSION TRUSTS.—The deduc-
tions provided in section 164 (e) (relating to taxes of a shareholder 
paid by the corporation) and in section 404 (relating to pension, 
etc., trusts) shall not be allowed. 
SEC. 557. INCOME NOT PLACED ON ANNUAL BASIS. 
Section 443 (b) (relating to computation of tax on change of annual 
accounting period) shall not apply in the computation of the undis-
tributed foreign personal holding company income under section 556. 
PART IV—DEDUCTION FOR DIVIDENDS PAID 
Sec. 661. Definition of deduction for dividends paid. 
Sec. 562. Rules applicable in determining dividends eligible for 
dividends paid deduction. 
Sec. 563. Rules relating to dividends paid after close of taxable 
year. 
Sec. 564. Dividend carryover. 
Sec. 565. Consent dividends. 
SEC. 561. DEFINITION OF DEDUCTION FOR DIVIDENDS PAID. 
(a) GENERAL RULE.—The deduction for dividends paid shall be 
the sum of— 
(1) the dividends paid during the taxable year, 
(2) the consent dividends for the taxable year (determined under 
section 565), and 
(3) in the case of a personal holding company, the dividend 
carryover described in section 564. 
(b) SPECIAL RULES APPLICABLE.—In determining the deduction for 
dividends paid, the rules provided in section 562 (relating to rules 
applicable in determining dividends eligible for dividends paid deduc-
tion) and section 563 (relating to dividends paid after the close of the 
taxable year) shall be applicable. 
SEC. 562. RULES APPLICABLE IN DETERMINING DIVIDENDS ELIGIBLE 
FOR DIVIDENDS PAID DEDUCTION. 
(a) GENERAL RULE.—For purposes of this part, the term "divi-
dend" shall, except as otherwise provided in this section, include 
only dividends described in section 316 (relating to definition of 
dividends for purposes of corporate distributions). 
(b) DISTRIBUTIONS IN LIQUIDATION.—In the case of amounts 
distributed in liquidation, the part of such distribution which is 
properly chargeable to earnings and profits accumulated after Febru-
ary 28, 1913, shall be treated as a dividend for purposes of computing 
the dividends paid deduction. 
In the case of a complete liquidation 
occurring within 24 months after the adoption of a plan of liquidation, 
any distribution within such period pursuant to such plan shall, to 
§ 556(b) (5) (A) 
C S . 1—NORMAL TAXES AND SURTAXES 
199 
the extent of the earnings and profits (computed without regard to 
capital losses) of the corporation for the taxable year in which such 
distribution is made, be treated as a dividend for purposes of comput-
ing the dividends paid deduction. 
(c) PREFERENTIAL DIVIDENDS.—The amount of any distribution 
shall not be considered as a dividend for purposes of computing the 
dividends paid deduction, unless such distribution is pro rata, with no 
preference to any share of stock as compared with other shares of the 
same class, and with no preference to one class of stock as compared 
with another class except to the extent that the former is entitled 
(without reference to waivers of their rights by shareholders) to such 
preference. 
(d) DISTRIBUTIONS BY A MEMBER OF AN AFFILIATED GROUP.—In 
the case where a corporation which is a member of an affiliated group 
of corporations filing or required to file a consolidated return for a 
taxable year is required to file a separate personal holding company 
schedule for such taxable year, a distribution by such corporation 
to another member of the affiliated group shall be considered as a 
dividend for purposes of computing the dividends paid deduction if 
such distribution would constitute a dividend under the other provi-
sions of this section to a recipient which is not a member of an 
affiliated group. 
SEC. 563. RULES RELATING TO DIVIDENDS PAID AFTER CLOSE OF 
TAXABLE YEAR. 
(a) ACCUMULATED EARNINGS TAX.—In the determination of the 
dividends paid deduction for purposes of the accumulated earnings 
tax imposed by section 531, a dividend paid after the close of any 
taxable year and on or before the 15th day of the third month following 
the close of such taxable year shall be considered as paid during such 
taxable year. 
(b) PERSONAL HOLDING COMPANY TAX.—In the determination of 
the dividends paid deduction for purposes of the personal holding 
company tax imposed by section 541, a dividend paid after the close 
of any taxable year and on or before the 15th day of the third month 
following the close of such taxable year shall, to the extent the tax-
payer elects in its return for the taxable year, be considered as paid 
diu-ing such taxable year. The amount allowed as a dividend by reason 
of the application of this subsection with respect to any taxable year 
shall not exceed either— 
(1) The undistributed personal holding company income of the 
corporation for the taxable year, computed without regard to this 
subsection, or 
(2) 10 percent of the sum of the dividends paid during the 
taxable year, computed without regard to this subsection. 
(c) DIVIDENDS CONSIDERED AS PAID ON LAST DAY OF TAXABLE 
YEAR.—For the purpose of applying section 562 (a), with respect to 
distributions under subsection (a) or (b) of this section, a distribution 
made after the close of a taxable year and on or before the 15th day 
of the third month following the close of the taxable year shall be 
considered as made on the last day of such taxable year. 
§ 563(c) 
200 
INTERNAL REVENUE CODE OF 1954 i 
SEC. 564. DIVIDEND CARRYOVER. 
(a) GENERAL RULE.—For purposes of computing the dividends 
paid deduction under section 561, in the case of a personal holding 
company the dividend carryover for any taxable year shall be the 
dividend carryover to such taxable year, computed as provided in 
subsection (b), from the two preceding taxable years. 
(b) COMPUTATION OF DIVIDEND CARRYOVER.—The dividend carry-
over to the taxable year shall be determined as follows: 
(1) For each of the 2 preceding taxable years there shall be 
determined the taxable income computed with the adjustments 
provided in section 545 (whether or not the taxpayer was a personal 
holding company for either of such preceding taxable years), and 
there shall also be determined for each such year the deduction for 
dividends paid during such year as provided in section 561 (but 
determined without regard to the dividend carryover to such 
year). 
(2) There shall be determined for each such taxable year whether 
there is an excess of such taxable income over such deduction for 
dividends paid or an excess of such deduction for dividends paid 
over such taxable income, and the amount of each such excess. 
(3) If there is an excess of such deductions for dividends paid 
over such taxable income for the first preceding taxable year, such 
excess shall be allowed as a dividend carryover to the taxable year. 
(4) If there is an excess of such deduction for dividends paid over 
such taxable income for the second preceding taxable year, such 
excess shall be reduced by the amount determined in paragraph 
(5), and the remainder of such excess shall be allowed as a dividend 
carryover to the taxable year. 
(5) The amount of the reduction specified in paragraph (4) shall 
be the amount of the excess of the taxable income, if any, for the 
first preceding taxable year over such deduction for dividends 
paid, if any, for the first preceding taxable year. 
(c) DETERMINATION OF DIVIDEND CARRYOVER FROM TAXABLE 
YEARS TO WHICH THIS SUBTITLE DOES NOT APPLY.—In a case where 
the first or second preceding taxable year began before the taxpayer's 
first taxable year under this subtitle, the amount of the dividend 
carryover to taxable years to which this subtitle applies shall be 
determined under the provisions of the Internal Revenue Code of 1939. 
SEC. 565. CONSENT DIVIDENDS. 
(a) GENERAL RULE.—If any person owns consent stock (as defined 
in subsection (f) (1)) in a corporation on the last day of the taxable 
year of such corporation, and such person agrees, in a consent filed 
with the return of such corporation in accordance with regulations 
prescribed by the Secretary or his delegate, to treat as a dividend the 
amount specified in such consent, the amount so specified shall, 
except as provided in subsection (b), constitute a consent dividend for 
purposes of section 561 (relating to the deduction for dividends paid). 
(b) LIMITATIONS.—A consent dividend shall not include— 
(1) an amount specified in a consent which, if distributed in 
money, would constitute, or be part of, a distribution which would 
be disqualified for purposes of the dividends paid deduction under 
section 562 (c) (relating to preferential dividends), or 
§ 564 
CH. 1 
NORMAL TAXES AND SURTAXES 
201 
(2) an amount specified in a consent which would not constitute 
a dividend (as defined in section 316) if the total amounts specified 
in consents filed by the corporation had been distributed in money 
to shareholders on the last day of the taxable year of such corpora-
tion. 
(c) EFFECT OF CONSENT.—The amount of a consent dividend shall 
be considered, for purposes of this title— 
(1) as distributed in money by the corporation to the shareholder 
on the last day of the taxable year of the corporation, and 
(2) as contributed to the capital of the corporation by the share-
holder on such day. 
(d) CONSENT DIVIDENDS AND OTHER DISTRIBUTIONS.—If a dis-
tribution by a corporation consists in part of consent dividends and 
in part of money or other property, the entire amount specified in the 
consents and the amount of such money or other property shall be 
considered together for purposes of applying this title. 
(e) NONRESIDENT ALIENS AND FOREIGN CORPORATIONS.—In 
the 
case of a consent dividend which, if paid in money would be subject 
to the provisions of section 1441 (relating to withholding of tax on 
nonresident aliens) or section 1442 (relating to withholding of tax on 
foreign corporations), this section shall not apply unless the consent 
is accompanied by money, or such other medium of payment as the 
Secretary or his delegate may by regulations authorize, in an amount 
equal to the amount that would be required to be deducted and 
withheld under sections 1441 or 1442 if the consent dividend had been, 
on the last day of the taxable year of the corporation, paid to the 
shareholder in money as a dividend. 
The amount accompanying the 
consent shall be credited against the tax imposed by this subtitle on 
the shareholder. 
(f) DEFINITIONS.— 
(1) CONSENT STOCK.—Consent stock, for purposes of this section, 
means the class or classes of stock entitled, after the payment of 
preferred dividends, to a share in the distribution (other than in 
complete or partial liquidation) within the taxable year of all the 
remaining earnings and profits, which share constitutes the same 
proportion of such distribution regardless of the amount of such 
distribution. 
(2) PREFERRED DIVIDENDS.—Preferred dividends, for purposes 
of this section, means a distribution (other than in complete or 
partial liquidation), limited in amount, which must be made on 
any class of stock before a further distribution (other than in 
complete or partial liquidation) of earnings and profits may be 
made within the taxable year. 
§ 565(f) (2) 
49012°—54——16 
202 
INTERNAL REVENUE CODE OF 1954 
Subchapter H—^Banking Institutions 
Part 
I. Rules of general application to banking institutions. 
Part II. Mutual savings banks, etc. 
Part III. Bank affiliates. 
PART I—RULES OF GENERAL APPLICATION TO BANKING 
INSTITUTIONS 
Sec. 581. Definition of bank. 
Sec. 582. Bad debt and loss deduction with respect to securities 
held by banks. 
Sec. 583. Deductions of dividends paid on certain preferred stock. 
Sec. 684. Common trust funds. 
SEC. 581. DEFINITION OF BANK. 
For purposes of sections 582 and 584, the term "bank" means a bank 
or trust company incorporated and doing business under the laws of the 
United States (including laws relating to the District of Columbia), 
of any State, or of any Territory, a substantial part of the business of 
which consists of receiving deposits and making loans and discounts, 
or of exercising fiduciary powers similar to those permitted to national 
banks under section 11 (k) of the Federal Keserve Act (38 Stat. 262; 
12 U. S. C. 248 (k)), and which is subject by law to supervision and 
examination by State, Territorial, or Federal authority having super-
vision over banking institutions. 
Such term also means a domestic 
building and loan association. 
SEC. 582. BAD DEBT AND LOSS DEDUCTION WITH RESPECT TO 
SECURITIES HELD BY BANKS. 
(a) SECURITIES.—Notwithstanding sections 165 (g) (1) and 166 
(e), subsections (a), (b), and (c) of section 166 (relating to allowance 
of deduction for bad debts) shall apply in the case of a bank to a debt 
which is evidenced by a security as defined in section 165 (g) (2) (C). 
(b) WORTHLESS STOCK IN AFFILIATED BANK,—For purposes of 
section 165 (g) (1), where the taxpayer is a bank and owns directly 
at least 80 percent of each class of stock of another bank, stock in 
such other bank shall not be treated as a capital asset. 
(c) BOND, ETC.. LOSSES OF BANKS.—For purposes of this subtitle, 
in the case of a bank, if the losses of the taxable year from sales or 
exchanges of bonds, debentures, notes, or certificates, or other 
evidences of indebtedness, issued by any corporation (including one 
issued by a government or political subdivision thereof), with interest 
coupons or in registered form, exceed the gains of the taxable year 
from such sales or exchanges, no such sale or exchange shall be con-
sidered a sale or exchange of a capital asset. 
SEC. 583. DEDUCTIONS OF DIVIDENDS PAID ON CERTAIN PRE-
FERRED STOCK. 
In computing the taxable income of any national banking associa-
tion, or of any bank or trust company organized under the laws of 
§ 581 
CH. 1—NORMAL TAXES AND SURTAXES 
203 
any State, Territory, possession of the United States, or the Canal 
Zone, or of any other banking corporation engaged in the business of 
industrial banking and under the supervision of a State banking de-
partment or of the Comptroller of the Currency, or of any incorporated 
domestic insurance company, there shall be allowed as a deduction 
from gross income, in addition to deductions otherwise provided for 
in this subtitle, any dividend (not including any distribution in liqui-
dation) paid, within the taxable year, to the United States or to any 
instrumentality thereof exempt from Federal income taxes, on the 
preferred stock of the corporation owned by the United States or such 
instrumentality. 
The amount allowable as a deduction under this 
section shall reduce the deduction for dividends paid otherwise com-
puted under section 561. 
SEC. 584. COMMON TRUST FUNDS. 
(a) DEFINITIONS.—For purposes of this subtitle, the term "common 
trust fund" means a fund maintained by a bank— 
(1) exclusively for the collective investment and reinvestment 
of moneys contributed thereto by the bank in its capacity as a 
trustee, executor, administrator, or guardian; and 
(2) in conformity with the rules and regulations, prevailing from 
time to time, of the Board of Governors of the Federal Reserve 
System pertaining to the collective investment of trust funds by 
national banks. 
(b) TAXATION OF COMMON TRUST FUNDS.—A common trust fund 
shall not be subject to taxation under this chapter and for purposes 
of this chapter shall not be considered a corporation. 
(c) INCOME OF PARTICIPANTS IN FUND.— 
(1) INCLUSIONS IN TAXABLE INCOME.—Each participant in the 
common trust fund in computing its taxable income shall include, 
whether or not distributed and whether or not distributable— 
(A) as part of its gains and losses from sales or exchanges 
of capital assets held for not more than 6 months, its propor-
tionate share of the gains and losses of the common trust fund 
from sales or exchanges of capital assets held for not more than 
6 months; 
(B) as part of its gains and losses from sales or exchanges of 
capital assets held for more than 6 months, its proportionate 
share of the gains and losses of the common trust fund from sales 
or exchanges of capital assets held for more than 6 months; 
(C) its proportionate share of the ordinary taxable income or 
the ordinary net loss of the common trust fund, computed as 
provided in subsection (d). 
(2) DIVIDENDS AND PARTIALLY TAX EXEMPT INTEREST.—The 
proportionate share of each participant in the amount of dividends 
to which section 34 or section 116 applies, and in the amount of 
partially tax exempt interest on obligations described in section 35 
or section 242, received by the common trust fund shall be con-
sidered for purposes of such sections as having been received by 
such participant. 
If the common trust fund elects under section 
171 (relating to amortizable bond premium) to amortize the 
premium on such obligations, for purposes of the preceding sentence 
the proportionate share of the participant of such interest received 
§ 584(c)(2) 
204 
INTERNAL REVENUE CODE OF 1954 
by the common trust fund shall be his proportionate share of such 
interest (determined without regard to this sentence) reduced by 
so much of the deduction under section 171 as is attributable to 
such share. 
(d) COMPUTATION OF COMMON TRUST FUND INCOME.—The taxable 
income of a common trust fund shall be computed in the same manner 
and on the same basis as in the case of an individual, except that— 
(1) there shall be segregated the gains and losses from sales or 
exchanges of capital assets; 
(2) after excluding all items of gain and loss from sales or 
exchanges of capital assets, there shall be computed— 
(A) an ordinary taxable income which shall consist of the excess 
of the gross income over deductions; or 
(B) an ordinary net loss which shall consist of the excess of 
the deductions over the gross income; 
(3) the deduction provided by section 170 (relating to charitable, 
etc., contributions and gifts) shall not be allowed; and 
(4) the standard deduction provided in section 141 shall not 
be allowed. 
(e) ADMISSION AND WITHDRAWAL.—No gain or loss shall be realized 
by the common trust fund by the admission or withdrawal of a 
participant. 
The withdrawal of any participating interest by a par-
ticipant shall be treated as a sale or exchange of such interest by the 
participant. 
(f) DIFFERENT 
TAXABLE YEARS OF COMMON TRUST FUND AND 
PARTICIPANT.—If the taxable year of the common trust fund is differ-
ent from that of a participant, the inclusions with respect to the 
taxable income of the common trust fund, in computing the taxable 
income of the participant for its taxable year, shall be based upon 
the taxable income of the common trust fund for any taxable year of 
the common trust fund ending within or with the taxable year of the 
participant. 
(g) N E T OPERATING LOSS DEDUCTION.—The benefit of the deduc-
tion for net operating losses provided by section 172 shall not be 
allowed to a common trust fund, but shall be allowed to the par-
ticipants in the common trust fund under regulations prescribed by 
the Secretary or his delegate. 
PART II—MUTUAL SAVINGS BANKS, ETC. 
Sec. 691. Deduction for dividends paid on deposits. 
Sec. 592. Deduction for repayment of certain loans. 
Sec. 593. Additions to reserve for bad debts. 
Sec. 594. Alternative tax for mutual savings banks conducting life 
insurance business. 
SEC. 591. DEDUCTION FOR DIVIDENDS PAID ON DEPOSITS. 
In the case of mutual savings banks, cooperative banks, and 
domestic building and loan associations, there shall be allowed as 
deductions in computing taxable income amounts paid to, or credited 
to the accounts of, depositors or holders of accounts as dividends on 
their deposits or withdrawable accounts, if such amounts paid or 
credited are withdrawable on demand subject only to customary 
notice of intention to withdraw. 
§ 584(c)(2) 
CH. 1—NORMAL TAXES AND SURTAXES 
205 
SEC. 592. DEDUCTION FOR REPAYMENT OF CERTAIN LOANS. 
In the case of a mutual savings bank not having capital stock 
represented by shares, a domestic building and loan association, or a 
cooperative bank without capital stock organized and operated for 
mutual purposes and without profit, there shall be allowed as deduc-
tions in computing taxable income amounts paid by the taxpayer 
during the taxable year in repayment of loans made before September 
1, 1951, by (1) the United States or any agency or instrumentality 
thereof which is wholly owned by the United States, or (2) any mutual 
fund established under the authority of the laws of any State. 
SEC. 593. ADDITIONS TO RESERVE FOR BAD DEBTS. 
In the case of a mutual savings bank not having capital stock repre-
sented by shares, a domestic building and loan association, and a 
cooperative bank without capital stock organized and operated for 
mutual purposes and without profit, the reasonable addition to a 
reserve for bad debts under section 166 (c) shall be determined with 
due regard to the amount of the taxpayer's surplus or bad debt reserves 
existing at the close of December 31, 1951. In the case of a taxpayer 
described in the preceding sentence, the reasonable addition to a 
reserve for bad debts for any taxable year shall in no case be less than 
the amount determined by the taxpayer as the reasonable addition 
for such year; except that the amount determined by the taxpayer 
under this sentence shall not be greater than the lesser of— 
(1) the amount of its taxable income for the taxable year, com-
puted without regard to this section, or 
(2) the amount by which 12 percent of the total deposits or 
withdrawable accounts of its depositors at the close of such year 
exceeds the sum of its surplus, undivided profits, and reserves at 
the beginning of the taxable year. 
SEC. 594. ALTERNATIVE TAX FOR MUTUAL SAVINGS BANKS CONDUCT-
ING LIFE INSURANCE BUSINESS. 
(a) ALTERNATIVE TAX.—In the case of a mutual savings bank not 
having capital stock represented by shares, authorized under State law 
to engage in the business of issuing life insurance contracts, and which 
conducts a life insurance business in a separate department the ac-
counts of which are maintained separately from the other accounts 
of the mutual savings bank, there shall be imposed in lieu of the taxes 
imposed by section 11 or section 1201 (a), a tax consisting of the sum 
of the partial taxes determined under paragraphs (1) and (2): 
(1) A partial tax computed on the taxable income determined 
without regard to any items of gross income or deductions properly 
allocable to the business of the life insurance department, at the 
rates and in the manner as if this section had not been enacted; 
and 
(2) a partial tax computed on the taxable income (as defined in 
section 803) of the life insurance department determined with-
out regard to any items of gross income or deductions not properly 
allocable to such department, at the rates and in the manner pro-
vided in subchapter L (sec. 801 and following) with respect to life 
insurance companies. 
§ 594(a)(2) 
206 
INTERNAL REVENUE CODE OF 1954 
(b) LIMITATIONS OF SECTION.—Subsection (a) shall apply only if 
the life insurance department would, if it were treated as a separate 
corporation, qualify as a life insurance company under section 801. 
PART III—BANK AFFILIATES 
Sec, 601. Special deduction for bank affiliates. 
SEC. 601. SPECIAL DEDUCTION FOR BANK AFFILIATES. 
In the case of a holding company affiliate (as defined in section 2 
of the Banking Act of 1933; 12 U. S. C. 221a (c)), there shall be allowed 
as a deduction, for purposes of section 535 (b) (8) (relating to the 
computation of accumulated taxable income) and section 545 (b) (6) 
(relating to the computation of undistributed personal holding com-
pany income), the amount of the earnings and profits which the 
Board of Governors of the Federal Reserve System certifies to the 
Secretary or to his delegate has been devoted by such afiiliate during 
the taxable year to the acquisition of readily marketable assets 
other than bank stock in compliance with section 5144 of the Revised 
Statutes (12 U. S. C. 61). 
The amount of the deduction under this 
section for any taxable year shall not exceed the taxable income for 
such year computed without regard to the special deductions for cor-
porations provided in part VIII (except section 248) of subchapter B 
(section 241 and following, relating to the deduction for dividends 
received by corporations, etc.). 
The aggregate of the deductions 
allowable under this section and the credits allowable under the 
corresponding provision of any prior income tax law for all taxable 
years shall not exceed the amount required to be devoted under such 
section 5144 to such purposes. 
•>lfR 
§ 594(b) 
CH. 1—NORMAL TAXES AND SURTAXES 
207 
Subchapter I—Natural Resources 
Part 
I. Deductions. 
Part II. Exclusions from gross income. 
Part III. Sales and exchanges. 
PART I—DEDUCTIONS 
Sec. 611. Allowance of deduction for depletion. 
Sec, 612. Basis for cost depletion. 
Sec. 613. Percentage depletion. 
Sec. 614. Definition of property. 
Sec. 615, Exploration expenditures. 
Sec. 616. Development expenditures. 
SEC. 611. ALLOWANCE OF DEDUCTION FOR DEPLETION. 
(a) GENERAL RULE.—In the case of mines, oil and gas wells, other 
natural deposits, and timber, there shall be allowed as a deduction 
in computing taxable income a reasonable allowance for depletion 
and for depreciation of improvements, according to the peculiar 
conditions in each case; such reasonable allowance in all cases to be 
made under regulations prescribed by the Secretary or his delegate. 
For purposes of this part, the term "mines" includes deposits of waste 
or residue, the extraction of ores or minerals from which is treated as 
mining under section 613 (c). 
In any case in which it is ascertained 
as a result of operations or of development work that the recoverable 
units are greater or less than the prior estimate thereof, then such 
prior estimate (but not the basis for depletion) shall be revised and the 
allowance under this section for subsequent taxable years shall be 
based on such revised estimate. 
(b) SPECIAL RULES.— 
(1) LEASES.—In the case of a lease, the deduction under this 
section shall be equitably apportioned between the lessor and lessee. 
(2) LIFE TENANT AND REMAINDERMAN.—In the case of property 
held by one person for life with remainder to another person, the 
deduction under this section shall be computed as if the life tenant 
were the absolute owner of the property and shall be allowed to the 
life tenant. 
(3) PROPERTY HELD IN TRUST.—In the case of property held in 
trust, the deduction under this section shall be apportioned between 
the income beneficiaries and the trustee in accordance with the 
pertinent provisions of the instrument creating the trust, or, in the 
absence of such provisions, on the basis of the trust income allocable 
to each. 
(4) PROPERTY HELD BY ESTATE.—In the case of an estate, the 
deduction under this section shall be apportioned between the 
estate and the heirs, legatees, and devises on the basis of the income 
of the estate allocable to each. 
(c) CROSS REFERENCE.— 
For other rules applicable to depreciation of improvements, see 
section 167. 
§ 611(c) 
208 
INTERNAL REVENUE CODE OF 1954 
SEC. 612. BASIS FOR COST DEPLETION. 
Except as otherwise provided in this subchapter, the basis on which 
depletion is to be allowed in respect of any property shall be the 
adjusted basis provided in section 1011 for the purpose of determining 
the gain upon the sale or other disposition of such property. 
SEC. 613. PERCENTAGE DEPLETION. 
(a) GENERAL RULE,—In the case of the mines, wells, and other 
natural deposits listed in subsection (b), the allowance for depletion 
under section 611 shall be the percentage, specified in subsection (b), 
of the gross income from the property excluding from such gross 
income an amount equal to any rents or royalties paid or incurred 
by the taxpayer in respect of the property. 
Such allowance shall not 
exceed 50 percent of the taxpayer's taxable income from the property 
(computed without allowance for depletion). 
In no case shall the 
allowance for depletion under section 611 be less than it would be 
if computed without reference to this section. 
(b) PERCENTAGE DEPLETION RATES.—The mines, wells, and other 
natural deposits, and the percentages, referred to in subsection (a) are 
as follows: 
(1) 27^ percent—oil and gas wells. 
(2) 23 percent— 
(A) sulfur and uranium; and 
(B) if from deposits in the United States—anorthosite (to the 
extent that alumina and aluminum compounds are extracted 
therefrom), asbestos, bauxite, beryl, celestite, chromite, corun-
dum, fluorspar, graphite, ilmenite, kyanite, mica, olivine, quartz 
crystals (radio grade), rutile, block steatite talc, and zircon, and 
ores of the following metals: antimony, bismuth, cadmium, co-
balt, columbium, lead, lithium, manganese, mercury, nickel, 
platinum and platinum group metals, tantalum, thorium, tin, 
titanium, tungsten, vanadium, and zinc. 
(3) 15 percent—ball clay, bentonite, china clay, sagger clay, 
metal mines (if paragraph (2) (B) does not apply), rock asphalt, and 
vermiculite. 
(4) 10 percent—asbestos (if paragraph (2) (B) does not apply), 
brucite, coal, lignite, perlite, sodium chloride, and wollastonite. 
(5) 5 percent— 
(A) brick and tile clay, gravel, mollusk shells (including clam 
shells and oyster shells), peat, pumice, sand, scoria, shale, and 
stone, except stone described in paragraph (6); and 
(B) if from brine wells—bromine, calcium chloride, 
and 
magnesium chloride. 
(6) 15 percent—all other minerals (including, but not limited to, 
aplite, barite, borax, calcium carbonates, refractory and fire clay, 
diatomaceous earth, dolomite, feldspar, fullers earth, 
garnet, 
gilsonite, granite, limestone, magnesite, magnesium carbonates, 
marble, phosphate rock, potash, quartzite, slate, soapstone, stone 
(used or sold for use by the mine owner or operator as dimension 
stone or ornamental stone), thenardite, tripoli, trona, and (if para-
graph (2) (B) does not apply) bauxite, beryl, flake graphite, fluor-
spar, lepidolite, mica, spodumene, and talc, including pyrophyllite), 
except that, unless sold on bid in direct competition with a bona 
§612 
CH. 1—NORMAL TAXES AND SURTAXES 
^91 
fide bid to sell a mineral listed in paragraph (3), the percentage shall 
be 5 percent for any such other mineral when used, or sold for use, 
by the mine owner or operator as rip rap, ballast, road material, 
rubble, concrete aggregates, or for similar purposes. 
For purposes 
of this paragraph, the term "all other minerals" does not include— 
(A) soil, sod, dirt, turf, water, or mosses; or 
(B) minerals from sea water, the air, or similar inexhaustible 
sources. 
(c) DEFINITION OF GROSS INCOME FROM PROPERTY.—For purposes 
of this section— 
(1) GROSS 
INCOME 
FROM THE PROPERTY.—The term "gross 
income from the property" means, in the case of a property other 
than an oil or gas well, the gross income from mining. 
(2) MINING.—The term "mining" includes not merely the 
extraction of the ores or minerals from the ground but also the 
ordinary treatment processes normally applied by mine owners 
or operators in order to obtain the commercially marketable 
mineral product or products, and so much of the transportation 
of ores or minerals (whether or not by common carrier) from the 
point of extraction from the ground to the plants or mills in which 
the ordinary treatment processes are applied thereto as is not in 
excess of 50 miles unless the Secretary or his delegate finds that the 
physical and other requirements are such that the ore or mineral 
must be transported a greater distance to such plants or mills. 
(3) EXTRACTION OF THE ORES OR MINERALS FROM THE GROUND.— 
The term "extraction of the ores or minerals from the ground" in-
cludes the extraction by mine owners or operators of ores or minerals 
from the waste or residue of prior mining. 
The preceding sentence 
shall not apply to any such extraction of the mineral or ore by a 
purchaser of such waste or residue or of the rights to extract ores 
or minerals therefrom. 
(4) ORDINARY 
TREATMENT 
PROCESSES.—The term 
"ordinary 
treatment processes" includes the following: 
(A) In the case of coal—cleaning, breaking, sizing, dust allay-
ing, treating to prevent freezing, and loading for shipment; 
(B) in the case of sulfur recovered by the Frasch process— 
pumping to vats, cooling, breaking, and loading for shipment; 
(C) in the case of iron ore, bauxite, ball and sagger clay, rock 
asphalt, and minerals which are customarily sold in the form of a 
crude mineral product—sorting, concentrating, and sintering to 
bring to shipping grade and form, and loading for shipment; 
(D) in the case of lead, zinc, copper, gold, silver, or fluorspar 
ores, potash, and ores which are not customarily sold in the form 
of the crude mineral product—crushing, grinding, and beneficia-
tion by concentration (gravity, flotation, amalgamation, electro-
static, or magnetic), cyanidation, leaching, crystallization, pre-
cipitation (but not including as an ordinary treatment process 
electrolytic deposition, roasting, thermal or electric smelting, or 
refining), or by substantially equivalent processes or combina-
tion of processes used in the separation or extraction of the prod-
uct or products from the ore, including the furnacing of quick-
silver ores; and 
§6lS(c)(4)(D) 
2 1 0 
INTERNAL REVENUE CODE OF 19 54 
(E) the pulverization of talc, the burning of magnesite, and the 
sintering and nodulizing of phosphate rock. 
SEC. 614. DEFINITION OF PROPERTY. 
(a) GENERAL RULE.—For the purpose of computing the depletiooi 
allowance in the case of mines, wells, and other natural deposits, the 
term "property" means each separate interest owned by the taxpayer 
in each mineral deposit in each separate tract or parcel of land. 
(b) SPECIAL RULE AS TO OPERATING MINERAL INTERESTS.— 
(1) ELECTION TO AGGREGATE SEPARATE INTERESTS.—If a tax-
payer owns two or more separate operating mineral interests which 
constitute part or all of an operating unit, he may elect (for all 
purposes of this subtitle)— 
(A) to form one aggregation of, and to treat as one property, 
any two or more of such interests; and 
(B) to treat as a separate property each such interest which 
he does not elect to include within the aggregation referred to in 
subparagraph (A). 
For purposes of the preceding sentence, separate operating mineral 
interests which constitute part or all of an operating unit may be 
aggregated whether or not they are included in a single tract or 
parcel of land and whether or not they are included in contiguous 
tracts or parcels. A taxpayer may not elect to form more than one 
aggregation of operating mineral interests within any one operating 
unit. 
(2) MANNER AND SCOPE OF ELECTION.—The election provided 
by paragraph (1) shall be made, for each operating mineral interest 
in accordance with regulations prescribed by the Secretary or his 
delegate, not later than the time prescribed by law for filing the 
return (including extensions thereof) for whichever of the follow-
ing taxable years is the later: The first taxable year beginning 
after December 31, 1953, or the first taxable year in which any 
expenditure for exploration, development, or operation in respect 
of the separate operating mineral interest is made by the taxpayer 
after the acquisition of such interest. 
Such an election shall be 
binding upon the taxpayer for all subsequent taxable years, except 
that the Secretary or his delegate may consent to a different treat-
ment of the interest with respect to which the election has been 
made. 
(3) OPERATING MINERAL INTERESTS DEFINED.—For purposes of 
this subsection, the term "operating mineral interest" includes only 
an interest in respect of which the costs of production of the mineral 
are required to be taken into account by the taxpayer for purposes 
of computing the 50 percent limitation provided for in section 613, 
or would be so required if the mine, well, or other natural deposit 
were in the production stage. 
(c) SPECIAL RULE AS TO NONOPERATING MINERAL INTERESTS.— 
(1) AGGREGATION OF SEPARATE INTERESTS.—If a taxpayer owns 
two or more separate nonoperating mineral interests in a single 
tract or parcel of land, or in two or more contiguous tracts or 
parcels of land, the Secretary or his delegate may, on showing of 
undue hardship, permit the taxpayer to treat (for all purposes of 
this subtitle) all such mineral interests as one property. If such 
§ 613(c)(4)(E) 
CH. 1—NORMAL TAXES AND SURTAXES 
211 
permission is granted for any taxable year, the taxpayer shall 
treat such interests as one property for all subsequent taxable 
years unless the Secretary or his delegate consents to a different 
treatment. 
(2) 
NONOPERATING MINERAL INTERESTS DEFINED. 
F o r purpOSeS 
of this subsection, the term "nonoperating mineral interests" 
includes only interests which are not operating mineral interests 
within the meaning of subsection (b) (3). 
SEC. 615. EXPLORATION EXPENDITURES. 
(a) IN GENERAL.—In the case of expenditures paid or incurred 
during the taxable year for the purpose of ascertaining the exist-
ence, location, extent, or quality of any deposit of ore or other 
mineral, and paid or incurred before the beginning of the develop-
ment stage of the mine or deposit, there shall be allowed as a deduc-
tion in computing taxable income so much of such expenditures as 
does not exceed $100,000. 
This section shall apply only with respect 
to the amount of such expenditures which, but for this section, would 
not be allowable as a deduction for the taxable year. 
This section 
shall not apply to expenditures for the acquisition or improvement of 
property of a character which is subject to the allowance for deprecia-
tion provided in section 167, but allowances for depreciation shall be 
considered, for purposes of this section, as expenditures paid or in-
curred. 
In no case shall this section apply with respect to amounts 
paid or incurred for the purpose of ascertaining the existence, location, 
extent, or quality of any deposit of oil or gas. 
(b) ELECTION OP TAXPAYER.—If the taxpayer elects, in accordance 
with regulations prescribed by the Secretary or his delegate, to treat 
as deferred expenses any portion of the amount deductible for the 
taxable year under subsection (a), such portion shall not be deduct-
ible in the manner provided in subsection (a) but shall be deductible 
on a ratable basis as the units of produced ores or minerals discovered 
or explored by reason of such expenditures are sold. 
An election 
made under this subsection for any taxable year shall be binding for 
such year. 
(c) LIMITATION.—This section shall not apply to any amount paid 
or incurred in any taxable year if in any 4 preceding years a deduction 
or election under this section, or the corresponding provision of prior 
laws, has been allowed to, or exercised by— 
(1) the taxpayer, or 
(2) the individual or corporation who has transferred to the 
taxpayer any mineral property. 
Paragraph (2) shall apply only if (A) the taxpayer was required to 
take into account under section 23 (ff) (3) of the Internal Revenue 
Code of 1939 the deduction allowed to or election exercised by such 
individual or corporation; (B) the taxpayer would be entitled under 
section 381 (c) (10) to deduct expenses deferred under this section had the 
distributor or transferor corporation elected to defer such expenses; or 
(C) the taxpayer acquired any mineral property under circumstances 
which make section 334 (b), 362 (a) and (b), 372 (a), 373 (b) (1), 723, 
732, 1051, or 1082 apply to such transfer. 
(d) ADJUSTED BASIS OF M I N E OR DEPOSIT.—The amount of ex-
penditures which are treated under subsection (b) as deferred expenses 
§ 615(d) 
212 
INTERNAL REVENUE CODE OF 19 54 
shall be taken into account in computing the adjusted basis of the 
mine or deposit, but such amounts, and the adjustments to basis 
provided in section 1016 (a) (10) shall be disregarded in determining 
the adjusted basis of the property for the purpose of computing a 
deduction for depletion under section 611. 
SEC. 616. DEVELOPMENT EXPENDITURES. 
(a) I N GENERAL.—Except as provided in subsection (b), there shall 
be allowed as a deduction in computing taxable income all expendi-
tures paid or incurred during the taxable year for the development of 
a mine or other natural deposit (other than an oil or gas well) if paid 
or incurred after the existence of ores or minerals in commercially 
marketable quantities has been disclosed. 
This section shall not 
apply to expenditures for the acquisition or improvement of property 
of a character which is subject to the allowance for depreciation pro-
vided in section 167, but allowances for depreciation shall be con-
sidered, for purposes of this section, as expenditures, 
(b) ELECTION OF TAXPAYER.—At the election of the taxpayer, made 
in accordance with regulations prescribed by the Secretary or his 
delegate, expenditures described in subsection (a) paid or incurred 
during the taxable year shall be treated as deferred expenses and 
shall be deductible on a ratable basis as the units of produced ores or 
minerals benefited by such expenditures are sold. 
In the case of 
such expenditures paid or incurred during the development stage 
of the mine or deposit, the election shall apply only with respect to 
the excess of such expenditures during the taxable year over the 
net receipts during the taxable year from the ores or minerals pro-
duced from such mine or deposit. 
The election under this subsection, 
if made, must be for the total amount of such expenditures, or the 
total amount of such excess, as the case may be, with respect to the 
mine or deposit, and shall be binding for such taxable year. 
(c) ADJUSTED BASIS OP M I N E OR DEPOSIT.—The amount of expend-
itures which are treated under subsection (b) as deferred expenses 
shall be taken into account in computing the adjusted basis of the 
mine or deposit, except that such amount, and the adjustments to 
basis provided in section 1016 (a) (9), shall be disregarded in de-
termining the adjusted basis of the property for the purpose of com-
puting a deduction for depletion under section 611. 
PART II—EXCLUSIONS FROM GROSS INCOME 
Sec. 621. Payments to encourage exploration, development, 
and 
mining for defense purposes. 
SEC. 621. PAYMENTS TO ENCOURAGE EXPLORATION, DEVELOPMENT, 
AND MINING FOR DEFENSE PURPOSES. 
There shall not be included in gross income any amount paid to a 
taxpayer by the United States (or any agency or instrumentality 
thereof), whether by grant or loan, and whether or not repayable, for 
the encouragement of exploration, development, or mining of critical 
and strategic minerals or metals pursuant to or in connection with 
any undertaking approved by the United States (or any of its agencies 
or instrumentalities) and for which an accounting is made or required 
to be made to an appropriate governmental agency, or any forgiveness 
§ 615(d) 
CH. 1—NORMAL TAXES AND SURTAXES 
213 
or discharge of any part of such amount. 
Any expenditures (other 
than expenditures made after the repayment of such grant or loan) 
attributable to such grant or loan shall not be deductible by the 
taxpayer as an expense nor increase the basis of the taxpayer's 
property either for determining gain or loss on sale, exchange, or other 
disposition or for computing depletion or depreciation, but on the 
repayment of any portion of any such grant or loan which has been 
expended in accordance with the terms thereof such deductions and 
such increase in basis shall to the extent of such repayment be allowed 
as if made at the time of such repayment. 
PART III—SALES AND EXCHANGES 
Sec. 631. Gain or loss in the case of timber or coal. 
Sec. 632. Sale of oil or gas properties. 
SEC. 631. GAIN OR LOSS IN THE CASE OF TIMBER OR COAL. 
(a) ELECTION TO CONSIDER CUTTING AS SALE OR EXCHANGE.—If 
the taxpayer so elects on his return for a taxable year, the cutting 
of timber (for sale or for use in the taxpayer's trade or business) 
during such year by the taxpayer who owns, or has a contract right 
to cut, such timber (proTiding he has owned such timber or has held 
such contract right for a period of more than 6 months before the 
beginning of such year) shall be considered as a sale or exchange of 
such timber cut during such year. 
If such election has been made, 
gain or loss to the taxpayer shall be recognized in an amount equal to 
the difference between the fair market value of such timber, and the 
adjusted basis for depletion of such timber in the hands of the tax-
payer. 
Such fair market value shall be the fair market value as of the 
first day of the taxable year in which such timber is cut, and shall 
thereafter be considered as the cost of such cut timber to the taxpayer 
for all purposes for which such cost is a necessary factor. 
If a tax-
payer makes an election under this subsection, such election shall 
apply with respect to all timber which is owned by the taxpayer or 
which the taxpayer has a contract right to cut and shall be binding 
on the taxpayer for the taxable year for which the election is made 
and for all subsequent years, unless the Secretary or his delegate, on 
showing of undue hardship, permits the taxpayer to revoke his elec-
tion; such revocation, however, shall preclude any further elections 
under this subsection except with the consent of the Secretary or his 
delegate. 
For purposes of this subsection and subsection (b), the 
term "timber" includes evergreen trees which are more than 6 years 
old at the time severed from the roots and are sold for ornamental 
purposes. 
(b) DISPOSAL OF TIMBER W I T H A RETAINED ECONOMIC INTEREST.— 
In the case of the disposal of timber held for more than 6 months before 
such disposal, by the owner thereof under any form or type of contract 
by virtue of which such owner retains an economic interest in such 
timber, the difference between the amount realized from the disposal 
of such timber and the adjusted depletion basis thereof, shall be con-
sidered as though it were a gain or loss, as the case may be, on the sale 
of such timber. 
In determining the gross income, the adjusted gross 
income, or the taxable income of the lessee, the deductions allowable 
§ 631(b) 
214 
INTERNAL REVENUE CODE OF 1964 
, 
with respect to rents and royalties shall be determined without regard 
to the provisions of this subsection. 
The date of disposal of such 
timber shall be deemed to be the date such timber is cut, but if pay-
ment is made to the owner under the contract before such timber is 
cut the owner may elect to treat the date of such payment as the date 
of disposal of such timber. 
For purposes of this subsection, the term 
"owner" means any person who owns an interest in such timber, 
including a sublessor and a holder of a contract to cut timber. 
(c) DISPOSAL OF COAL W I T H A RETAINED ECONOMIC INTEREST.— 
In the case of the disposal of coal (including lignite), held for more 
than 6 months before such disposal, by the owner thereof under any 
form of contract by virtue of which such owner retains an economic 
interest in such coal, the difference between the amount realized 
from the disposal of such coal and the adjusted depletion basis thereof 
plus the deductions disallowed for the taxable year under section 272 
shall be considered as though it were a gain or loss, as the case may be, 
on the sale of such coal. 
Such owner shall not be entitled to the 
allowance for percentage depletion provided in section 613 with respect 
to such coal. 
This subsection shall not apply to income realized by 
any owner as a co-adventurer, partner, or principal in the mining of 
such coal, and the word "owner" means any person who owns an 
economic interest in coal in place, including a sublessor. 
The date 
of disposal of such coal shall be deemed to be the date such coal is 
mined. 
In determining the gross income, the adjusted gross income, 
or the taxable income of the lessee, the deductions allowable with 
respect to rents and royalties shall be determined without regard to 
the provisions of this subsection. 
This subsection shall have no 
application, for purposes of applying subchapter G, relating to cor-
porations used to avoid income tax on shareholders (including the 
determinations of the amount of the deductions under section 535 
(b) (6) or section 545 (b) (5)). 
SEC. 632. SALE OF OIL OR GAS PROPERTIES. 
In the case of a bona fide sale of any oil or gas property, or any 
interest therein, where the principal value of the property has been 
demonstrated by prospecting or exploration or discovery work done 
by the taxpayer, the portion of the surtax imposed by section 1 
attributable to such sale shall not exceed 30 percent of the selling 
price of such property or interest. 
631(b) 
CH. 1—NORMAL TAXES AND SURTAXES 
215 
Subchapter J—Estates, Trusts, Beneficiaries, and 
Decedents 
Part I. Estates, trusts, and beneficiaries. 
Part II. Income in respect of decedents. 
PART I—ESTATES, TRUSTS, AND BENEFICIARIES 
Subpart A. General rules for taxation of estates and trusts. 
Subpart B. Trusts which distribute current income only. 
Subpart C. Estates and trusts which may accumulate income or 
which distribute corpus. 
Subpart D. Treatment of excess distributions by trusts. 
Subpart E. Grantors and others treated as substantial owners. 
Subpart F. Miscellaneous. 
Subpart A—General Rules for Taxation of Estates and Trusts 
Sec. 641. Imposition of tax. 
* 
Sec. 642. Special rules for credits and deductions. 
Sec. 643. Definitions applicable to subparts A, B, C, and D. 
SEC. 641. IMPOSITION OF TAX. 
(a) APPLICATION OF TAX.—The taxes imposed by this chapter 
on individuals shall apply to the taxable income of estates or of any 
kind of property held in trust, iacluding— 
(1) income accumulated in trust for the benefit of unborn or un-
ascertained persons or persons with contingent interests, and in-
come accumulated or held for future distribution under the terms 
of the will or trust; 
(2) income which is to be distributed currently by the fiduciary 
. to the beneficiaries, and income collected by a guardian of an infant 
which is to be held or distributed as the court may direct; 
(3) income received by estates of deceased persons during the 
, period of administration or settlement of the estate; and 
•
; 
(4) income which, in the discretion of the fiduciary, may be 
either distributed to the beneficiaries or accumulated. 
(b) COMPUTATION AND PAYMENT.—The taxable income of an estate 
or trust shall be computed in the same manner as in the case of au 
individual, except as otherwise provided in this part. 
The tax shall 
be computed on such taxable income and shall be paid by the fiduciary. 
SEC. 642. SPECIAL RULES FOR CREDITS AND DEDUCTIONS. 
(a) CREDITS AGAINST TAX.— 
• 
(1) PARTIALLY TAX-EXEMPT INTEREST.—An estate or trust shall 
be allowed the credit against tax for partially tax-exempt interest 
provided by section 35 only in respect of so much of such interest 
as is not properly allocable to any beneficiary under section 652 
or 662. If the estate or trust elects under section 171 to treat as 
amortizable the premium on bonds with respect to the interest on 
which the credit is allowable under section 35, such credit (whether 
§ 642(a)(1) 
216 
INTERNAL REVENUE CODE OF 1964 
allowable to the estate or trust or to the beneficiary) shall be reduced 
under section 171 (a) (3). 
(2) FOREIGN TAXES.—An estate or trust shall be allowed the 
credit against tax for taxes imposed by foreign countries and pos-
sessions of the United States, to the extent allowed by section 901, 
only in respect of so much of the taxes described in such section as 
is not properly allocable under such section to the beneficiaries. 
(3) DIVIDENDS RECEIVED BY INDIVIDUALS.—An estate or trust 
shall be allowed the credit against tax for dividends received pro-
vided by section 34 only in respect of so much of such dividends as 
is not properly allocable to any beneficiary under section 652 or 662. 
For purposes of determining the time of receipt of dividends under 
section 34 and section 116, the amount of dividends properly alloca-
ble to a beneficiary under section 652 or 662 shall be deemed to have 
been received by the beneficiary ratably on the same dates that the 
dividends were received by the estate or trust. 
(b) DEDUCTION FOR PERSONAL EXEMPTION.—An estate shall be 
allowed a deduction of $600. 
A trust which, under its governing 
instrument, is required to distribute all of its income currently shall 
be allowed a deduction of $300. 
All other trusts shall be allowed a 
deduction of $100. 
The deductions allowed by this subsection shall 
be in lieu of the deductions allowed under section 151 (relating to 
deduction for personal exemption). 
(c) DEDUCTION FOR AMOUNTS PAID OR PERMANENTLY SET ASIDE 
FOR A CHARITABLE PURPOSE.—In the case of an estate or trust (other 
than a trust meeting the specifications of subpart B) there shall be 
allowed as a deduction in computing its taxable income (in lieu of 
the deductions allowed by section 170 (a), relating to deduction for 
charitable, etc., contributions and gifts) any amount of the gross 
income, without limitation, which pursuant to the terms of the 
governing instrument is, during the taxable year, paid or permanently 
set aside for a purpose specified in section 170 (c), or is to be used 
exclusively for religious, charitable, scientific, literary, or educational 
purposes, or for the prevention of cruelty to children or animals, or 
for the estabhshment, acquisition, maintenance or operation of a 
public cemetery not operated for profit. 
For this purpose, to the 
extent that such amount consists of gain from the sale or exchange 
of capital assets held for more than 6 months, proper adjustment of 
the deduction otherwise allowable under this subsection shall be 
made for any deduction allowable to the estate or trust under section 
1202 (relating to deduction for excess of capital gains over capital 
losses). 
In the case of a trust, the deduction allowed by this sub-
section shall be subject to section 681 (relating to unrelated business 
income and prohibited transactions). 
(d) N E T OPERATING LOSS DEDUCTION.—The benefit of the deduc-
tion for net operating losses provided by section 172 shall be allowed 
to estates and trusts under regulations prescribed by the Secretary 
or his delegate. 
(e) DEDUCTION FOR DEPRECIATION AND DEPLETION.—^An estate 
or trust shall be allowed the deduction for depreciation and depletion 
only to the extent not allowable to beneficiaries under sections 167 (g) 
and 611 (b). 
§ 642(a)(1) 
CH. 1—NORMAL TAXES AND SURTAXES 
217 
(f) AMORTIZATION OF EMERGENCY OR GRAIN STORAGE FACILITIES.— 
The benefit of the deductions for amortization of emergency and grain 
storage facilities provided by sections 168 and 169 shall be allowed 
to estates and trusts in the same manner as in the case of an individual. 
The allowable deduction shall be apportioned between the income 
beneficiaries and the fiduciary under regulations prescribed by the 
Secretary or his delegate. 
(g) DISALLOWANCE OF DOUBLE DEDUCTIONS.—Amounts allowable 
under section 2053 or 2054 as a deduction in computing the taxable 
estate of a decedent shall not be allowed as a deduction in computing 
the taxable income of the estate, unless there is filed, within the time 
and in the manner and form prescribed by the Secretary or his dele-
gate, a statement that the amounts have not been allowed as deduc-
tions under section 2053 or 2054 and a waiver of the right to have such-
amounts allowed at any time as deductions under section 2053 or 2054. 
This subsection shall not apply with respect to deductions allowed 
under part II (relating to income in respect of decedents). 
(h) UNUSED LOSS CARRYOVERS AND EXCESS DEDUCTIONS ON T E R -
MINATION AVAILABLE TO BENEFICIARIES.—If on the termination of an 
estate or trust, the estate or trust has— 
(1) a net operating loss carryover under section 172 or a capital 
loss carryover under section 1212, or 
(2) for the last taxable year of the estate or trust deductions 
(other than the deductions allowed under subsections (b) or (c)) in 
excess of gross income for such year, 
then such carryover or such excess shall be allowed as a deduction, in 
accordance with regulations prescribed by the Secretary or his delegate, 
to the beneficiaries succeeding to the property of the estate or trust, 
(i) CROSS REFERENCE.— 
For disallowance of standard deduction in case of estates and trusts 
see section 142 (b) (4). 
SEC. 643. DEFINITIONS APPLICABLE TO SUBPARTS A, B, C, AND D. 
(a) DISTRIBUTABLE N E T INCOME.—For purposes of this part, the 
term *'distributable net income" means, with respect to any taxable 
year, the taxable income of the estate or trust computed with the 
following modifications— 
(1) DEDUCTION FOR DISTRIBUTIONS.—No deduction shall be taken 
under sections 651 and 661 (relating to additional deductions). 
(2) DEDUCTION FOR PERSONAL EXEMPTION.—No deduction shall 
be taken under section 642 (b) (relating to deduction for personal 
exemptions). 
(3) CAPITAL GAINS AND LOSSES.—Gains from the sale or exchange 
of capital assets shall be excluded to the extent that such gains are 
allocated to corpus and are not (A) paid, credited, or required to be 
distributed to any beneficiary during the taxable year, or (B) paid, 
permanently set aside, or to be used for the purposes specified in 
section 642 (c). Losses from the sale or exchange of capital assets 
shall be excluded, except to the extent such losses are taken into 
account in determining the amount of gains from the sale or 
exchange of capital assets which are paid, credited, or required to 
be distributed to any beneficiary during the taxable year. The 
§ 643(a)(3) 
49012°—54 
17 
218 
INTERNAL REVENUE CODE OF 1954 
deduction under section 1202 (relating to deduction for excess of 
capital gains over capital losses) shall not be taken into account, 
(4) EXTRAORDINARY 
DIVIDENDS 
AND 
TAXABLE 
STOCK 
DIVI-
DENDS.—For purposes only of subpart B (relating to trusts which 
distribute cun-ent income only), there shall be excluded those items 
of gross income constituting extraordinary dividends or taxable 
stock dividends which the fiduciary, acting iti good faith, does not 
pay or credit to any beneficiary by reason of his determination that 
such dividends are allocable to corpus under the terms of the 
governing instrument and applicable local law. 
(5) TAX-EXEMPT INTEREST.—There shall be included any tax-
exempt interest to which section 103 applies, reduced by any 
amounts which would be deductible in respect of disbursements 
allocable to such interest but for the provisions of section 265 
(relating to disallowance of certain deductions). 
(6) FOREIGN INCOME.—In the case of a foreign trust, there shall 
be included the amounts of gross income from sources without the 
United States, reduced by any amounts which would be deductible 
in respect of disbursements allocable to such income but for the 
provisions of section 265 (1) (relating to disallowance of certain 
deductions). 
(7) DIVIDENDS.—There shall be included the amount of any 
dividends excluded from gross income pursuant to section 116 
(relating to partial exclusion of dividends received). 
If the estate or trust is allowed a deduction under section 642 (c), the 
amount of the modifications specified in paragraphs (5) and (6) 
shall be reduced to the extent that the amount of income which is 
paid, permanently set aside, or to be used for the purposes specified 
in section 642 (c) is deemed to consist of items specified in those 
paragraphs. 
For this purpose, such amount shall (in the absence of 
specific provisions in the governing instrument) be deemed to consist 
of the same proportion of each class of items of income of the estate 
or trust as the total of each class bears to the total of all classes. 
(b) INCOME.—For purposes of this subpart and subparts B, C, and 
D, the term "income", when not preceded by the words "taxable", 
"distributable net", "undistributed net", or "gross", means the amount 
of income of the estate or trust for the taxable year determined under 
the terms of the governing instrument and applicable local law. Items 
of gross income constituting extraordinary dividends or taxable stock 
dividends which the fiduciary, acting in good faith, determines to be 
allocable to corpus under the terms of the governing instrument and 
applicable local law shall not be considered income. 
(c) BENEFICIARY.—For purposes of this part, the term "beneficiary" 
includes heir, legatee, devisee. 
§ 643(a)(3) 
CH. 1—NORMAL TAXES AND SURTAXES 
219 
Subpart B—Trusts Which Distribute Current Income Only 
Sec. 651. Deduction for trusts distributing current income only. 
Sec. 652. Inclusion of amounts in gross income of beneficiaries of 
trusts distributing current income only. 
SEC. 651. DEDUCTION FOR TRUSTS DISTRIBUTING CURRENT INCOME 
ONLY. 
(a) DEDUCTION.—In the case of any trust the terms of which— 
(1) provide that all of its income is required to be distributed 
currently, and 
(2) do not provide that any amounts are to be paid, permanently 
set aside, or used for the purposes specified in section 642 (c) (relat-
ing to deduction for charitable, etc., purposes), 
there shall be allowed as a deduction in computing the taxable income 
of the trust the amount of the income for the taxable year which is 
required to be distributed currently. 
This section shall not apply in 
any taxable year in which the trust distributes amounts other than 
amounts of income described in paragraph (1). 
(b) LIMITATION ON DEDUCTION.—If the amount of income required 
to be distributed currently exceeds the distributable net income of 
the trust for the taxable year, the deduction shall be limited to the 
amount of the distributable net income. 
For this purpose, the com-
putation of distributable net income shall not include items of income 
which are not included in the gross income of the trust and the deduc-
tions allocable thereto. 
SEC. 652. INCLUSION OF AMOUNTS IN GROSS INCOME OF BENE-
FICIARIES OF TRUSTS DISTRIBUTING CURRENT INCOME 
ONLY. 
(a) INCLUSION.—Subject to subsection (b), the amount of income 
for the taxable year required to be distributed currently by a trust 
described in section 651 shall be included in the gioss income of the 
beneficiaries to whom the income is required to be distributed, whether 
distributed or not. If such amount exceeds the distributable net 
income, there shall be included in the gi"oss income of each beneficiary 
an amount which bears the same ratio to distributable net income as 
the amount of income required to be distributed to such beneficiary 
bears to the amount of income required to be distributed to all 
beneficiaries. 
(b) CHARACTER OF AMOUNTS.—The amounts specified in subsection 
(a) shall have the same character in the hands of the beneficiary as 
in the hands of the trust. 
For this purpose, the amounts shall be 
treated as consisting of the same proportion of each class of items 
entering into the computation of distributable net income of the trust 
as the total of each class bears to the total distributable net income 
of the trust, unless the terms of the trust specifically allocate different 
classes of income to different beneficiaries. 
In the application of the 
preceding sentence, the items of deduction entering into the computa-
tion of distributable net income shall be allocated among the items of 
distributable net income in accordance with regulations prescribed by 
the Secretary or his delegate. 
(c) DIFFERENT TAXABLE YEARS.—If the taxable year of a bene-
ficiary is different from that of the trust, the amount which the bene-
§ 652(c) 
220 
INTERNAL REVENUE CODE OF 1954 
ficiary is required to include in gross income in accordance with the 
provisions of this section shall be based upon the amount of income 
of the trust for any taxable year or years of the trust ending within 
or with his taxable year. 
Subpart C—Estates and Trusts Which May Accumulate Income or 
Which Distribute Corpus 
Sec. 661. Deductions for estates and trusts accumulating income or 
distributing corpus. 
Sec. 662, Inclusion of amounts in gross income of beneficiaries of 
estates and trusts accumulating income or distributing 
corpus. 
Sec. 663. Special rules applicable to sections 661 and 662. 
SEC. 661. DEDUCTION FOR ESTATES AND TRUSTS 
ACCUMULATING 
INCOME OR DISTRIBUTING 
CORPUS. 
(a) DEDUCTION.—In any taxable year there shall be allowed as a 
deduction in computing the taxable income of an estate or trust (other 
than a trust to which subpart B applies), the sum of— 
(1) any amount of income for such taxable year required to be 
distributed currently (including any amount required to be distrib-
uted which may be paid out of income or corpus to the extent such 
amount is paid out of income for such taxable year); and 
(2) any other amounts properly paid or credited or required to 
be distributed for such taxable year; 
but such deduction shall not exceed the distributable net income of 
the estate or trust. 
(b) CHARACTER OF AMOUNTS DISTRIBUTED.—The amount deter-
mined under subsection (a) shall be treated as consisting of the same 
proportion of each class of items entering into the computation of 
distributable net income of the estate or trust as the total of each class 
bears to the total distributable net income of the estate or trust in 
the absence of the allocation of different classes of income under the 
specific terms of the governing instrument. In the application of the 
preceding sentence, the items of deduction entering into the computa-
tion of distributable net income (including the deduction allowed 
under section 642 (c)) shall be allocated among the items of dis-
tributable net income in accordance with regulations prescribed by 
the Secretary or his delegate. 
(c) LIMITATION ON DEDUCTION.—No deduction shall be allowed 
under subsection (a) in respect of any portion of the amount allowed 
as a deduction under that subsection (without regard to this sub-
section) which is treated under subsection (b) as consisting of any 
item of distributable net income which is not included in the gross 
income of the estate or trust. 
SEC. 662. INCLUSION OF AMOUNTS IN GROSS INCOME OF BENE-
FICIARIES 
OF ESTATES AND TRUSTS 
ACCUMULATING 
INCOME OR DISTRIBUTING 
CORPUS. 
(a) INCLUSION.—Subject to subsection (b), there shall be included 
in the gross income of a beneficiary to whom an amount specified in 
section 661 (a) is paid, credited, or required to be distributed (by an 
estate or trust described in section 661), the sum of the following 
amounts: 
§ 652(c) 
CH. 1—NORMAL TAXES AND SURTAXES 
221 
(1) AMOUNTS REQUIRED TO BE DISTRIBUTED CURRENTLY.—The 
amount of income for the taxable year required to be distributed 
currently to such beneficiary, whether distributed or not. If the 
amount of income required to be distributed currently to all bene-
ficiaries exceeds the distributable net income (computed without 
the deduction allowed by section 642 (c), relating to deduction 
for charitable, etc., purposes) of the estate or trust, then, in lieu 
of the amount provided in the preceding sentence, there shall be 
included in the gross income of the beneficiary an amount which 
bears the same ratio to distributable net income (as so computed) 
as the amount of income required to be distributed currently 
to such beneficiary bears to the amount required to be distributed 
currently to all beneficiaries. 
For purposes of this section, the 
phrase "the amount of income for the taxable year required to be 
distributed currently" includes any amount required to be paid 
out of income or corpus to the extent such amount is paid out of 
income for such taxable year. 
(2) OTHER AMOUNTS DISTRIBUTED.—All other amounts properly 
paid, credited, or required to be distributed to such beneficiary for 
the taxable year. 
If the sum of— 
(A) the amount of income for the taxable year required to be 
distributed currently to all beneficiaries, and 
(B) all other amounts properly paid, credited, or required to 
be distributed to all beneficiaries 
exceeds the distributable net income of the estate or trust, then, 
in lieu of the amount provided in the preceding sentence, there 
shall be included in the gross income of the beneficiary an amount 
which bears the same ratio to distributable net income (reduced by 
the amounts specified in (A)) as the other amounts properly paid, 
credited or required to be distributed to the beneficiary bear to 
the other amounts properly paid, credited, or required to be dis-
tributed to all beneficiaries. 
(b) CHARACTER OF AMOUNTS.—The amounts determined under sub-
section (a) shall have the same character in the hands of the benefi-
ciary as in the hands of the estate or trust. 
For this purpose, the 
amounts shall be treated as consisting of the same proportion of each 
class of items entering into the computation of distributable net in-
come as the total of each class bears to the total distributable net in-
come of the estate or trust unless the terms of the governing instru-
ment specifically allocate different classes of income to different 
beneficiaries. 
In the application of the preceding sentence, the items 
of deduction entering into the computation of distributable net in-
come (including the deduction allowed under section 642 (c)) shall be 
allocated among the items of distributable net income in accordance 
with regulations prescribed by the Secretary or his delegate. 
In the 
application of this subsection to the amount determined under para-
graph (1) of subsection (a), distributable net income shall be com-
puted without regard to any portion of the deduction under section 
642 (c) which is not attributable to income of the taxable year. 
(c) DIFFERENT TAXABLE YEARS.—If the taxable year of a bene-
ficiary is different from that of the estate or trust, the amount to be 
included in the gross income of the beneficiary shall be based on the 
§ 662(c) 
222 
• 
INTERNAL REVENUE CODE OF 1954 
distributable net income of the estate or trust and the amounts prop-
erly paid, credited, or required to be distributed to the beneficiary 
during any taxable year or years of the estate or trust ending within 
or with his taxable year. 
SEC. 663. SPECIAL RULES APPLICABLE TO SECTIONS 661 AND 662. 
(a) EXCLUSIONS.—There shall not be included as amounts falling 
wdthin section 661 (a) or 662 (a)— 
(1) GIFTS, 
BEQUESTS, ETC.—^Any amount w^hich, under the 
terms of the governing instrument, is properly paid or credited as 
a gift or bequest of a specific sum of monej^ or of specific property 
and which is paid or credited all at once or in not more than 3 
installments. 
For this purpose an amount which can be paid or 
credited only from the income of the estate or trust shall not be 
considered as a gift or bequest of a specific sum of money. 
(2) CHARITABLE, ETC., DISTRIBUTIONS.—Any amount paid or 
permanently set aside or otherwise qualifying for the deduction 
provided in section 642 (c) (computed without regard to section 
681). 
(3) DENIAL OF DOUBLE DEDUCTION.—Any amount paid, credited, 
or distributed in the taxable year, if section 651 or section 661 
applied to such amount for a preceding taxable year of an estate or 
trust because credited or required to be distributed in such preced-
ing taxable year. 
(b) DISTRIBUTIONS 
IN 
FIRST 
SIXTY-FIVE 
DAYS 
OF 
TAXABLE 
YEAR.—• 
(1) GENERAL RULE.—If within the first 65 days of any taxable 
year of a trust, an amount is properly paid or credited, such amount 
shall be considered paid or credited on the last day of the preceding 
taxable year. 
(2) LIMITATION.—This subsection shall apply only to a trust—• 
(A) which was in existence prior to January 1, 1954, 
(B) which, under the terms of its governing instrument, may 
not distribute in any taxable year amounts in excess of the income 
of the preceding taxable year, and 
(C) on behalf of which the fiduciary elects to have this sub-
section apply. 
The election authorized by subparagraph (C) shall be made for 
the first taxable year to which this part is applicable in accordance 
wdth such regulations as the Secretarv or his delegate shall prescribe 
and shall be made not later than the time prescribed by law for 
filing the return for such year (including extensions thereof). 
If 
such election is made with respect to a taxable year, this subsection 
shall apply to all amounts properly paid or credited within the first 
65 days of all subsequent taxable years of such trust. 
(c) SEPARATE SHARES TREATED AS SEPARATE TRUSTS.—For 
the 
sole purpose of determining the amount of distributable net income" 
in the application of sections 661 and 662, in the case of a single trust 
having more than one beneficiary, substantially separate and inde-
pendent shares of different beneficiaries in the trust shall be treated 
as separate trusts. The existence of such substantially separate and 
independent shares and the manner of treatment as separate trusts, 
§ 662(c) 
CH. 1-—NORMAL TAXES AND SURTAXES 
223 
including the application of subpart D, shall be determined in accord-
ance with regulations prescribed by the Secretary or his delegate. 
Subpart D—Treatment of Excess Distributions by Trusts 
Sec. 665. Definitions applicable to subpart D. 
Sec. 666. Accumulation distribution allocated to 5 preceding years. 
Sec. 667. Denial of refund to trust. 
Sec. 668. Treatment of amounts deemed distributed in preceding 
years. 
SEC. 665. DEFINITIONS APPLICABLE TO SUBPART D. 
(a) UNDISTRIBUTED N E T INCOME.—For purposes of this subpart, 
the term "undistributed net income" for any taxable year means the 
amount by which distributable net income of the trust for such taxable 
year exceeds the sum o
f
^
— 
(1) the amounts for such taxable year specified in paragraphs (1) 
and (2) of section 661 (a); and 
(2) the amount of taxes imposed on the trust. 
(b) ACCUMULATION DISTRIBUTION.—For purposes of this subpart, 
the term "accumulation distribution" for any taxable year of the 
trust means the amount (if in excess of $2,000) by which the amounts 
specified in paragraph (2) of section 661 (a) for such taxable year 
exceed distributable net income reduced by the amounts specified in 
paragraph (1) of section 661 (a). 
For purposes of this subsection, 
the amount specified in paragraph (2) of section 661 (a) shall be 
determined without regard to section 666 and shall not include— 
(1) amounts paid, credited, or required to be distributed to a 
beneficiary as income accumulated before the birth of such bene-
ficiary or before such beneficiary attains the age of 21; 
(2) amounts properly paid or credited to a beneficiary to meet 
the emergency needs of such beneficiary; 
(3) amounts properly paid or credited to a beneficiary upon such 
beneficiary's attaining a specified age or ages if— 
(A) the total number of such distributions cannot exceed 4 
•with respect to such beneficiary, 
(B) the period between each such distribution to such bene-
ficiary is 4 years or more, and 
(C) as of January 1, 1954, such distributions are required by 
the specific terms of the governing instrument; and 
(4) amounts properly paid or credited to a beneficiary as a final 
distribution of the trust if such final distribution is made more 
than 9 years after the date of the last transfer to such trust, 
(c) TAXES IMPOSED ON THE TRUST.—For purposes of this subpart, 
the term "taxes imposed on the trust" means the amount of the taxes 
which are imposed for any taxable year on the trust under this chapter 
(without regard to this subpart) and which, under regulations pre-
scribed by the Secretary or his delegate, are properly allocable to 
the undistributed portion of the distributable net income. 
The 
amount determined in the preceding sentence shall be reduced by 
any amount of such taxes allowed, under sections 667 and 668, as a 
credit to any beneficiary on account of any accumulation distribution 
determined for any taxable year. 
§ 665(c) 
224 
INTERNAL REVENUE CODE OF 1954 
(d) PRECEDING TAXABLE YEAR.—For purposes of this subpart, the 
term "preceding taxable year" does not include any taxable year of 
the trust to which this part does not apply. In the case of a preceding 
taxable year with respect to which a trust qualifies (without regard 
to this subpart) under the provisions of subpart B, for purposes of 
the application of this subpart to such trust for such taxable year, 
such trust shall, in accordance with regulations prescribed by the 
Secretary or his delegate, be treated as a trust to which subpart C 
applies. 
SEC. 666. ACCUMULATION DISTRIBUTION ALLOCATED TO 5 PRECED-
ING YEARS. 
(a) AMOUNT ALLOCATED.—In the case of a trust which for a taxable 
year beginning after December 31, 1953, is subject to subpart C, the 
amount of the accumulation distribution of such trust for such tax-
able year shall be deemed to be an amount within the meaning of 
paragraph (2) of section 661 (a) distributed on the last day of each 
of the 5 preceding taxable years to the extent that such amount 
exceeds the total of any undistributed net incomes for any taxable 
years intervening between the taxable year with respect to which 
the accumulation distribution is determined and such preceding tax-
able year. 
The amount deemed to be distributed in any such pre-
ceding taxable year under the preceding sentence shall not exceed 
the undistributed net income of such preceding taxable year. 
For 
purposes of this subsection, undistributed net income for each of 
such 5 preceding taxable years shall be computed without regard to 
such accumulation distribution and without regard to any accumula-
tion distribution determined for any succeeding taxable year. 
(b) TOTAL TAXES DEEMED DISTRIBUTED.—If any portion of an ac-
cumulation distribution for any taxable year is deemed under sub-
section (a) to be an amount within the meaning of paragraph (2) of 
section 661 (a) distributed on the last day of any preceding taxable 
year, and such portion of such accumulation distribution is not less 
than the undistributed net income for such preceding taxable year, 
the trust shall be deemed to have distributed on the last day of such 
preceding taxable year an additional amount within the meaning of 
paragraph (2) of section 661 (a). 
Such additional amount shall be 
equal to the taxes imposed on the trust for such preceding taxable year. 
For purposes of this subsection, the undistributed net income and the 
taxes imposed on the trust for such preceding taxable year shall be 
computed without regard to such accumulation distribution and 
without regard to any accumulation distribution determined for any 
succeeding taxable year. 
(c) PRO RATA 
PORTION OF TAXES DEEMED 
DISTRIBUTED.—If 
any portion of an accumulation distribution for any taxable year 
is deemed under subsection (a) to be an amount within the mean-
ing of paragraph (2) of section 661 (a) distributed on the last day of 
any preceding taxable year and such portion of the accumulation dis-
tribution is less than the undistributed net income for such preceding 
taxable year, the trust shall be deemed to have distributed on the last 
day of such preceding taxable year an additional amount within the 
meaning of paragraph (2) of section 661 (a). Such additional amount 
shall be equal to the taxes imposed on the trust for such taxable year 
§ 665(d) 
CH. 1—NORMAL TAXES AND SURTAXES 
225 
multiplied by the ratio of the portion of the accumulation distribution 
to the undistributed net income of the trust for such year. 
For pur-
poses of this subsection, the undistributed net income and the taxes 
imposed on the trust for such preceding taxable year shall be com-
puted without regard to the accumulation distribution and without 
regard to any accumulation distribution determined for any succeed-
ing taxable year. 
SEC. 667. DENIAL OF REFUND TO TRUSTS. 
The amount of taxes imposed on the trust under this chapter, 
which would not have been payable by the trust for any preceding 
taxable year had the trust in fact made distributions at the times and 
in the amounts deemed under section 666, shall not be refunded or 
credited to the trust, but shall be allowed as a credit under section 
668 (b) against the tax of the beneficiaries who are treated as having 
received the distributions. 
For purposes of the preceding sentence, 
the amount of taxes which may not be refunded or credited to the 
trust shall be an amount equal to the excess of (1) the taxes imposed 
on the trust for any preceding taxable year (computed without regard 
to the accumulation distribution for the taxable year) over (2) the 
amount of taxes for such preceding taxable year imposed on the 
undistributed portion of distributable net income of the trust for 
such preceding taxable year after the application of this subpart on 
account of the accumulation distribution determined for such taxable 
year. 
SEC. 668. TREATMENT OF AMOUNTS DEEMED DISTRIBUTED IN 
PRECEDING YEARS. 
(a) AMOUNTS TREATED AS RECEIVED IN PRIOR TAXABLE YEARS.— 
The total of the amounts which are treated under section 666 as having 
been distributed by the trust in a preceding taxable year shall be 
included in the income of a beneficiary or beneficiaries of the trust 
when paid, credited, or required to be distributed to the extent that 
such total would have been included in the income of such beneficiary 
or beneficiaries under section 662 (a) (2) and (b) if such total had been 
paid to such beneficiary or beneficiaries on the last day of such pre-
ceding taxable year. 
The portion of such total included under the 
preceding sentence in the income of any beneficiary shall be based 
upon the same ratio as determined under the second sentence of section 
662 (a) (2) for the taxable year in respect of which the accumulation 
distribution is determined, except that proper adjustment of such 
ratio shall be made, in accordance with regulations prescribed by the 
Secretary or his delegate, for amounts which fall within paragraphs 
(1) through (4) of section 665 (b). The tax of the beneficiaries attrib-
utable to the amounts treated as having been received on the last 
day of such preceding taxable year of the trust shall not be greater 
than the aggregate of the taxes attributable to those amounts had 
they been included in the gross income of the beneficiaries on such 
day in accordance with section 662 (a) (2) and (b). 
(b) 
CREDIT FOR TAXES PAID BY TRUST.—The tax imposed 
on 
beneficiaries under this chapter shall be credited with a pro rata 
portion of the taxes imposed on the trust under this chapter for such 
preceding taxable year which would not have been payable by the 
§ 668(b) 
226 
INTERNAL REVENUE CODE OF 1954 
trust for such preceding taxable year had the trust in fact made dis-
tributions to such beneficiaries at the times and in the amounts 
specified in section 666. 
Subpart E—Grantors and Others Treated as Substantial Owners 
Sec. 671. Trust income, deductions, and credits attributable to 
grantors and others as substantial owners. 
Sec. 672. Definitions and rules. 
Sec. 673. Reversionary interests. 
Sec. 674. Power to control beneficial enjoyment. 
Sec. 675. Administrative powers. 
Sec. 676. Power to revoke. 
Sec. 677. Income for benefit of grantor. 
Sec. 678. Person other than grantor treated as substantial owner. 
SEC. 671. TRUST INCOME, DEDUCTIONS, AND CREDITS ATTRIBUTABLE 
TO GRANTORS AND OTHERS AS SUBSTANTIAL OWNERS. 
Where it is specified in this subpart that the grantor or another 
person shall be treated as the owner of any portion of a trust, there 
shall then be included in computing the taxable income and credits of 
the grantor or the other person those items of income, deductions, and 
credits against tax of the trust which are attributable to that portion 
of the trust to the extent that such items would be taken into account 
under this chapter in computing taxable income or credits against the 
tax of an individual. 
Any remaining portion of the trust shall be 
subject to subparts A through D. 
No items of a trust shall be in-
cluded in computing the taxable income and credits of the grantor or 
of any other person solely on the grounds of his dominion and control 
over the trust under section 61 (relating to definition of gross income) 
or any other provision of this title, except as specified in this subpart. 
SEC. 672. DEFINITIONS AND RULES. 
(a) ADVERSE PARTY.—For purposes of this subpart, the term 
"adverse party" means any person having a substantial beneficial 
interest in the trust which would be adversely affected by the exercise 
or nonexercise of the power which he possesses respecting the trust. 
A person having a general power of appointment over the trust 
property shall be deemed to have a beneficial interest in the trust. 
(b) NoNADVERSE PARTY.—For purposes of this subpart, the term 
"nonadverse party" means any person who is not an adverse party. 
(c) RELATED OR SUBORDINATE PARTY.—For purposes of this sub-
part, the term "related or subordinate party" means any nonadverse 
party who is— 
(1) the grantor's spouse if living with the grantor; 
(2) any one of the following: The grantor's father, mother, issue, 
brother or sister; an employee of the grantor; a corporation or any 
employee of a corporation in which the stock holdings of the grantor 
and the trust are significant from the viewpoint of voting control; 
a subordinate employee of a corporation in which the grantor is 
an executive. 
For purposes of sections 674 and 675, a related or subordinate party 
shall be presumed to be subservient to the grantor in respect of the 
exercise or nonexercise of the powers conferred on him unless such 
party is shown not to be subservient by a preponderance of the 
evidence. 
§ 668(b) 
CH. 1 
NORMAL TAXES AND SURTAXES 
227 
(d) RULE WHERE POWER I S SUBJECT TO CONDITION PRECEDENT.— 
A person shall be considered to have a power described in this subpart 
even though the exercise of the power is subject to a precedent giving 
of notice or takes effect only on the expiration of a certain period after 
the exercise of the power. 
SEC. 673. REVERSIONARY INTERESTS. 
(a) GENERAL RULE. —The grantor shall be treated as the owner of 
any portion of a trust in which he has a reversionary interest in either 
the corpus or the income therefrom if, as of the inception of that por-
tion of the trust, the interest will or may reasonably be expected to 
take effect in possession or enjoyment within 10 years commencing 
with the date of the transfer of that portion of the trust. 
(b) EXCEPTION 
WHERE 
INCOME 
I S 
PAYABLE 
TO 
CHARITABLE 
BENEFICIARIES.—Subsection (a) shall not apply to the extent that 
the income of a portion of a trust in which the grantor has a rever-
sionary interest is, under the terms of the trust, irrevocably payable 
for a period of at least 2 years (commencing with the date of the 
transfer) to a designated beneficiary, which beneficiary is of a type 
described in section 170 (b) (1) (A) (i), (ii), or (iii). 
(c) REVERSIONARY 
INTEREST 
TAKING 
EFFECT 
AT 
DEATH 
OF 
INCOME BE^^JEFICIARY.—The grantor shall not be treated under sub-
section (a) as the o^vner of any portion of a trust where his reversion-
ary interest in such portion is not to take effect in possession or enjoy-
ment until the death of the person or persons to whom the income 
therefrom is payable. 
(d) POSTPONEMENT OF DATE SPECIFIED FOR REACQUISITION.—Any 
postponement of the date specified for the reacquisition of possession 
or enjoyment of the reversionary interest shall be treated as a new 
transfer in trust commencing with the date on which the postpone-
ment is effected and terminating with the date prescribed by the 
postponement. 
However, income for any period shall not be in-
cluded in the income of the grantor by reason of the preceding sentence 
if such income would not be so includible in the absence of such 
postponement. 
SEC. 674. POWER TO CONTROL BENEFICIAL ENJOYMENT. 
(a) GENERAL RULE.—The grantor shall be treated as the owner of 
any portion of a trust in respect of which the beneficial enjoyment of 
the corpus or the income therefrom is subject to a power of disposition, 
exercisable by the grantor or a nonadverse party, or both, without 
the approval or consent of any adverse party. 
(b) EXCEPTIONS FOR CERTAIN POWERS.—Subsection (a) shall not 
apply to the following powers regardless of by whom held: 
(1) POWER TO APPLY INCOME TO SUPPORT OF A DEPENDENT.—A 
power described in section 677 (b) to the extent that the grantor 
would not be subject to tax under that section. 
(2) POWER 
AFFECTING 
BENEFICIAL 
ENJOYMENT 
ONLY 
AFTER 
EXPIRATION OF 10-YEAR PERIOD.—A powcr, the cxercise of which 
can only affect the beneficial enjoyment of the income for a period 
commencing after the expiration of a period such that a grantor 
would not be treated as the owner under section 673 if the power 
were a reversionary interest; but the grantor may be treated as the 
§ 674(b)(2) 
228 
INTERNAL REVENUE CODE 
OF 
1954 
owner after the expiration of the period unless the power is 
reUnquished. 
(3) POWER EXERCISABLE ONLY BY WILL.—A power- exercisable 
only by will, other than a power in the grantor to appoint by will 
the income of the trust where the income is accumulated for such 
disposition by the grantor or may be so accumulated in the dis-
cretion of the grantor or a nonadverse party, or both, without the 
approval or consent of any adverse party. 
(4) POWER TO ALLOCATE AMONG CHARITABLE BENEFICIARIES.— 
A power to determine the beneficial enjoyment of the corpus or 
the income therefrom if the corpus or income is irrevocably payable 
for a purpose specified in section 170 (c) (relating to definition of 
charitable contributions). 
(5) POWER TO DISTRIBUTE CORPUS.—A power to distribute 
corpus either— 
(A) to or for a beneficiary or beneficiaries or to or for a class 
of beneficiaries (whether or not income beneficiaries) provided 
that the power is limited by a reasonably definite standard which 
is set forth in the trust instrument; or 
(B) to or for any current income beneficiary, provided that 
the distribution of corpus must be chargeable against the pro-
portionate share of corpus held in trust for the payment of income 
to the beneficiary as if the corpus constituted a separate trust. 
A power does not fall within the powers described in this paragraph 
if any person has a power to add to the beneficiary or beneficiaries 
or to a class of beneficiaries designated to receive the income or 
corpus, except where such action is to provide for after-born or 
after-adopted children. 
(6) POWER TO WITHHOLD INCOME TEMPORARILY.—A power to 
distribute or apply income to or for any current income beneficiary 
or to accumulate the income for him, provided that any accumu-
lated income must ultimately be payable— 
(A) to the beneficiary from whom distribution or application 
is withheld, to his estate, or to his appointees (or persons named 
as alternate takers in default of appointment) provided that such 
beneficiary possesses a power of appointment which does not 
exclude from the class of possible appointees any person other 
than the beneficiary, his estate, his creditors, or the creditors of 
his estate, or 
(B) on termination of the trust, or in conjunction with a 
distribution of corpus which is augmented by such accumulated 
income, to the current income beneficiaries in shares which have 
been irrevocably specified in the trust instrument. 
Accumulated income shall be considered so payable although it is 
provided that if any beneficiary does not survive a date of distribu-
tion which could reasonably have been expected to occur within 
the beneficiary's lifetime, the share of the deceased beneficiary is 
to be paid to his appointees or to one or more designated alternate 
takers (other than the grantor or the grantor's estate) whose shares 
have been irrevocably specified. 
A power does not fall within the 
powers described in this paragraph if any person has a power to 
add to the beneficiary or beneficiaries or to a class of beneficiaries 
1674(b)(2) 
CH. 1—NORMAL TAXES AND SURTAXES 
229 
designated to receive the income or corpus except where such 
action is to provide for after-born or after-adopted children. 
(7) POWER 
TO WITHHOLD INCOME 
DURING 
DISABILITY 
OP A 
BENEFICIARY.—A powcr exercisable only during— 
(A) the existence of a legal disability of any current income 
beneficiary, or 
(B) the period during which any income beneficiary shall be 
under the age of 21 years, 
to distribute or apply income to or for such beneficiary or to accumu-
late and add the income to corpus. 
A power does not fall within 
the powers described in this paragraph if any person has a power 
to add to the beneficiary or beneficiaries or to a class of beneficiaries 
designated to receive the income or corpus, except where such action 
is to provide for after-born or after-adopted children. 
(8) POWER TO ALLOCATE BETWEEN 
CORPUS AND INCOME.—A 
power to allocate receipts and disbursements as between corpus 
and income, even though expressed in broad language. 
(c) EXCEPTION 
FOR CERTAIN 
POWERS OF INDEPENDENT 
TRUS-
TEES.—Subsection (a) shall not apply to a power solely exercisable 
(without the approval or consent of any other person) by a trustee or 
trustees, none of whom is the grantor, and no more than half of whom 
are related or subordinate parties who are subservient to the wishes 
of the grantor— 
(1) to distribute, apportion, or accumulate income to or for a 
beneficiary or beneficiaries, or to, for, or within a class of benefici-
aries; or 
(2) to pay out corpus to or for a beneficiary or beneficiaries 
or to or for a class of beneficiaries (whether or not income benefici-
aries). 
A power does not fall within the powers described in this subsection 
if any person has a power to add to the beneficiary or beneficiaries or 
to a class of beneficiaries designated to receive the income or corpus, 
except where such action is to provide for after-born or after-adopted 
children. 
(d) POWER TO ALLOCATE INCOME IF LIMITED BY A STANDARD.— 
Subsection (a) shall not apply to a power solely exercisable (without 
the approval or consent of any other person) by a trustee or trustees, 
none of whom is the grantor or spouse living with the grantor, to 
distribute, apportion, or accumulate income to or for a beneficiary or 
beneficiaries, or to, for, or within a class of beneficiaries, whether or 
not the conditions of paragraph (6) or (7) of subsection (b) are satisfied, 
if such power is limited by a reasonably definite external standard 
which is set forth in the trust instrument, 
A power does not fall 
within the powers described in this subsection if any person has a 
power to add to the beneficiary or beneficiaries or to a class of bene-
ficiaries designated to receive the income or corpus except where such 
action is to provide for after-born or after-adopted children. 
SEC. 675. ADMINISTRATIVE POWERS. 
The grantor shall be treated as the owner of any portion of a trust 
in respect of which— 
(1) POWER TO DEAL FOR LESS THAN ADEQUATE AND FULL CON-
SIDERATION.—A power exercisable by the grantor or a nonadverse 
§ 675(1) 
230 
INTERNAL REVENUE CODE OF 1954 
party, or both, without the approval or consent of any adverse 
party enables the grantor or any person to purchase, exchange, or 
otherwise deal with or dispose of the corpus or the income therefrom 
for less than an adequate consideration in money or money's worth. 
(2) POWER 
TO 
BORROW 
WITHOUT 
ADEQUATE 
INTEREST 
OR 
SECURITY.—A power exercisable by the grantor or a nonadverse 
party, or both, enables the grantor to borrow the corpus or income, 
directly or indirect^, without adequate interest or without adequate 
security except where a trustee (other than the grantor) is author-
ized under a general lending power to make loans to any person 
without regard to interest or security. 
(3) BORROWING OF THE TRUST FUNDS.—The grantor has directly 
or indirectly borrowed the corpus or income and has not completely 
repaid the loan, including any interest, before the beginning of the 
taxable year. 
The preceding sentence shall not apply to a loan 
which provides for adequate interest and adequate security, if such 
loan is made by a trustee other than the grantor and other than a 
related or subordinate trustee subservient to the grantor. 
(4) GENERAL POWERS OF ADMINISTRATION.—A power of adminis-
tration is exercisable in a nonfiduciary capacity by any person with-
out the approval or consent of any person in a fiduciary capacity. 
For purposes of this paragraph, the term "power of administration" 
means any one or more of the following powers: (A) a power to vote 
or direct the voting of stock or other securities of a corporation in 
which the holdings of the grantor and the trust are significant from 
the viewpoint of voting control; (B) a power to control the invest-
ment of the trust funds either by directing investments or reinvest-
ments, or by vetoing proposed investments or reinvestments, to the 
extent that the trust funds consist of stocks or securities of cor-
porations in which the holdings of the grantor and the trust are 
significant from the viewpoint of voting control; or (C) a power to 
reacquire the trust corpus by substituting other property of an 
equivalent value. 
SEC. 676. POWER TO REVOKE. 
(a) GENERAL RULE.—The grantor shall be treated as the owner of 
any portion of a trust, whether or not he is treated as such owner 
under any other provision of this part, where at any time the power 
to revest in the grantor title to such portion is exercisable by the 
grantor or a non-adverse party, or both. 
(b) POWER AFFECTING BENEFICIAL ENJOYMENT ONLY AFTER E X -
PIRATION OF 10-YEAR PERIOD.—Subsection (a) shall not apply to a 
power the exercise of which can only affect the beneficial enjoyment 
of the income for a period commencing after the expiration of a period 
such that a grantor would not be treated as the owner under section 
673 if the power were a reversionary interest. 
But the grantor may 
be treated as the owner after the expiration of such period unless the 
power is relinquished. 
SEC. 
677. INCOME FOR BENEFIT OF GRANTOR. 
(a) GENERAL RULE.—The grantor shall be treated as the owner of 
any portion of a trust, whether or not he is treated as such owner 
under section 674, whose income without the approval or consent of 
§675(1) 
CH. 1 
NORMAL TAXES AND SURTAXES 
231 
any adverse party is, or, in the discretion of the grantor or a non-
adverse party, or both, may be— 
(1) distributed to the grantor; 
(2) held or accumulated for future distribution to the grantor; or 
(3) applied to the payment of premiums on policies of insurance 
on the life of the grantor (except policies of insurance irrevocably 
payable for a purpose specified in section 170 (c) (relating to defini-
tion of charitable contributions)). 
This subsection shall not apply to a power the exercise of which can 
only affect the beneficial enjoyment of the income for a period com-
mencing after the expiration of a period such that the grantor would 
not be treated as the owner under section 673 if the power were a 
reversionary interest; but the grantor may be treated as the owner 
after the expiration of the period unless the power is relinquished. 
(b) OBLIGATIONS OF SUPPORT.—Income of a trust shall not be 
considered taxable to the grantor under subsection (a) or any other 
provision of this chapter merely because such income in the discretion 
of another person, the trustee, or the grantor acting as trustee or 
co-trustee, may be applied or distributed for the support or mainte-
nance of a beneficiary whom the grantor is legally obligated to sup-
port or maintain, except to the extent that such income is so applied 
or distributed. 
In cases where the amounts so applied or distributed 
are paid out of corpus or out of other than income for the taxable 
year, such amounts shall be considered to be an amount paid or 
credited within the meaning of paragraph (2) of section 661 (a) and 
shall be taxed to the grantor under section 662. 
SEC. 678. PERSON OTHER THAN GRANTOR TREATED AS SUBSTAN-
TIAL OWNER. 
(a) GENERAL RULE.—A person other than the grantor shall be 
treated as the owner of any portion of a trust with respect to which: 
(1) such person has a power exercisable solely by himself to vest 
the corpus or the income therefrom in himself, or 
(2) such person has previously partially released or otherwise 
modified such a power and after the release or modification retains 
such control as would, within the principles of sections 671 to 677, 
inclusive, subject a grantor of a trust to treatment as the owner 
thereof. 
(b) EXCEPTION WHERE GRANTOR I S TAXABLE.—Subsection 
(a) 
shall not apply with respect to a power over income, as originally 
granted or thereafter modified, if the grantor of the trust is otherwise 
treated as the owner under sections 671 to 677, inclusive. 
(c) OBLIGATIONS OF SUPPORT.—Subsection (a) shall not apply to a 
power which enables such person, in the capacity of trustee or co-
trustee, merely to apply the income of the trust to the support or 
maintenance of a person whom the holder of the power is obligated to 
support or maintain except to the extent that such income is so applied. 
In cases where the amounts so applied or distributed are paid out of 
corpus or out of other than income of the taxable year, such amounts 
shall be considered to be an amount paid or credited within the 
meaning of paragraph (2) of section 661 (a) and shall be taxed to the 
holder of the power under section 662. 
§ 678(c) 
232 
INTERNAL REVENUE CODE OF 19 54 
(d) EFFECT OF RENUNCIATION OR DISCLAIMER.—Subsection (a) 
shall not apply with respect to a power which has been renounced or 
disclaimed within a reasonable time after the holder of the power first 
became aware of its existence. 
Subpart F—Miscellaneous 
Sec. 681. Limitation on charitable deduction. 
Sec. 682. Income of an estate or trust in case of divorce, etc. 
Sec. 683. Applicability of provisions. 
SEC. 681. LIMITATION ON CHARITABLE 
DEDUCTION. 
(a) TRADE OR BUSINESS INCOME.—In computing the deduction 
allowable under section 642 (c) to a trust, no amount otherwise allow-
able under section 642 (c) as a deduction shall be allowed as a deduc-
tion with respect to income of the taxable year which is allocable to 
its unrelated business income for such year. For purposes of the 
preceding sentence, the term "unrelated business income" means an 
amount equal to the amount which, if such trust were exempt from 
tax under section 501 (a) by reason of section 501 (c) (3), would be 
computed as its unrelated business taxable income under section 512 
(relating to income derived from certain business activities and from 
certain leases). 
(b) OPERATIONS OF TRUSTS.— 
(1) LIMITATION ON CHARITABLE, ETC., DEDUCTION.—The amount 
otherwise allowable under section 642 (c) as a deduction shall not 
exceed 20 percent of the taxable income of the trust (computed with-
out the benefit of section 642 (c) but with the benefit of section 
170 (b) (1) (A)) if the trust has engaged in a prohibited transaction, 
as defined in paragraph (2). 
(2) PROHIBITED TRANSACTIONS.—For purposes of this subsection, 
the term "prohibited transaction" means any transaction after 
July 1, 1950, in which a n y trust while holding income or corpus 
which has been permanently set aside or is to be used exclusively 
for charitable or other purposes described in section 642 (c)— 
(A) lends any part of such income or corpus, without receipt 
of adequate security and a reasonable rate of interest, to; 
(B) pays any compensation from such income or corpus, in 
excess of a reasonable allowance for salaries or other compensation 
for personal services actually rendered, to; 
(C) makes any part of its services available on a preferential 
basis to; 
(D) uses such income or corpus to make any substantial 
purchase of securities or any other property, for more than an 
adequate consideration in money or money's worth, from; 
(E) sells any substantial part of the securities or other property 
comprising such income or corpus, for less than an adequate 
consideration in money or money's worth, to; or 
(F) engages in any other transaction which results in a sub-
stantial diversion of such income or corpus to; 
the creator of such trust; any person who has made a substantial 
contribution to such trust; a member of a family (as defined in 
section 267 (c) (4)) of an individual who is the creator of the trust 
or who has made a substantial contribution to the trust; or a cor-
§ 678(d) 
CH. 1—NORMAL TAXES AND SURTAXES 
2 3 3 
poration controlled by any such creator or person through the 
ownership, directly or indirectly, of 50 percent or more of the total 
combined voting power of all classes of stock entitled to vote or 50 
percent or more of the total value of shares of all classes of stock of 
the corporation. 
(3) TAXABLE YEARS AFFECTED.—The amount otherwise allow-
able under section 642 (c) as a deduction shall be limited as provided 
in paragraph (1) only for taxable years after the taxable year during 
which the trust is notified by the Secretary that it has engaged in 
such transaction, unless such trust entered into such prohibited 
transaction with the purpose of diverting such corpus or income from 
the purposes described in section 642 (c), and such transaction in-
volved a substantial part of such corpus or income. 
(4) FUTURE CHARITABLE, ETC., DEDUCTIONS OF TRUSTS DENIED 
DEDUCTION UNDER PARAGRAPH (d).—If the deduction of any trust 
under section 642 (c) has been limited as provided in this sub-
section, such trust, with respect to any taxable year followmg 
the taxable year in which notice is received of limitation of deduc-
tion under section 642 (c), may, under regulations prescribed by 
the Secretary or his delegate, file claim for the allowance of the 
unlimited deduction under section 642 (c), and if the Secretary, 
pursuant to such regulations, is satisfied that such trust will not 
knowingly again engage in a prohibited transaction, the limitation 
provided in paragraph (1) shall not apply with respect to taxable 
years after the year in which such claim is filed. 
(5) DISALLOWANCE OF CERTAIN CHARITABLE, ETC., DEDUCTIONS.— 
No gift or bequest for religious, charitable, scientific, literary, or 
educational purposes (including the encouragement of art and the 
prevention of cruelty to children or animals), otherwise allowable 
as a deduction under section 170, 545 (b) (2), 642 (c), 2055, 2106 
(a) (2), or 2522, shall be allowed as a deduction if made in trust 
and, in the taxable year of the trust in which the gift or bequest is 
made, the deduction allowed the trust under section 642 (c) is 
limited by paragraph (1). With respect to any taxable year of a 
trust in which such deduction has been so limited by reason of 
entering into a prohibited transaction with the purpose of diverting 
such corpus or income from the purposes described in section 642 
(c), and such transaction involved a substantial part of such income 
or corpus, and which taxable year is the same, or before the, taxable 
year of the trust in which such prohibited transaction occurred, 
such deduction shall be disallowed the donor only if such donor or 
(if such donor is an individual) any member of his family (as defined 
in section 267 (c) (4)) was a party to such prohibited transaction. 
(6) DEFINITION.—For purposes of this subsection, the term "gift 
or bequest" means any gift, contribution, bequest, devise, or legacy, 
or any transfer without adequate consideration. 
(c) ACCUMULATED 
INCOME.—If 
the amounts permanently 
set 
aside, or to be used exclusively for the charitable and other purposes 
described in section 642 (c) during the taxable year or any prior 
taxable year and not actually paid out by the end of the taxable 
year— 
(1) are unreasonable in amount or dm-ation in order to carry 
out such purposes of the trust; 
§ 681(c)(1) 
49012"'—54 
18 
234 
INTERNAL REVENUE CODE OF 1954 
(2) are used to a substantial degree for purposes other than 
those prescribed in section 642 (c); or 
(3) are invested in such a manner as to jeopardize the interests 
of the rehgious, charitable, scientific, etc., beneficiaries, 
the amount otherwise allowable under section 642 (c) as a deduction 
shall be limited to the amount actually paid out during the taxable 
year and shall not exceed 20 percent of the taxable income of the 
trust (computed without the benefit of section 642 (c) but with the 
benefit of section 170 (b) (1) (A)). 
Paragraph (1) shall not apply to 
income attributable to property of a decedent dying before January 1, 
1951, which is transferred under his will to a trust created by such 
will. 
In the case of a trust created by the will of a decedent dying on 
or after January 1, 1951, if income is required to be accumulated 
pursuant to the mandatory terms of the will creating the trust, para-
graph (1) shall apply only to income accumulated during a taxable 
year of the trust beginning more than 21 years after the date of death 
of the last life in being designated in the trust instrument. 
(d) CROSS REFERENCE.— 
For disallowance of certain charitable, etc., deductions 
otherwise 
allowable under section 642 (c), see section 503 (e). 
SEC. 682. INCOME OF AN ESTATE OR TRUST IN CASE OF DIVORCE, 
ETC. 
(a) INCLUSION IN GROSS INCOME OF WIFE.—There shall be included 
in the gross income of a wife who is divorced or legally separated under 
a decree of divorce or of separate maintenance (or who is separated 
from her husband under a written separation agreement) the amount 
of the income of any trust which such wife is entitled to receive and 
which, except for this section, would be includible in the gross income 
of her husband, and such amount shall not, despite any other pro-
vision of this subtitle, be includible in the gross income of such 
husband. 
This subsection shall not apply to that part of any such 
income of the trust which the terms of the decree, written separation 
agreement, or trust instrument fix, in terms of an amount of money 
or a portion of such income, as a sum which is payable for the sup-
port of minor children of such husband. 
In case such income is less 
than the amount specified in the decree, agreement, or instrument, 
for the purpose of applying the preceding sentence, such income, to 
the extent of such sum payable for such support, shall be considered 
a payment for such support. 
(b) W I F E CONSIDERED A BENEFICIARY.—For purposes of com-
puting the taxable income of the estate or trust and the taxable in-
come of a wife to whom subsection (a) or section 71 applies, such wife 
shall be considered as the beneficiary specified in this part. 
A 
periodic payment under section 71 to any portion of which this part 
applies shall be included in the gross income of the beneficiary in the 
taxable year in which under this part such portion is required to be 
included. 
(c) CROSS REFERENCE.— 
For definitions of "husband" and "wife", as used in this section, see 
section 7701 (a) (17). 
§ 681(c)(2) 
CH. 1 
NORMAL TAXES AND SURTAXES 
235 
SEC. 683. APPLICABILITY OF PROVISIONS. 
(a) GENERAL RULE.—This part shall apply only to taxable years 
beginning after December 31, 1953, and ending after the date of the 
enactment of this title. 
(b) EXCEPTIONS.—In the case of any beneficiary of an estate or 
trust— 
(1) this part shall not apply to any amount paid, credited, or to 
be distributed by the estate or trust in any taxable year of such 
estate or trust to which this part does not apply, and 
(2) the Internal Revenue Code of 1939 shall apply for purposes 
of determining the amount includible in the gross income of the 
beneficiary. 
To the extent that any amount paid, credited, or to be distributed 
by an estate or trust in the first taxable year of such estate or trust 
to which this part applies would be treated, if the Internal Revenue 
Code of 1939 were applicable, as paid, credited, or to be distributed 
on the last day of the preceding taxable year, such amount shall not 
be taken into account for purposes of this part but shall be taken into 
account as provided in the Internal Revenue Code of 1939. 
PART 
11—INCOME 
IN 
RESPECT 
OF 
DECEDENTS 
Sec. 691. Recipients of income in respect of decedents. 
Sec. 692. Income taxes of members of Armed Forces on death. 
SEC. 691. RECIPIENTS OF INCOME IN RESPECT OF DECEDENTS. 
(a) INCLUSION IN GROSS INCOME.— 
(1) GENERAL RULE.—The amount of all items of gross income 
in respect of a decedent which are not properly includible in respect 
of the taxable period in which falls the date of his death or a prior 
period (including the amount of all items of gross income in respect 
of a prior decedent, if the right to receive such amount was acquired 
by reason of the death of the prior decedent or by bequest, devise, 
or inheritance from the prior decedent) shall be included in the 
gross income, for the taxable year when received, of: 
(A) the estate of the decedent, if the right to receive the amount 
is acquired by the decedent's estate from the decedent; 
(B) the person who, by reason of the death of the decedent, 
acquires the right to receive the amount, if the right to receive 
the amount is not acquired by the decedent's estate from the 
decedent; or 
(C) the person who acquires from the decedent the right to 
receive the amount by bequest, devise, or inheritance, if the 
amount is received after a distribution by the decedent's estate 
of such right. 
(2) INCOME IN CASE OF SALE, ETC,—If a right, described in 
paragraph (1), to receive an amount is transferred by the estate 
of the decedent or a person who received such right by reason of 
the death of the decedent or by bequest, devise, or inheritance from 
the decedent, there shall be included in the gross income of the 
estate or such person, as the case may be, for the taxable period in 
which the transfer occurs, the fair market value of such right at the 
time of such transfer plus the amount by which any consideration 
§ 691(a)(2) 
236 
INTERNAL REVENUE CODE OF 1954 
for the transfer exceeds such fair market value. 
For purposes of 
this paragraph, the term "transfer" includes sale, exchange, or 
other disposition, or the satisfaction of an installment obligation 
at other than face value, but does not include transmission at death 
to the estate of the decedent or a transfer to a person pursuant to 
the right of such person to receive such amount by reason of the 
death of the decedent or by bequest, devise, or inheritance from the 
decedent. 
(3) CHARACTER OF INCOME DETERMINED BY REFERENCE TO DE-
CEDENT.—The right, described in paragraph (1), to receive an 
amount shall be treated, in the hands of the estate of the decedent 
or any person who acquired such right by reason of the death of the 
decedent, or by bequest, devise, or inheritance from the decedent, 
as if it had been acquired by the estate or such person in the trans-
action in which the right to receive the income was originally de-
rived and the amount includible in gross ^ncome under paragraph 
(1) or (2) shall be considered in the hands of the estate or such person 
to have the character which it would have had in the hands of the 
decedent if the decedent had lived and received such amount. 
(4) INSTALLMENT OBLIGATIONS ACQUIRED FROM DECEDENT.—In 
the case of an installment obligation received by a decedent on 
the sale or other disposition of property, the income from which 
was properly reportable by the decedent on the installment basis 
under section 453, if such obligation is acquired by the decedent's 
estate from the decedent or by any person by reason of the death 
of the decedent or by bequest, devise, or inheritance from the 
decedent— 
(A) an amount equal to the excess of the face amount of such 
obligation over the basis of the obligation in the hands of the 
decedent (determined under section 453 (d)) shall, for the purpose 
of paragraph (1), be considered as an item of gross income in 
respect of the decedent; and 
(B) such obligation shall, for purposes of paragraphs (2) and 
(3), be considered a right to receive an item of gross income 
in respect of the decedent, but the amount includible in gross 
income under paragraph (2) shall be reduced by an amount equal 
to the basis of the obligation in the hands of the decedent (de-
termined under section 453 (d)). 
(b) ALLOWANCE OF DEDUCTIONS AND CREDIT.—The amount of any 
deduction specified in section 162, 163, 164, 212, or 611 (relating to 
deductions for expenses, interest, taxes, and depletion) or credit 
specified in section 33 (relating to foreign tax credit), in respect of a 
decedent which is not properly allowable to the decedent in respect 
of the taxable period in which falls the date of his death, or a prior 
period, shall be allowed: 
(1) EXPENSES, INTEREST, AND TAXES.—In the case of a deduc-
tion specified in section 162, 163, 164, or 212 and a credit specified 
in section 33, in the taxable year when paid— 
(A) to the estate of the decedent; except that 
(B) if the estate of the decedent is not liable to discharge the 
obligation to which the deduction or credit relates, to the person 
who, by reason of the death of the decedent or by bequest, devise, 
§ 691(a)(2) 
CH. 1—NORMAL TAXES AND SURTAXES 
237 
or inheritance acquires, subject to such obligation, from the 
decedent an interest in property of the decedent. 
(2) DEPLETION.—In the case of the deduction specified in section 
611, to the person described in subsection (a) (1) (A), (B), or (C) 
who, in the manner described therein, receives the income to which 
the deduction relates, in the taxable year when such income is 
received. 
(c) DEDUCTION FOR ESTATE T A X . — 
(1) ALLOWANCE OF DEDUCTION.— 
(A) GENERAL RULE.—A person who includes an amount in 
gross income under subsection (a) shall be allowed, for the same 
taxable year, as a deduction an amount which bears the same 
ratio to the estate tax attributable to the net value for estate 
tax purposes of all the items described in subsection (a) (1) as 
the value for estate tax purposes of the items of gross income or 
portions thereof in respect of which such person included the 
amount in gross income (or the amount included in gross income, 
whichever is lower) bears to the value for estate tax purposes 
of all the items described in subsection (a) (1). 
(B) ESTATES AND TRUSTS.—In the case of an estate or trust, 
the amount allowed as a deduction under subparagraph (A) shall 
be computed by excluding from the gross income of the estate or 
trust the portion (if any) of the items described in subsection (a) 
(1) which is properly paid, credited, or to be distributed to the 
beneficiaries during the taxable year. 
This subparagraph shall 
apply to the same taxable years, and to the same extent, as is 
provided in section 683. 
(2) METHOD OF COMPUTING DEDUCTION.—^For purposes of para-
-. graph (1)— 
(A) The term "estate tax" means the tax imposed on the 
estate of the decedent or any prior decedent under section 2001 
or 2101, reduced by the credits against such tax. 
(B) The net value for estate tax purposes of all the items de-
scribed in subsection (a) (1) shall be the excess of the value for 
estate tax purposes of all the items described in subsection (a) (1) 
over the deductions from the gross estate in respect of claims 
which represent the deductions and credit described in subsec-
tion (b). 
Such net value shall be determined with regard to the 
provisions of section 421 (d) (6) (B), relating to the deduction 
for estate tax with respect to restricted stock options. 
(C) The estate tax attributable to such net value shall be an 
amount equal to the excess of the estate tax over the estate tax 
computed without including in the gross estate such net value. 
(d) AMOUNTS RECEIVED BY SURVIVING ANNUITANT UNDER JOINT 
AND SURVIVOR ANNUITY CONTRACT.^— 
(1) DEDUCTION FOR ESTATE TAX.-—For purposes of computing 
the deduction under subsection (c) (1) (A), amounts received by a 
surviving annuitant-— 
(A) as an annuity under a joint and survivor annuity contract 
where the decedent annuitant died after December 31, 1953, and 
after the annuitj^ starting date (as defined in section 72 (c) (4)), 
and 
§ 691(d)(1)(A) 
238 
INTERNAL REVENUE CODE OF 1954 
(B) during the surviving annuitant's life expectancy period, 
shall, to the extent included in gross income under section 72, be 
considered as amounts included in gross income under subsection (a). 
(2) N E T VALUE FOR ESTATE TAX PURPOSES.-—In determining the 
net value for estate tax purposes under subsection (c) (2) (B) for 
purposes of this subsection, the value for estate tax purposes of the 
items described in paragraph (1) of this subsection shall be com-
puted^— 
(A) by determining the excess of the value of the annuity at 
the date of the death of the deceased annuitant over the total 
amount excludable from the gross income of the surviving annui-
tant under section 72 during the surviving annuitant's life 
expectancy period, and 
(B) by multiplying the figure so obtained by the ratio which 
the value of the annuity for estate tax purposes bears to the 
value of the annuity at the date of the death of the deceased. 
(3) DEFINITIONS.—For purposes of this subsection— 
(A) The term "life expectancy period" means the period begin-
ning with the first day of the first period for which an amount 
is received by the surviving annuitant under the contract and 
ending with the close of the taxable year with or in which falls 
the termination of the life expectancy of the surviving annuitant. 
For purposes of this subparagraph, the life expectancy of the 
surviving annuitant shall be determined, as of the date of the 
death of the deceased annuitant, with reference to actuarial 
tables prescribed by the Secretary or his delegate. 
(B) The surviving annuitant's expected return under the con-
tract shall be computed, as of the death of the deceased annuitant, 
with reference to actuarial tables prescribed by the Secretary or 
his delegate. 
(e) CROSS REFERENCE.— 
For application of this section to income in respect of a deceased 
partner, see section 753. 
SEC. 692. INCOME TAXES ON MEMBERS OF ARMED FORCES ON 
DEATH. 
In the case of any individual who dies during an induction period 
(as defined in section 112 (c) (5)) while in active service as a member 
of the Armed Forces of the United States, if such death occurred 
while serving in a combat zone (as determined under section 112) or 
as a result of wounds, disease, or injury incurred while so serving— 
(1) any tax imposed by this subtitle shall not apply with respect 
to the taxable year in which falls the date of his death, or with 
respect to any prior taxable year ending on or after the first day he 
so served in a combat zone after June 24, 1950; and 
(2) any tax under this subtitle and under the corresponding pro-
visions of prior revenue laws for taxable years preceding those 
specified in paragraph (1) which is unpaid at the date of his death 
(including interest, additions to the tax, and additional amounts) 
shall not be assessed, and if assessed the assessment shall be abated, 
and if collected shall be credited or refunded as an overpayment. 
§ 691(d)(1)(B) 
CH. 1—NORMAL TAXES AND SURTAXES 
239 
Subchapter K—Partners and Partnerships 
Part 
I. Determination of tax liability. 
Part II. Contributions, distributions, and transfers. 
' 
Part III. Definitions. 
Part IV. Effective date for subchapter. 
PART I—DETERMINATION OF TAX LIABILITY 
Sec. 701. Partners, not partnership, subject to tax. 
Sec. 702. Income and credits of partner. 
7* 
Sec. 703. Partnership computations. 
Sec. 704. Partner's distributive share. 
Sec. 705. Determination of basis of partner's interest. 
~% 
Sec. 706. Taxable years of partner and partnership. 
Sec. 707. Transactions between partner and partnership. 
Sec. 708. Continuation of partnership. 
SEC. 701. PARTNERS, NOT PARTNERSHIP, SUBJECT TO TAX. 
A partnership as such shall not be subject to the income tax imposed 
by this chapter. 
Persons carrying on business as partners shall be 
liable for income tax only in their separate or individual capacities. 
SEC. 702. INCOME AND CREDITS OF PARTNER. 
(a) GENERAL RULE.—In determining his income tax, each partner 
shall take into account separately his distributive share of the 
partnership's— 
(1) gains and losses from sales or exchanges of capital assets held 
for not more than 6 months, 
(2) gains and losses from sales or exchanges of capital assets held 
for more than 6 months, 
(3) gains and losses from sales or exchanges of property described 
in section 1231 (relating to certain property used in a trade or 
business and involuntary conversions), 
(4) charitable contributions (as defined in section 170 (c)), 
(5) dividends with respect to which there is provided a credit 
under section 34, an exclusion under section 116, or a deduction 
under part VIII of subchapter B, 
(6) taxes, described in section 901, paid or accrued to foreign 
countries and to possessions of the United States, 
(7) partially tax-exempt interest on obligations of the United 
States or on obligations of instrumentalities of the United States 
as described in section 35 or section 242 (but, if the partnership 
elects to amortize the premiums on bonds as provided in section 
171, the amount received on such obligations shall be reduced by 
the reduction provided under section 171 (a) (3)), 
(8) other items of income, gain, loss, deduction, or credit, to the 
extent provided by regulations prescribed by the Secretary or his 
delegate, and 
(9) taxable income or loss, exclusive of items requiring separate 
computation under other paragraphs of this subsection. 
1702(a)(9) 
240 
INTERNAL REVENUE CODE OF 1954 . 
(b) 
CHARACTER OF ITEMS CONSTITUTING DISTRIBUTIVE SHARE,— 
The character of any item of income, gain, loss, deduction, or credit 
included in a partner's distributive share under paragraphs (1) through 
(8) of subsection (a) shall be determined as if such item were realized 
directly from the source from which reahzed by the partnership, or 
incurred in the same manner as incurred by the partnership. 
(c) GROSS INCOME OF A PARTNER.—In any case where it is necessary 
to determine the gross income of a partner for purposes of this title, 
such amount shall include his distributive share of the gross income of 
the partnership. 
SEC. 703. PARTNERSHIP COMPUTATIONS. 
(a) INCOME AND DEDUCTIONS.—The taxable income of a partner-
ship shall be computed in the same manner as in the case of an indi-
vidual except that— 
(1) the items described in section 702 (a) shall be separately 
stated, and 
(2) the following deductions shall not be allowed to the partner-
ship : 
(A) the standard deduction provided in section 141, 
(B) the deductions for personal exemptions provided in section 
151, 
(C) the deduction for taxes provided in section 164 (a) with 
respect to taxes, described in section 901, paid or accrued to 
foreign countries and to possessions of the United States, 
(D) the deduction for charitable contributions provided in 
section 170, 
(E) the net operating loss deduction provided in section 172, 
and 
(F) the additional itemized deductions for individuals pro-
vided in part VII of subchapter B (sec. 211 and following). 
(b) ELECTIONS OF THE PARTNERSHIP.—Any election affecting the 
computation of taxable income derived from a partnership shall be 
made by the partnership, except that the election under section 901, 
relating to taxes of foreign countries and possessions of the United 
States, shall be made by each partner separately. 
SEC. 704. PARTNER'S DISTRIBUTIVE SHARE. 
(a) EFFECT OF PARTNERSHIP AGREEMENT.^—A partner's distributive 
share of income, gain, loss, deduction, or credit shall, except as other-
wise provided in this section, be determined by the partnership agree-
ment. 
(b) DISTRIBUTIVE 
SHARE 
DETERMINED 
BY 
INCOME 
OR Loss 
RATIO.—A partner's distributive share of any item of income, gain, 
loss, deduction, or credit shall be determined in accordance with his 
distributive share of taxable income or loss of the partnership, as 
described in section 702 (a) (9), for the taxable year, if— 
(1) the partnership agreement does not provide as to the partner's 
distributive share of such item, or 
(2) the principal purpose of any provision in the partnership 
agreement with respect to the partner's distributive share of such 
item is the avoidance or evasion of any tax imposed by this subtitle. 
(c) CONTRIBUTED PROPERTY.— 
§ 702(b) 
C H . 1—NORMAL TAXES AND SURTAXES 
2 4 1 
(1) GENEEAL RULE.—In determining a partner's distributive 
share of items described in section 702 (a), depreciation, depletion, 
or gain or loss with respect to property contributed to the partner-
ship by a partner shall, except to the extent otherwise provided in 
paragraph (2) or (3), be allocated among the partners in the same 
manner as if such property had been purchased by the partnership. 
(2) EFFECT OF PARTNERSHIP AGREEMENT.—If the partnership 
agreement so provides, depreciation, depletion, or gain or loss 
with respect to property contributed to the partnership by a 
partner shall, under regulations prescribed by the Secretary or his 
delegate, be shared among the partners so as to take account of 
the variation between the basis of the property to the partnership 
and its fair market value at the time of contribution. 
(3) UNDIVIDED INTERESTS.—If the partnership agreement does 
not provide otherwise, depreciation, depletion, or gain or loss with 
respect to undivided interests in property contributed to a part-
nership shall be determined as though such undivided interests had 
not been contributed to the partnership. 
This paragraph shall 
apply only if all the partners had undivided interests in such 
property prior to contribution and their interests in the capital and 
profits of the partnership correspond with such undivided interests. 
(d) LIMITATION ON ALLOWANCE OF LOSSES.—A partner's distribu-
tive share of partnership loss (including capital loss) shall be allowed 
only to the extent of the adjusted basis of such partner's interest in 
the partnership at the end of the partnership year in which such loss 
occurred. Any excess of such loss over such basis shall be allowed as 
a deduction at the end of the partnership year in which such excess 
is repaid to the partnership. 
(e) FAMILY PARTNERSHIPS.— 
(1) RECOGNITION OF INTEREST CREATED BY PURCHASE OR GIFT.— 
A person shall be recognized as a partner for purposes of this sub-
title if he owns a capital interest in a partnership in which capital is 
a material income-producing factor, whether or not such interest 
was derived by purchase or gift from any other person. 
(2) DISTRIBUTIVE SHARE OF DONEE INCLUDIBLE IN GROSS IN-
COME.—In the case of any partnership interest created by gift, the 
distributive share of the donee under the partnership agreement 
shall be includible in his gross income, except to the extent that 
such share is determined without allowance of reasonable compen-
sation for services rendered to the partnership by the donor, and 
except to the extent that the portion of such share attributable to 
donated capital is proportionately greater than the share of the 
donor attributable to the donor's capital. The distributive share 
of a partner in the earnings of the partnership shall not be dimin-
ished because of absence due to military service. 
(3) PURCHASE OF INTEREST BY MEMBER OF FAMILY.—For pur-
poses of this section, an interest purchased by one member of a 
family from another shall be considered to be created by gift from 
the seller, and the fair market value of the purchased interest shall 
be considered to be donated capital. The "family" of any indi-
vidual shall include only his spouse, ancestors, and lineal descend-
ants, and any trusts for the primary benefit of such persons. 
§ 704(e)(3) 
242 
INTERNAL REVENUE CODE OF 1954 
SEC. 705. DETERMINATION OF BASIS OF PARTNER'S INTEREST. 
(a) GENERAL RULE.—The adjusted basis of a partner's interest in 
a partnership shall, except as provided in subsection (b), be the basis 
of such interest determined under section 722 (relating to contribu-
tions to a partnership) or section 742 (relating to transfers of partner-
ship interests)— 
(1) increased by the sum of his distributive share for the taxable 
year and prior taxable years of— 
(A) taxable income of the partnership as determined under 
section 703 (a), 
(B) income of the partnership exempt from tax under this 
title, and 
(C) the excess of the deductions for depletion over the basis 
of the property subject to depletion; and 
(2) decreased (but not below zero) by distributions by the part-
nership as provided in section 733 and by the sum of his distributive 
share for the taxable year and prior taxable years of— 
(A) losses of the partnership, and 
(B) expenditures of the partnership not deductible in comput-
ing its taxable income and not properly chargeable to capital 
account. 
(b) ALTERNATIVE 
RULE.—The Secretary or his delegate shall 
prescribe by regulations the circumstances under which the adjusted 
basis of a partner's interest in a partnership may be determined by 
reference to his proportionate share of the adjusted basis of partner-
ship property upon a termination of the partnership. 
SEC. 
706. 
TAXABLE YEARS OF PARTNER AND PARTNERSHIP. 
(a) YEAR IN WHICH PARTNERSHIP INCOME IS INCLUDIBLE.—In 
computing the taxable income of a partner for a taxable year, the 
inclusions required by section 702 and section 707 (c) with respect 
to a partnership shall be based on the income, gain, loss, deduction, 
or credit of the partnership for any taxable year of the partnership 
ending within or with the taxable year of the partner. 
(b) ADOPTION OF TAXABLE YEAR.— 
(1) PARTNERSHIP'S 
TAXABLE 
YEAR.—The taxable year of a 
partnership shall be determined as though the partnership were a 
taxpayer. 
A partnership may not change to, or adopt, a taxable 
year other than that of all its principal partners unless it establishes, 
to the satisfaction of the Secretary or his delegate, a business purpose 
therefor. 
(2) PARTNER'S TAXABLE YEAR.—A partner may not change to a 
taxable year other than that of a partnership in which he is a 
principal partner unless he establishes, to the satisfaction of the 
Secretary or his delegate, a business purpose therefor. 
(3) PRINCIPAL PARTNER.—^For the purpose of this subsection, a 
principal partner is a partner having an interest of 5 percent or 
more in partnership profits or capital. 
(c) CLOSING OF PARTNERSHIP YEAR.^—• 
(1) GENERAL RULE.—Except in the case of a termination of a 
partnership and except as provided in paragraph (2) of this sub-
section, the taxable year of a partnership shall not close as the 
result of the death of a partner, the entry of a new partner, the 
§705 
CH. 1—NORMAL TAXES AND SURTAXES 
243 
liquidation of a partner's interest in the partnership, or the sale or 
exchange of a partner's interest in the partnership. 
(2) 
PARTNER WHO RETIRES OR SELLS INTEREST IN PARTNERSHIP.— 
(A) DISPOSITION OF ENTIRE INTEREST.—^The taxable year of a 
partnership shall close— 
(i) with respect to a partner who sells or exchanges his entire 
interest in a partnership, and 
(ii) with respect to a partner whose interest is liquidated, 
except that the taxable year of a partnership with respect to 
a partner who dies shall not close prior to the end of the partner-
ship's taxable year. 
Such partner's distributive share of items described in section 
702 (a) for such year shall be determined, under regulations pre-
scribed by the Secretary or his delegate, for the period ending 
with such sale, exchange, or liquidation. 
(B) 
DISPOSITION OF LESS THAN ENTIRE INTEREST.—The taxable 
year of a partnership shall not close (other than at the end of a 
partnership's taxable year as determined under subsection (b) 
(1)) with respect to a partner who sells or exchanges less than 
his entire interest in the partnership or with respect to a partner 
whose interest is reduced, but such partner's distributive share 
of items described in section 702 (a) shall be determined by 
taking into account his varying interests in the partnership 
during the taxable year. 
SEC. 707. TRANSACTIONS BETWEEN PARTNER AND PARTNERSHIP. 
(a) PARTNER NOT ACTING IN CAPACITY AS PARTNER.—If a partner 
engages in a transaction with a partnership other than in his capacity 
as a member of such partnership, the transaction shall, except as 
otherwise provided in this section, be considered as occurring between 
the partnership and one who is not a partner. 
(b) CERTAIN SALES OR EXCHANGES OF PROPERTY WITH RESPECT 
TO CONTROLLED PARTNERSHIPS.— 
(1) LOSSES DISALLOWED.—No deduction shall be allowed in 
respect of losses from sales or exchanges of property (other than an 
interest in the partnership), directly or indirectly, between— 
(A) a partnership and a partner owning, directly or indirectly, 
more than 50 percent of the capital interest, or the profits interest, 
in such partnership, or 
(B) two partnerships in which the same persons own, directly 
or indirectly, more than 50 percent of the capital interests or 
profits interests. 
In the case of a subsequent sale or exchange by a transferee de-
scribed in this paragraph, section 267 (d) shall be applicable as if 
the loss were disallowed under section 267 (a) (1). 
(2) GAINS TREATED AS ORDINARY INCOME.—In the case of a sale 
or exchange, directly or indirectly, of property, which in the hands 
of the transferee, is property other than a capital asset as defined in 
section 1221— 
(A) between a partnership and a partner owning, directly or 
indirectly, more than 80 percent of the capital interest, or profits 
interest, in such partnership, or 
§ 707(b)(2)(A) 
244 
INTERNAL REVENUE CODE OF 1954 
(B) between two partnerships in which the same persons own, 
directly or indirectly, more than 80 percent of the capital interests 
or profits interests, 
any gain recognized shall be considered as gain from the sale or 
exchange of property other than a capital asset. 
(3) OWNERSHIP OF A CAPITAL OR PROFITS INTEREST.—For pur-
poses of paragraphs (1) and (2) of this subsection, the ownership 
of a capital or profits interest in a partnership shall be determined 
in accordance with the rules for constructive ownership of stock 
provided in section 267 (c) other than paragraph (3) of such 
section. 
(c) GUARANTEED PAYMENTS.—To the extent determined without 
regard to the income of the partnership, payments to a partner for 
services or the use of capital shall be considered as made to one who 
is not a member of the partnership, but only for the purposes of sec-
tion 61 (a) (relating to gross income) and section 162 (a) (relating to 
trade or business expenses). 
SEC. 708. CONTINUATION OF PARTNERSHIP. 
(a) GENERAL RULE.—For purposes of this subchapter, an existing 
partnership shall be considered as continuing if it is not terminated. 
(b) TERMINATION.— 
(1) GENERAL RULE.—For purposes of subsection (a), a partner-
ship shall be considered as terminated only if— 
(A) no part of any business, financial operation, or venture 
of the partnership continues to be carried on by any of its partners 
in a partnership, or 
(B) within a 12-month period there is a sale or exchange of 
50 percent or more of the total interest in partnership capital 
and profits. 
(2) SPECIAL RULES.— 
(A) MERGER OR CONSOLIDATION.—In the case of the merger 
or consolidation of two or more partnerships, the resulting 
partnership shall, for purposes of this section, be considered the 
continuation of any merging or consolidating partnership whose 
members own an interest of more than 50 percent in the capital 
and profits of the resulting partnership. 
(B) DIVISION OP A PARTNERSHIP.—In the case of a division of 
a partnership into two or more partnerships, the resulting part-
nerships (other than any resulting partnership the members of 
which had an interest of 50 percent or less in the capital and 
profits of the prior partnership) shall, for purposes of this section, 
be considered a continuation of the prior partnership. 
§ 707(b)(2)(B) 
CH. 1—NORMAL TAXES AND SURTAXES 
245 
PART II—CONTRIBUTIONS, DISTRIBUTIONS, AND 
TRANSFERS 
Subpart A—Contributions to a partnership. 
Subpart B—Distributions by a partnership. 
Subpart C—Transfers of interests in a partnership. 
Subpart D—Provisions common to otlier subparts. 
Subpart A—Contributions to a Partnership 
Sec. 721. Nonrecognition of gain or loss on contribution. 
Sec. 722. Basis of contributing partner's interest. 
Sec. 723. Basis of property contributed to partnership. 
SEC. 721. NONRECOGNITION OF GAIN OR LOSS ON CONTRIBUTION. 
No gain or loss shall be recognized to a partnership or to any of its 
partners in the case of a contribution of property to the partnership 
in exchange for an interest in the partnership. 
SEC. 722. BASIS OF CONTRIBUTING PARTNER'S INTEREST. 
The basis of an interest in a partnership acquired by a contribution 
of property, including money, to the partnership shall be the amount 
of such money and the adjusted basis of such property to the contrib-
uting partner at the time of the contribution. 
SEC. 723. BASIS OF PROPERTY CONTRIBUTED TO PARTNERSHIP. 
The basis of property contributed to a partnership by a partner 
shall be the adjusted basis of such property to the contributing 
partner at the time of the contribution. 
Subpart B—Distributions by a Partnership 
Sec. 731. Extent of recognition of gain or loss on distribution. 
Sec. 732. Basis of distributed property other than money. 
Sec. 733. Basis of distributee partner's interest. 
Sec. 734. Optional adjustment to basis of undistributed partnership 
property. 
Sec. 735. Character of gain or loss on disposition of distributed 
property. 
Sec. 736. Payments to a retiring partner or a deceased partner's 
successor in interest. 
SEC. 731. EXTENT OF RECOGNITION OF GAIN OR LOSS ON DISTRIBU-
TION. 
(a) PARTNERS.—In the case of a distribution by a partnership to a 
partner— 
(1) gain shall not be recognized to such partner, except to the 
extent that any money distributed exceeds the adjusted basis of 
such partner's interest in the partnership immediately before the 
distribution, and 
(2) loss shall not be recognized to such partner, except that 
upon a distribution in liquidation of a partner's interest in a part-
nership where no property other than that described in subpara-
graph (A) or (B) is distributed to such partner, loss shall be recog-
nized to the extent of the excess of the adjusted basis of such 
partner's interest in the partnership over the sum of— 
(A) any money distributed, and 
(B) the basis to the distributee, as determined under section 
732, of any unrealized receivables (as defined in section 751 (c)) 
and inventory (as defined in section 751 (d) (2)). 
§ 731(a)(2)(B) 
246 
INTERNAL REVENUE CODE 
OF 
1954 
Any gain or loss recognized under this subsection shall be considered 
as gain or loss from the sale or exchange of the partnership interest 
of the distributee partner. 
(b) PARTNERSHIPS.—No gain or loss shall be recognized to a 
partnership on a distribution to a partner of property, including 
money. 
(c) EXCEPTIONS.—This section shall not apply to the extent other-
wise provided by section 736 (relating to payments to a retiring 
partner or a deceased partner's successor in interest) and section 751 
(relating to unrealized receivables and inventory items). 
SEC. 732. BASIS OF DISTRIBUTED PROPERTY OTHER THAN MONEY. 
(a) DISTRIBUTIONS OTHER THAN IN LIQUIDATION OF A PARTNER'S 
INTEREST.— 
(1) GENERAL RULE.—The basis of property (other than money) 
distributed by a partnership to a partner other than in liquidation 
of the partner's interest shall, except as provided in paragraph (2), 
be its adjusted basis to the partnership immediately before such 
distribution. 
(2) LIMITATION.—The basis to the distributee partner of property 
to which paragraph (1) is applicable shall not exceed the adjusted 
basis of such partner's interest in the partnership reduced by any 
money distributed in the same transaction. 
(b) DISTRIBUTIONS IN LIQUIDATION.^—The basis of property (other 
than money) distributed by a partnership to a partner in liquidation 
of the partner's interest shall be an amount equal to the adjusted basis 
of such partner's interest in the partnership reduced by any money 
distributed in the same transaction. 
(c) ALLOCATION OF BASIS.—The basis of distributed properties to 
which subsection (a) (2) or subsection (b) is applicable shall be allo-
tated— 
(1) first to any unrealized receivables (as defined in section 
751 (c)) and inventory items (as defined in section 751 (d) (2)) in an 
amount equal to the adjusted basis of each such property to the 
partnership (or if the basis to be allocated is less than the sum of the 
adjusted bases of such properties to the partnership, in proportion to 
such bases), and 
(2) to the extent of any remaining basis, to any other distributed 
properties in proportion to their adjusted bases to the partnership. 
(d) SPECIAL PARTNERSHIP BASIS TO TRANSFEREE.—For purposes 
of subsections (a), (b), and (c), a partner who acquired all or a part of 
his interest by a transfer with respect to which the election provided 
in section 754 is not in effect, and to whom a distribution of property 
(other than money) is made with respect to the transferred interest 
within 2 years after such transfer, may elect, under regulations pre-
scribed by the Secretary or his delegate, to treat as the adjusted part-
nership basis of such property the adjusted basis such property would 
have if the adjustment provided in section 743 (b) were in effect with 
respect to the partnership property. 
The Secretary or his delegate 
may by regulations require the application of this subsection in the 
case of a distribution to a transferee partner, whether or not made 
within 2 years after the transfer, if at the time of the transfer the fair 
§ 731(a) 
CH. 1—NORMAL TAXES AND SURTAXES 
- 
247 
market value of the partnership property (other than money) ex-
ceeded 110 percent of its adjusted basis to the partnership. 
(e) EXCEPTION.—This section shall not apply to the extent that a 
distribution is treated as a sale or exchange of property under section 
751 (b) (relating to unrealized receivables and inventory items). 
SEC. 733. BASIS OF DISTRIBUTEE PARTNER'S 
INTEREST. 
In the case of a distribution by a partnership to a partner other 
than in liquidation of a partner's interest, the adjusted basis to such 
partner of his interest in the partnership shall be reduced (but not 
below zero) by— 
(1) the amount of any money distributed to such partner, and 
(2) the amount of the basis to such partner of distributed prop-
erty other than money, as determined under section 732. 
SEC. 734. OPTIONAL 
ADJUSTMENT 
TO BASIS OF 
UNDISTRIBUTED 
PARTNERSHIP 
PROPERTY. 
(a) GENERAL RULE.—The basis of partnership property shall not be 
adjusted as the result of a distribution of property to a partner unless 
the election, provided in section 754 (relating to optional adjustment 
to basis of partnership property), is in effect with respect to such 
partnership. 
(b) METHOD OF ADJUSTMENT.—In the case of a distribution of 
property to a partner, a partnership, with respect to which the election 
provided in section 754 is in effect, shall— 
(1) increase the adjusted basis of partnership property by— 
(A) the amount of any gain recognized to the distributee 
partner with respect to such distribution under section 731 (a) (1), 
and 
(B) in the case of distributed property to which section 732 
(a) (2) or (b) applies, the excess of the adjusted basis of the 
distributed property to the partnership immediately before the 
distribution (as adjusted by section 732 (d)) over the basis of 
the distributed property to the distributee, as determined under 
section 732, or 
(2) decrease the adjusted basis of partnership property by— 
(A) the amount of any loss recognized to the distributee 
partner with respect to such distribution under section 731 (a) 
(2), and 
(B) in the case of distributed property to which section 732 (b) 
applies, the excess of the basis of the distributed property to the 
distributee, as determined under section 732, over the adjusted 
basis of the distributed property to the partnership immediately 
before such distribution (as adjusted by section 732 (d)). 
(c) ALLOCATION OF BASIS.—The allocation of basis among partner-
ship properties where subsection (b) is applicable shall be made in 
accordance with the rules provided in section 755. 
SEC. 735. CHARACTER OF GAIN OR LOSS ON DISPOSITION OF DIS-
TRIBUTED 
PROPERTY. 
(a) SALE OR EXCHANGE OF CERTAIN DISTRIBUTED PROPERTY.—• 
(1) UNREALIZED RECEIVABLES.—Gain or loss on the disposition 
by a distributee partner of unrealized receivables (as defined in 
section 751 (c)) distributed by a partnership, shall be considered 
§ 735(a)(1) 
248 
INTERNAL REVENUE CODE OF 19 54 
gain or loss from the sale or exchange of property other than a 
capital asset. 
(2) INVENTORY ITEMS.—^Gain or loss on the sale or exchange by 
a distributee partner of inventory items (as defined in section 751 
(d) (2)) distributed by a partnership shall, if sold or exchanged 
within 5 years from the date of the distribution, be considered gain 
or loss from the sale or exchange of property other than a capital 
asset. 
(b) HOLDING PERIOD FOR DISTRIBUTED PROPERTY.^—In determin-
ing the period for which a partner has held property received in a 
distribution from a jjartnership (other than for purposes of subsection 
(a) (2)), there shall be included the holding j)eriod of the partnership, 
as determined under section 1223, with respect to such property. 
SEC. 736. PAYMENTS TO A RETIRING PARTNER OR A DECEASED 
PARTNER'S SUCCESSOR IN INTEREST. 
(a) PAYMENTS CONSIDERED AS DISTRIBUTIVE SHARE OR GUAR-
ANTEED PAYMENT.—Payments made in liquidation of the interest of 
a retiring partner or a deceased partner shall, except as provided in 
subsection (b), be considered— 
(1) as a distributive share to the recipient of partnership income 
if the amount thereof is determined with regard to the income of 
the partnership, or 
(2) as a guaranteed payment described in section 707 (c) if the 
amount thereof is determined without regard to the income of the 
partnership. 
(b) PAYMENTS FOR INTEREST IN PARTNERSHIP.— 
(1) GENERAL RULE.—Payments made in liquidation of the in-
terest of a retiring partner or a deceased partner shall, to the 
extent such payments (other than payments described in para-
graph (2)) are determined, under regulations prescribed by the 
Secretary or his delegate, to be made in exchange for the interest 
of such partner in partnership property, be considered as a dis-
tribution by the partnership and not as a distributive share or 
guaranteed payment under subsection (a). 
(2) SPECIAL RULES.^—For purposes of this subsection, payments 
in exchange for an interest in partnership property shall not include 
amounts paid for— 
(A) unrealized receivables of the partnership (as defined in 
section 751 (c)), or 
(B) good will of the partnership, except to the extent that the 
partnership agreement provides for a payment with respect to 
good will. 
Subpart C—Transfers of Interests in a Partnership 
Sec. 741. Recognition and character of gain or loss on sale or ex-
change. 
Sec. 742. Basis of transferee partner's interest. 
Sec. 743. Optional adjustment to basis of partnership property. 
SEC. 741. RECOGNITION AND CHARACTER OF GAIN OR LOSS ON 
SALE OR EXCHANGE. 
In the case of a sale or exchange of an interest in a partnership, gain 
or loss shall be recognized to the transferor partner. 
Such gain or 
§ 735(a)(1) 
CH. 1—NORMAL TAXES AND SURTAXES 
249 
loss shall be considered as gain or loss from the sale or exchange of a 
capital asset, except as otherwise provided in section 751 (relating to 
unrealized receivables and inventory items which have appreciated 
substantially in value). 
SEC. 742. BASIS OF TRANSFEREE PARTNER'S INTEREST. 
The basis of an interest in a partnership acquired other than by 
contribution shall be determined under part II of subchapter O (sec. 
1011 and following). 
SEC. 743. OPTIONAL ADJUSTMENT TO BASIS OF PARTNERSHIP PROP-
ERTY. 
(a) GENERAL RULE.—The basis of partnership property shall not 
be adjusted as the result of a transfer of an interest in a partnership 
by sale or exchange or on the death of a partner unless the election 
provided by section 754 (relating to optional adjustment to basis of 
partnership property) is in effect with respect to such partnership. 
(b) ADJUSTMENT TO BASIS OF PARTNERSHIP PROPERTY.—In 
the 
case of a transfer of an interest in a partnership by sale or exchange 
or upon the death of a partner, a partnership with respect to which 
the election provided in section 754 is in effect shall— 
(1) increase the adjusted basis of the partnership property by 
the excess of the basis to the transferee partner of his interest in 
the partnership over his proportionate share of the adjusted basis 
of the partnership property, or 
(2) decrease the adjusted basis of the partnership property by 
the excess of the transferee partner's proportionate share of the 
adjusted basis of the partnership property over the basis of his 
interest in the partnership. 
Under regulations prescribed by the Secretary or his delegate, such 
increase or decrease shall constitute an adjustment to the basis of 
partnership property with respect to the transferee partner only. 
A 
partner's proportionate share of the adjusted basis of partnership 
property shall be determined in accordance with his interest in part-
nership capital and, in the case of an agreement described in section 
704 (c) (2) (relating to effect of partnership agreement on contributed 
property), such share shall be determined by taking such agreement 
into account. 
In the case of an adjustment under this subsection to 
the basis of partnership property subject to depletion, any depletion 
allowable shall be determined separately for the transferee partner 
with respect to his interest in such property. 
(c) ALLOCATION OF BASIS.—The allocation of basis among partner-
ship properties where subsection (b) is applicable shall be made in 
accordance with the rules provided in section 755. 
§ 743(c) 
49012°—54——19 
i250 
INTERNAL REVENUE CODE OF 1954 
Subpart D—Provisions Common to Other Subparts 
Sec. 751. Unrealized receivables and inventory items. 
Sec. 752. Treatment of certain liabilities. 
Sec. 753. Partner receiving income in respect of decedent. 
Sec. 754. Manner of electing optional adjustment to basis of part-
nership property. 
Sec. 755. Rules for allocation of basis. 
SEC. 751. UNREALIZED RECEIVABLES AND INVENTORY ITEMS. 
(a) SALE 
OR EXCHANGE 
OF INTEREST 
IN 
PARTNERSHIP.—The 
amount of any money, or the fair market vahie of any property, 
received by a transferor partner in exchange for all or a part of his 
interest in the partnership attributable to— 
(1) unrealized receivables of the partnership, or 
(2) inventory items of the partnership which have appreciated 
substantially in value, 
shall be considered as an amount realized from the sale or exchange 
of property other than a capital asset. 
(b) CERTAIN DISTRIBUTIONS TREATED AS SALES OR EXCHANGES.— 
(1) GENERAL RULE.—To the extent a partner receives in a dis-
tribution— 
(A) partnership property described in subsection (a) (1) or (2) 
in exchange for all or a part of his interest in other partnership 
property (including money), or 
(B) partnership property (including money) other than prop-
erty described in subsection (a) (1) or (2) in exchange for all or 
a part of his interest in partnership property described in sub-
section (a) (1) or (2), 
such transactions shall, under regulations prescribed by the Sec-
retary or his delegate, be considered as a sale or exchange of such 
property between the distributee and the partnership (as constir 
tuted after the distribution). 
(2) EXCEPTIONS.—Paragraph (1) shall not apply to— 
(A) a distribution of property which the distributee contributed 
to the partnership, or . 
(B) payments, described in section 736 (a), to a retiring partner 
or successor in interest of a deceased partner. 
(c) UNREALIZED RECEIVABLES.—For purposes of this subchapter, 
the term "unrealized receivables" includes, to the extent not previ-
ously includible in income under the method of accounting used by the 
partnership, any rights (contractual or otherwise) to payment for— 
(1) goods delivered, or to be delivered, to the extent the proceeds 
therefrom would be treated as amounts received from the sale or 
exchange of property other than a capital asset, or 
(2) services rendered, or to be rendered. 
(d) INVENTORY ITEMS WHICH HAVE APPRECIATED SUBSTANTIALLY 
IN VALUE.— 
(1) SUBSTANTIAL APPRECIATION.—Inventory items of the part-
nership shall be considered to have appreciated substantially in 
value if their fair market value exceeds— 
(A) 120 percent of the adjusted basis to the partnership of 
such property, and 
§751 
CH. 1 
NORMAL TAXES AND SURTAXES 
251 
(B) 10 percent of the fair market value of all partnership 
property, other than money. 
(2) INVENTORY ITEMS.—For purposes of this subchapter the term 
"inventory items" means— 
(A) property of the partnership of the kind described in section 
1221 (1), 
(B) any other property of the partnership which, on sale or 
exchange by the partnership, would be considered property other 
than a capital asset and other than property described in section 
; 
1231, and 
(C) any other property held by the partnership which, if held 
by the selling or distributee partner, would be considered property 
of the type described in subparagraph (A) or (B). 
SEC. 752. TREATMENT OF CERTAIN LIABILITIES. 
(a) INCREASE IN PARTNER'S LIABILITIES.—Any increase in a part-
ner's share of the liabilities of a partnership, or any increase in a 
partner's individual liabilities by reason of the assumption by such 
partner of partnership liabilities, shall be considered as a contribution 
of money by such partner to the partnership. 
(b) DECREASE IN PARTNER'S LIABILITIES.—Any decrease in a 
partner's share of the liabilities of a partnership, or any decrease in a 
partner's individual liabilities by reason of the assumption by the 
partnership of such individual liabilities, shall be considered as a 
distribution of money to the partner by the partnership. 
(c) LIABILITY TO WHICH PROPERTY IS SUBJECT.—For purposes of 
this section, a liability to which property is subject shall, to the 
extent of the fair market value of such property, be considered as a 
liability of the owner of the property. 
(d) SALE OR EXCHANGE OF AN INTEREST.—In the case of a sale 
or exchange of an interest in a partnership, liabilities shall be treated 
in the same manner as liabilities in connection with the sale or exchange 
of property not associated with partnerships. 
SEC. 753. PARTNER RECEIVING INCOME IN RESPECT OP DECEDENT. 
The amount includible in the gross income of a successor in interest 
of a deceased partner under section 736 (a) shall be considered income 
in respect of a decedent under section 691. 
SEC. 754. MANNER OF ELECTING OPTIONAL ADJUSTMENT TO BASIS 
OF PARTNERSHIP 
PROPERTY. 
If a partnership files an election, in accordance with regulations 
prescribed by the Secretary or his delegate, the basis of partnership 
property shall be adjusted, in the case of a distribution of property, 
in the manner provided in section 734 and, in the case of a transfer 
of a partnership interest, in the manner provided in section 743. 
Such an election shall apply with respect to all distributions of property 
by the partnership and to all transfers of interests in the partnership 
during the taxable year with respect to which such election was filed 
and all subsequent taxable years. 
Such election may be revoked by 
the partnership, subject to such limitations as may be provided by 
regulations prescribed by the Secretary or his delegate. 
§754 
252 
INTERNAL REVENUE CODE OF 1954 
SEC. 755. RULES FOR ALLOCATION OF BASIS. 
(a) GENERAL RULE.—Any increase or decrease in the adjusted 
basis of partnership property under section 734 (b) (relating to the 
optional adjustment to the basis of undistributed partnership prop-
erty) or section 743 (b) (relating to the optional adjustment to the 
basis of partnership property in the case of a transfer of an interest in 
a partnership) shall, except as provided in subsection (b), be allo-
cated— 
(1) in a manner which has the effect of reducing the difference 
between the fair market value and the adjusted basis of partnership 
properties, or 
(2) in any other manner permitted by regulations prescribed by 
the Secretary or his delegate. 
(b) SPECIAL RULE.—In applying the allocation rules provided in 
subsection (a), increases or decreases in the adjusted basis of partner-
ship property arising from a distribution of, or a transfer of an interest 
attributable to, property consisting of— 
(1) capital assets and property described in section 1231 (b), or 
(2) any other property of the partnership, 
shall be allocated to partnership property of a like character except 
that the basis of any such partnership property shall not be reduced 
below zero. If, in the case of a distribution, the adjustment to basis 
of property described in paragraph (1) or (2) is prevented by the 
absence of such property or by insufficient adjusted basis for such 
property, such adjustment shall be applied to subsequently acquired 
property of a like character in accordance with regulations prescribed 
by the Secretary or his delegate. 
PART III—DEFINITIONS 
Sec. 761. Terms defined. 
SEC. 761. TERMS DEFINED. 
(a) PARTNERSHIP.—For purposes of this subtitle, the term "partner-
ship" includes a syndicate, group, pool, joint venture, or other unin-
corporated organization through or by means of which any business, 
financial operationj or venture is carried on, and which is not, within 
the meaning of this title, a corporation or a trust or estate. 
Under 
regulations the Secretary or his delegate may, at the election of all 
the members of an unincorporated organization, exclude such organ-
ization from the application of all or part of this subchapter, if it is 
availed of— 
(1) for investment purposes only and not for the active conduct 
of a business, or 
(2) for the joint production, extraction, or use of property, but 
not for the purpose of selling services or property produced or 
extracted, 
if the income of the members of the organization may be adequately 
determined without the computation of partnership taxable income. 
(b) PARTNER.—For purposes of this subtitle, the term "partner" 
means a member of a partnership. 
(c) PARTNERSHIP AGREEMENT.—For purposes of this subchapter, a 
partnership agreement includes any modifications of the partnership 
§755 
CH, 1 
NORMAL TAXES AND SURTAXES 
253 
agreement made prior to, or at, the time prescribed by law for the 
filing of the partnership return for the taxable year (not including 
extensions) which are agreed to by all the partners, or which are 
adopted in such other manner as may be provided by the partnership 
agreement. 
(d) LIQUIDATION OF A PARTNER'S INTEREST.^—For purposes of this 
subchapter, the term "liquidation of a partner's interest" means the 
termination of a partner's entire interest in a partnership by means of 
a distribution, or a series of distributions, to the partner by the 
partnership. 
PART IV—EFFECTIVE DATE FOR SUBCHAPTER 
Sec. 771. Effective date. 
SEC. 771. EFFECTIVE DATE. 
(a) GENERAL R U L E . — 
(1) T A X A B L E 
YEARS 
BEGINNING 
AFTER 
DECEMBER 31, 1954.— 
Except as provided in subsection (b), this subchapter shall apply 
with respect to— 
(A) any partnership taxable year beginning after December 
31, 1954, and 
(B) any part of a partner's taxable year falling within such 
partnership taxable year. 
(2) APPLICATION OF PRIOR PROVISIONS.—Except as provided in 
subsection (b), sections 113 (a) (13), 181 to 191 (inclusive), and 
3797 (a) (2) of the Internal Revenue Code of 1939 shall apply with 
respect to— 
(A) any partnership taxable year beginning before January 1, 
1955, and 
(B) any part of a partner's taxable year falling within such 
partnership taxable year. 
(b) SPECIAL RULES.— 
(1) ADOPTION OF TAXABLE YEAR.—Section 706 (b) (relating to 
the adoption of a taxable year by a partnership or partner) shall 
apply to— 
(A) any partnership which adopts, or changes to, a taxable 
year beginning after April 1, 1954, and 
(B) any partner who changes to a taxable year beginning after 
April 1, 1954. 
For the purpose of applying this paragraph, section 708 (relating 
to the continuation of a partnership) shall be effective for taxable 
years beginning after April 1, 1954. 
(2) PROPERTY DISTRIBUTED BY A PARTNERSHIP.—Section 735 (a) 
(relating to the character of gain or loss on the disposition of prop-
erty distributed by a partnership) shall apply only to property 
distributed by a partnership after March 9, 1954. 
(3) UNREALIZED RECEIVABLES AND INVENTORY ITEMS.—Section 
751 (relating to unrealized receivables and inventory items) shall 
apply with respect to gain or loss to a seller, distributee, or partner-
ship in the case of a sale, exchange, or distribution occurring after 
March 9, 1954. For the purpose of applying this paragraph in the 
case of a taxable year beginning before January 1, 1955, the other 
§771(by(3) 
254 
INTERNAL REVENUE CODE OF 1954 
sections of this subchapter shall be applicable to the extent provided 
by regulations prescribed by the Secretary or his delegate, 
(4) PARTNER RECEIVING INCOME IN RESPECT OF DECEDENT.— 
Section 753 (relating to income in respect of a decedent) shall apply 
only in the case of payments made with respect to decedents dying 
after December 31, 1954. 
(c) OPTIONAL TREATMENT OF CERTAIN DISTRIBUTIONS.—In 
the 
case of a partnership taxable year beginning after December 31, 1953, 
and before January 1, 1955, a partnership may elect, under regulations 
prescribed by the Secretary or his delegate, with respect to distribu-
tions made during such year to any partner, other than in liquidation 
of the partner's interest, to apply the rules in sections 731, 732 (a), (c), 
and (e), 733, 735, and 751 (b), (c), and (d) (and, to the extent appli-
cable, the rules provided in sections 705, 752, and 761 (d)). 
If a 
partnership so elects, such rules shall be effective for the partnership 
and all members of such partnership with respect to such distributions. 
§ 771(b)(3) 
CH. 1 
NORMAL TAXES AND SURTAXES 
255 
Subchapter L—Insurance Companies 
Part 
I. Life insurance companies. 
."^ 
Part II. Mutual insurance companies (other than life or marine 
or fire insurance companies issuing perpetual policies). 
Part III. Other insurance companies. 
Part IV. Provisions of general application. 
PART I—LIFE INSURANCE COMPANIES 
Sec. 801. Definition of life insurance company. 
Sec. 802. Imposition of tax. 
Sec. 803. Other definitions and rules. 
Sec. 804. Reserve and other policy liability deduction. 
Sec. 805. 1964 life insurance company taxable income. 
Sec. 806. Adjustment for certain reserves. 
Sec. 807. Foreign life insurance companies. 
SEC. 801. DEFINITION OF LIFE INSURANCE COMPANY. 
For purposes of this subtitle, the term "Hfe insurance company" 
means an insurance company which is engaged in the business of 
issuing life insurance and annuity contracts (either separately or 
combined with health and accident insurance), or noncancellable 
contracts of health and accident insurance, if its life insurance reserves 
(as defined in section 803 (b)), plus unearned premiums and unpaid 
losses on noncancellable life, health, or accident policies not included 
in life insurance reserves, comprise more than 50 percent of its total 
reserves. 
For purposes of this section, the term "total reserves" 
means life insurance reserves, unearned premiums and unpaid losses 
not included in life insurance reserves, and all other insurance reserves 
required by law. 
A burial or funeral benefit insurance company 
engaged directly in the manufacture of funeral supplies or the per-
formance of funeral services shall not be taxable under section 802 
but shall be taxable under section 821 or section 831. 
SEC. 802. IMPOSITION OF TAX. 
(a) IN GENERAL.—Except as otherwise provided in subsection (b), 
there shall be imposed for each taxable year on the life insurance 
company taxable income of every life insurance company a tax con-
sisting of a normal tax and a surtax computed as provided in section 
11. 
For purposes of such tax, the term "life insurance company 
taxable income" means the taxable income (as defined in section 
803 (g)) minus the reserve and other policy liability deduction pro-
vided in section 804 and plus the amount of the adjustment for certain 
reserves provided in section 806. For purposes of the surtax, such 
taxable income shall be computed without regard to the deduction 
provided in section 242 for partially tax-exempt interest. 
(b) TAXABLE YEARS BEGINNING IN 1954.—In lieu of the tax im-
posed by subsection (a) there shall be imposed, for taxable years 
beginning in 1954, on the 1954 life insurance company taxable income 
§ 802(b) 
256 
INTERNAL REVENUE CODE OF 1954 
(as defined in section 805) of every life insurance company a tax equal 
to the sum of the following: 
(1) 3% percent of the amount thereof not in excess of $200,000, 
plus 
(2) 6)^ percent of the amount thereof in excess of $200,000. 
SEC. 803. OTHER DEFINITIONS AND RULES. 
(a) APPLICATION OF SECTION; GROSS INCOME.— 
(1) APPLICATION.—The definitions and rules contained in this 
section shall apply only in the case of life insurance companies. 
(2) GROSS INCOME.—The term "gross income" means the gross 
amount of income received or accrued during the taxable year from 
interest, dividends, and rents. 
(b) LIFE INSURANCE RESERVES.—The term "life insurance re-
serves" means amounts which are computed or estimated on the basis 
of recognized mortality or morbidity tables and assumed rates of 
interest, and which are set aside to mature or liquidate, either by 
payment or reinsurance, future unaccrued claims arising from life 
insurance, annuity, and noncancellable health and accident in-
surance contracts (including life insurance or annuity contracts 
combined with noncancellable health and accident insurance) in-
volving, at the time with respect to which the reserve is computed, 
life, health, or accident contingencies. 
Such life insurance reserves, 
except in the case of 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 and 
except as hereinafter provided in the case of assessment life insurance, 
must also be required by law. 
In the case of an assessment life 
insurance company or association, the term "life insurance reserves" 
includes sums actually deposited by such 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 or association (or bylaws approved by a State insurance 
commissioner) of such company or association, exclusively for the 
payment of claims arising under certificates of membership or policies 
issued on the assessment plan and not subject to any other use. 
(c) ADJUSTED RESERVES.—The term "adjusted reserves" means 
life insurance reserves plus 7 percent of that portion of such reserves 
as are computed on a preliminary term basis. 
(d) RESERVE EARNINGS RATE.—The term "reserve earnings rate" 
means a rate computed by adding 2.1125 percent (65 percent of SVi 
percent) to 35 percent of the average rate of interest assumed in 
computing life insurance reserves. 
Such average rate shall be cal-
culated by multiplying each assumed rate of interest by the means 
of the amounts of the adjusted reserves computed at that rate at the 
beginning and end of the taxable year and dividing the sum of the 
products by the mean of the total adjusted reserves at the beginning 
and end of the taxable year. 
(e) RESERVE FOR DEFERRED DIVIDENDS.—The term "reserve for 
deferred dividends" means sums held at the end of the taxable year 
as a reserve for dividends (other than dividends payable during the 
802(b) 
CH. 1—NORMAL TAXES AND SURTAXES 
257 
year following the taxable year) the payment of which is deferred for 
a period of not less than 5 years from the date of the policy contract. 
(f) INTEREST PAID.—The term "interest paid" means— 
(1) All interest paid or accrued within the taxable year on 
indebtedness, except on indebtedness incurred or continued to 
purchase or carry obligations (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, and 
(2) All amounts in the nature of interest, whether or not guar-
anteed, paid or accrued within the taxable year on insurance or 
annuity contracts (or contracts arising out of insurance or annuity 
contracts) which do not involve, at the time of payment or accrual, 
life, health, or accident contingencies. 
(g) TAXABLE INCOME.—The term "taxable income" means the 
gross income less the following deductions: 
(1) TAX-FREE INTEREST.—The amount of interest received or 
accrued during the taxable year which under section 103 is excluded 
from gross income. 
(2) INVESTMENT EXPENSES.—Investment expenses paid or in-
curred during the taxable year. 
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-
cent of the mean of the book value of the invested assets held at 
the beginning and end of the taxable year plus one-fourth of the 
amount by which taxable income (computed without any deduc-
tion for investment expenses allowed by this paragraph, for tax-
free interest allowed by paragraph (1), or for partially tax-exempt 
interest and dividends received allowed by paragraph (5)) exceeds 
3% percent of the book value of the mean of the invested assets 
held at the beginning and end of the taxable year. 
(3) KEAL ESTATE EXPENSES.—Taxes and other expenses paid or 
accrued during the taxable year exclusively on 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 on a share-
holder of a company on his interest as shareholder, which are paid 
or accrued by the company without reimbursement from the share-
holder, but in such cases no deduction shall be allowed the share-
holder for the amount of such taxes. 
(4) DEPRECIATION.—The depreciation deduction allowed by 
section 167. 
(5) SPECIAL DEDUCTIONS.—The special deductions allowed by 
part VIII of subchapter B (except section 248). 
(h) RENTAL VALUE OF REAL ESTATE.—The deduction under sub-
section (g) (3) and (4) 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. 
§ 803(h) 
258 
INTERNAL REVENUE CODE OF 1954 
: 
(i) AMORTIZATION OF PREMIUM AND ACCRUAL OF DISCOUNT.—The 
gross income, the deduction provided in subsection (g) (1), and the 
deduction allowed by section 242 (relating to partially tax-exempt 
interest) shall each be decreased to reflect the appropriate amortiza-
tion of premium and increased to reflect the appropriate accrual of 
discount attributable to the taxable year on bonds, notes, debentures, 
or other evidences of indebtedness held by a life insurance company. 
Such amortization and accrual shall be determined— 
(1) in accordance with the method regularly employed by such 
company, if such method is reasonable, and 
(2) in all other cases, in accordance with regulations prescribed 
by the Secretary or his delegate. 
(j) DOUBLE DEDUCTIONS.—Nothing in this part shall permit the 
same item to be deducted more than once. 
SEC. 804. RESERVE AND OTHER POLICY LIABILITY DEDUCTION. 
(a) I N GENERAL.—For purposes of this subpart, the term "reserve 
and other policy liability deduction" means an amount computed by 
multiplying the taxable income by a figure, to be determined and pro-
claimed by the Secretary or his delegate for each taxable year. 
This 
figure shall be based on such data with respect to life insurance 
companies for the preceding taxable year as the Secretary or his 
delegate considers representative and shall be computed in accordance 
with the following formula: The ratio which a numerator comprised 
of the aggregate of the sums of— 
( 1 ) 2 percent of the reserves for deferred dividends, 
(2) interest paid, and 
(3) the product of— 
(A) the mean of the adjusted reserves at the beginning and 
end of the taxable year and 
(B) the reserve earnings rate, 
bears to a denominator comprised of the aggregate of the excess of 
taxable incomes (computed without any deduction for tax-free interest, 
partially tax-exempt interest, or dividends received) over the adjust-
ment for certain reserves provided in section 806. 
(b) SURTAX 
COMPUTATION.—In determining the life insurance 
company taxable income for purposes of the surtax, the taxable 
income to be multiplied by the figure determined and proclaimed 
under subsection (a) shall be computed without regard to the deduction 
provided in section 242 for partially tax-exempt interest. 
SEC. 805. 1954 LIFE INSURANCE COMPANY TAXABLE INCOME. 
(a) DEFINITION.—For purposes of section 802 (b), the term "1954 
life insurance company taxable income" means the taxable income (as 
defined in section 803 (g)), plus 8 times the amount of the adjust-
ment for certain reserves provided in section 806, and minus the 
reserve interest credit, if any, provided in subsection (b) of this 
section. 
(b) RESERVE INTEREST CREDIT.—For purposes of subsection (a), 
the reserve interest credit shall be an amount determined as follows: 
(1) Divide the amount of the adjusted taxable income (as 
defined in subsection (c)) by the amount of the required interest 
(as defined in subsection (d)). 
§803(i) 
CH. 1 
NORMAL TAXES AND SURTAXES 
259 
(2) If the quotient obtained in paragraph (1) is 1.05 or more, 
the reserve interest credit shall be zero. 
(3) If the quotient obtained in paragraph (1) is 1.00 or less, 
the reserve interest credit shall be an amount equal to 50 percent 
of the taxable income. 
(4) If the quotient obtained in paragraph (1) is more than 1.00 
but less than 1.05, the reserve interest credit shall be the amount 
obtained by multiplying the taxable income by 10 times the 
difference between the figures 1.05 and such quotient. 
(c) ADJUSTED TAXABLE INCOME.—For purposes of subsection (b) 
(1), the term "adjusted taxable income" means the taxable income 
(computed without the deductions provided in section 803 (g) (1) or 
(5)) minus 50 percent of the amount of the adjustment for certain 
reserves provided in section 806. 
(d) REQUIRED INTEREST.—For purposes of subsection (b) (1), the 
term "required interest" means the total of— 
(1) the sum of the amounts obtained by multiplying— 
(A) each rate of interest assumed in computing the taxpayer's 
life insurance reserves by 
(B) the means of the amounts of the taxpayer's adjusted 
reserves computed at that rate at the beginning and end of the 
taxable year, 
(2) 2 percent of the reserve for deferred dividends, and 
(3) interest paid. 
SEC. 8
0
6
. ADJUSTMENT 
FOR 
CERTAIN 
RESERVES. 
In the case of a life insurance company writing contracts other than 
life insurance or annuity contracts (either separately or combined with 
noncancellable health and accident insurance), the term "adjustment 
for certain reserves" means an amount equal to Sji percent of the 
unearned premiums and unpaid losses on such other contracts which 
are not included in life insurance reserves (as defined in section 803 (b). 
For purposes of this section, such unearned premiums shall not be 
considered to be less than 25 percent of the net premiums written 
during the taxable year on such other contracts. 
SEC. 807. FOREIGN LIFE INSURANCE COMPANIES. 
(a) CARRYING 
ON 
UNITED 
STATES 
INSURANCE 
BUSINESS.—A 
foreign life insurance company carrying on a life insurance business 
within the United States, if with respect to its United States business 
it would qualify as a life insurance company under section 801, shall 
be taxable in the same manner as a domestic life insurance company; 
except that the determinations necessary for purposes of this subtitle 
shall be made on the basis of the income, disbursements, assets, and 
liabilities reported in the annual statement for the taxable year of the 
United States business of such company on the form approved for 
life insurance companies by the National Association of Insurance 
Commissioners. 
(b) No UNITED STATES INSURANCE BUSINESS.—Foreign life in-
surance companies not carrying on an insurance business within the 
United States shall not be taxable under this section but shall be tax-
able as other foreign corporations. 
§ 807(b) 
260 
INTERNAL REVENUE CODE OF 1954 
PART II—MUTUAL INSURANCE COMPANIES (OTHER THAN 
LIFE 
OR 
MARINE 
OR FIRE 
INSURANCE 
COMPANIES 
ISSUING PERPETUAL POLICIES) 
Sec. 821. Tax on mutual insurance companies (other than life or 
marine or fire insurance companies issuing perpetual 
policies). 
Sec. 822. Determination 
of mutual insurance company 
taxable 
income. 
Sec. 823. Other definitions. 
SEC. 821. TAX ON MUTUAL INSURANCE COMPANIES (OTHER THAN 
LIFE OR MARINE 
OR FIRE INSURANCE 
COMPANIES 
ISSUING PERPETUAL POLICIES). 
(a) IMPOSITION OF TAX ON MUTUAL COMPANIES OTHER 
THAN 
INTERINSURERS.—There shall be imposed for each taxable year on 
the income of every mutual insurance company (other than a life or a 
marine insurance company or a fire insurance company subject to the 
tax imposed by section 831 and other than an interinsurer or reciprocal 
underwriter) a tax computed under paragraph (1) or paragraph (2), 
whichever is the greater: 
-
(1) If the mutual insurance company taxable income (computed 
without regard to the deduction provided in section 242 for partially 
tax-exempt interest) is over $3,000, a tax computed as follows: 
(A) NORMAL TAX.— 
(i) TAXABLE YEARS BEGINNING BEFORE APRIL i, 1955.—In 
the case of taxable years beginning before April 1, 1955, a 
normal tax of 30 percent of the mutual insurance company 
taxable income, or 60 percent of the amount by which such 
taxable income exceeds $3,000, whichever is the lesser; 
(ii) TAXABLE YEARS BEGINNING AFTER MARCH SI, 1955.—In 
the case of taxable years beginning after March 31, 1955, a 
normal tax of 25 percent of the mutual insurance company 
taxable income, or 50 percent of the amount by which such 
taxable income exceeds $3,000, whichever is the lesser; plus 
(B) SURTAX.—A surtax of 22 percent of the mutual insurance 
company taxable income (computed without regard to the deduc-
tion provided in section 242 for partially tax-exempt interest) 
in excess of $25,000. 
(2) If for the taxable year the gross amount of income from 
interest, dividends, rents, and net premiums, minus dividends to 
policyholders, minus the interest which under section 103 is excluded 
from gross income, exceeds $75,000, a tax equal to 1 percent of the 
amount so computed, or 2 percent of the excess of the amount so 
computed over $75,000, whichever is the lesser. 
(b) IMPOSITION OF TAX ON INTERINSURERS.—In the case of every 
mutual insurance company which is an interinsurer or reciprocal 
underwriter (other than a life or a marine insurance company or a 
fire insurance company subject to the tax imposed by section 831), 
if the mutual insurance company taxable income (computed as pro-
vided in subsection (a) (1)) is over $50,000, there shall be imposed for 
each taxable year on the mutual insurance company taxable income a 
tax computed as follows: 
§821 
CH. 1—NORMAL TAXES AND SURTAXES 
261 
(1) NORMAL TAX.— 
(A) TAXABLE YEARS BEGINNING BEFORE APRIL i, 1955.—In the 
case of taxable years beginning before April 1, 1955, a normal tax 
of 30 percent of the mutual insurance company taxable income, 
or 60 percent of the amount by which such taxable income 
exceeds $50,000, whichever is the lesser; 
(B) TAXABLE YEARS BEGINNING AFTER MARCH 31, 1955.—In 
the case of a taxable year beginning after March 31, 1955, a 
normal tax of 25 percent of the mutual insurance company tax-
able income, or 50 percent of the amount by which such taxable 
income exceeds $50,000, whichever is the lesser; plus 
(2) SURTAX.—A surtax of 22 percent of the mutual insurance 
company taxable income (computed as provided in subsection (a) 
(1)) in excess of $25,000, or 33 percent of the amount by which such 
taxable income exceeds $50,000, whichever is the lesser. 
(c) GROSS AMOUNT RECEIVED, OVER $75,000 BUT LESS 
THAN 
$125,000.—If the gross amount received during the taxable year 
from interest, dividends, rents, and premiums (including deposits 
and assessments) is over $75,000 but less than $125,000, the tax 
imposed by subsection (a) or subsection (b), whichever applies, shall 
be reduced to an amount which bears the same proportion to the 
amount of the tax determined under such subsection as the excess 
over $75,000 of such gross amount received bears to $50,000. 
(d) No UNITED STATES INSURANCE BUSINESS.—Foreign mutual 
insurance companies (other than a life or marine insurance company 
or a fire insurance company subject to the tax imposed by section 831) 
not carrying on an insurance business within the United States shall 
not be subject to this part but shall be taxable as other foreign 
corporations. 
• ''• 
• • 
(e) ALTERNATIVE TAX ON CAPITAL GAINS.— 
For alternative tax in case of capital gains, see section 1201 (a). 
SEC. 822. DETERMINATION OF MUTUAL INSURANCE COMPANY TAX-
ABLE INCOME. 
(a) DEFINITION.—For purposes of section 821, the term "mutual 
insurance company taxable income" means the gross investment 
income minus the deductions provided in subsection (c). 
(b) GROSS INVESTMENT INCOME.—For purposes of subsection (a), 
the term "gross investment income" means the gross amount oi 
income during the taxable year from interest, dividends, rents, and 
gains from sales or exchanges of capital assets to the extent provided 
in subchapter P (sec. 1201 and following, relating to capital gains 
and losses). 
(c) DEDUCTIONS.—In computing mutual insurance company tax-
able income, the following deductions shall be allowed: 
(1) TAX-FREE INTEREST.—The amount of interest which under 
section 103 is excluded for the taxable year from gross income. 
(2) INVESTMENT EXPENSES.—Investment expenses paid or ac-
crued during the taxable year. 
If any general expenses are in part 
assigned to or included in the investment expenses, the total de-
duction under this paragraph shall not exceed one-fourth of 1 per-
cent of the mean of the book value of the invested assets held at 
the beginning and end of the taxable year plus one-fourth of the 
§ 822(c)(2) 
262 
INTERNAL REVENUE CODE OF 1954 
: 
amount by which mutual insurance company taxable income (com-
puted without any deduction for investment expenses allowed by 
this paragraph, for tax-free interest allowed by paragraph (1), or 
for partially tax-exempt interest and dividends received allowed by 
paragraph (7)), exceeds 3% percent of the book value of the mean 
of the invested assets held at the beginning and end of the taxable 
year. 
(3) REAL ESTATE EXPENSES.—Taxes and other expenses paid or 
accrued during the taxable year exclusively on 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 on a shareholder of a company on his interest as 
shareholder, which are paid or accrued 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. 
(4) DEPRECIATION.—The depreciation deduction allowed by sec-
tion 167. 
(5) INTEREST PAID OR ACCRUED.—All interest paid or accrued 
within the taxable year on indebtedness, except on indebtedness 
incurred or continued to purchase or carry obligations (other than 
obligations of the United States issued after September 24, 1917, 
and originally subscribed for by the taxpayer) the interest on 
which is wholly exempt from taxation under this subtitle. 
(6) CAPITAL LOSSES.—Capital losses to the extent provided in 
subchapter P (sec. 1201 and following) plus losses from capital 
assets sold or exchanged in order to obtain funds to meet abnormal 
insurance losses and to provide for the payment of dividends and 
similar distributions to policyholders. 
Capital assets shall be con-
sidered as sold or exchanged in order to obtain funds to meet 
abnormal insurance losses and to provide for the payment of 
dividends and similar distributions to policyholders to the extent 
that the gross receipts from their sale or exchange are not greater 
than the excess, if any, for the taxable year of the sum of dividends 
and similar distributions paid to policyholders, losses paid, and 
expenses paid over the sum of interest, dividends, rents, and net 
premiums received. 
In the application of section 1211 for pur-
E
oses of this section, the net capital loss for the taxable year shall 
e the amount by which losses for such year from sales or ex-
changes of capital assets exceeds the sum of the gains from such 
sales or exchanges and whichever of the following amounts is the 
lesser: 
(A) the mutual insurance company taxable income (computed 
without regard to gains or losses from sales or exchanges of 
capital assets or to the deduction provided in section 242 for 
partially tax-exempt interest); or 
(B) losses from the sale or exchange of capital assets sold or 
exchanged to obtain funds to meet abnormal insurance losses 
§822(c)r2) 
CH. 1—NORMAL TAXES AND SURTAXES 
263 
and to provide for the payment of dividends and similar dis-
tributions to policyholders. 
(7) SPECIAL DEDUCTIONS.—The special deductions allowed by 
part VIII (except section 248) of subchapter B (sec. 241 and 
following, relating to partially tax-exempt interest and to dividends 
received). 
(d) OTHEE APPLICABLE RULES.— 
(1) RENTAL VALUE OF REAL ESTATE.—The deduction under sub-
section (e) (3) or (4) on account of any real estate owned and 
occupied in whole or in part by a mutual insurance company subject 
to the tax imposed by section 821 shall be limited to an amount 
which bears the same ratio to such deduction (computed without 
regard to this paragraph) as the rental value of the space not so 
occupied bears to the rental value of the entire property. 
(2) AMORTIZATION OF PREMIUM AND ACCRUAL OF DISCOUNT.— 
The gross amount of income during the taxable year from interest, 
the deduction provided in subsection (c) (1), and the deduction 
allowed by section 242 (relating to partially tax-exempt interest) 
shall each be decreased to reflect the appropriate amortization of 
premium and increased to reflect the appropriate accrual of dis-
count attributable to the taxable year on bonds, notes, debentures, 
or other evidences of indebtedness held by a mutual insurance 
company subject to the tax imposed by section 821. Such amor-
tization and accrual shall be determined— 
(A) in accordance with the method regularly employed by 
such company, if such method is reasonable, and 
(B) in all other cases, in accordance with regulations pre-
scribed by the Secretary or his delegate. 
(3) DOUBLE DEDUCTIONS.—Nothing in this part shall permit the 
same item to be deducted more than once. 
(e) FOREIGN MUTUAL INSURANCE COMPANIES OTHER THAN L I F E 
O
R MARINE.—In the case of a foreign mutual insurance company 
(other than a hfe or marine insurance company or a fire insurance 
company subject to the tax imposed by section 831), the mutual 
insurance company taxable income shall be the taxable income from 
sources within the United States (computed without regard to the 
deductions allowed by subsection (c) (7)), and the gross amount of 
income from the interest, dividends, rents, and net premiums shall be 
the amount of such income from sources within the United States. In 
the case of a company to which the preceding sentence applies, the 
deductions allowed in this section shall be allowed to the extent 
provided in subpart B of part II of subchapter N (see. 881 and 
following) in the case of a foreign corporation engaged in trade or 
business within the United States. 
SEC. 823. OTHER DEFINITIONS. 
For purposes of this part— 
(1) N E T PREMIUMS.—The term "net premiums" means gross 
premiums (including deposits and assessments) written or received 
on insurance contracts during the taxable year less return pre-
miums and premiums paid or incurred for reinsurance. 
Amounts 
returned where the amount is not fixed in the insurance contract 
but depends on the experience of the company or the discretion 
§ 823(1) 
264 
INTERNAL REVENUE CODE 
OF 
1954 
of the management shall not be included in return premiums but 
shall be treated as dividends to policyholders under paragraph (2). 
(2) DIVIDENDS TO POLICYHOLDERS.—The term "dividends to 
policyholders" means dividends and similar distributions paid or 
declared to policyholders. 
For purposes of the preceding sentence, 
the term "paid or declared" shall be construed according to the 
method regularly employed in keeping the books of the insurance 
company. 
PART III—OTHER INSURANCE COMPANIES 
Sec. 831. Tax on insurance companies (other than life or mutual), 
mutual marine insurance companies, and mutual fire 
insurance companies issuing perpetual policies. 
Sec. 832. Insurance company taxable income. 
SEC. 831. TAX ON INSURANCE COMPANIES (OTHER THAN LIFE OR 
MUTUAL), MUTUAL MARINE INSURANCE 
COMPANIES, 
AND MUTUAL FIRE INSURANCE COMPANIES ISSUING 
PERPETUAL POLICIES. 
(a) IMPOSITION OF TAX.—Taxes computed as provided in section 
11 shall be imposed for each taxable year on the taxable income of 
every insurance company (other than a life or mutual insurance 
company), every mutual marine insurance company, and every mutual 
fire insurance company exclusively issuing either perpetual policies 
or policies for which the sole premium charged is a single deposit which 
(except for such deduction of underwriting costs as may be provided) 
is refundable on cancellation or expiration of the policy. 
(b) No UNITED STATES INSURANCE BUSINESS.—Foreign insurance 
companies (other than a life or mutual insurance company), foreign 
mutual marine insurance companies, and foreign mutual fire insurance 
companies described in subsection (a), «iot carrying on an insurance 
business within the United States, shall not be subject to this part 
but shall be taxable as other foreign corporations. 
(c) ALTERNATIVE TAX ON CAPITAL GAINS.— 
For alternative tax in case of capital gains, see section 1201 (a). 
SEC. 832. INSURANCE COMPANY TAXABLE INCOME. 
(a) DEFINITION OF TAXABLE INCOIVIE.—In the case of an insurance 
company subject to the tax imposed by section 831, the term "taxable 
income" means the gross income as defined in subsection (b) (1) less 
the deductions allowed by subsection (c). 
(b) DEFINITIONS.—In the case of an insurance company subject to 
the tax imposed by section 831— 
(1) GROSS INCOME.—The term "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, compjiited on the basis of the under-
writing and investment exhibit of the annual statement approved 
by the National Convention of Insurance Commissioners, 
(B) gain during the taxable year from the sale or other disposi-
tion of property, and 
(C) all other items constituting gross income under subchapter 
B, except that, in the case of a mutual fire insurance company 
§823(1) 
CH. 1 
NORMAL TAXES AND SURTAXES 
265 
described in section 831 (a), the amount of single deposit pre-
miums paid to such company shall not be included in gross 
income. 
(2) INVESTMENT INCOME.—The term "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, 
(3) UNDERWRITING INCOME.—The term "underwriting income" 
means the premiums earned on insurance contracts during the 
taxable year less losses incurred and expenses incurred. 
(4) PREMIUMS EARNED.—The term "premiums earned on insur-
ance contracts during the taxable year" means an amount computed 
as follows: 
(A) From the amount of gross premiums written on insurance 
contracts during the taxable year, deduct return premiums and 
premiums paid for reinsurance. 
(B) To the result so obtained, add unearned premiums on 
outstanding business at the end of the preceding taxable j^ear 
and deduct unearned premiums on outstanding business at the 
end of the taxable year. 
For purposes of this subsection, unearned premiums shall include 
life insurance reserves, as defined in section 806, pertaining to the 
life, burial, or funeral insurance, or annuity business of an insurance 
company subject to the tax imposed by section 831 and not qual-
ifying as a life insurance company under section 801. 
(5) LOSSES INCURRED.—The term "losses incurred" means losses 
incurred during the taxable year on insurance contracts, computed 
as follows: 
(A) 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. 
(B) To the result so obtained, add all unpaid losses outstanding 
at the end of the taxable year and deduct unpaid losses out-
standing at the end of the preceding taxable year. 
(6) EXPENSES INCURRED.—The term "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 taxable income subject to the tax imposed 
by section 831, there shall be deducted from expenses incurred (as 
defined in this paragraph) all expenses incurred which are not 
allowed as deductions by subsection (c). 
(c) DEDUCTIONS ALLOWED.—In computing the taxable income of 
an insurance company subject to the tax imposed hy section 831, 
there shall be allowed as deductions: 
(1) all ordinary and necessary expenses incurred, as provided 
in section 162 (relating to trade or business expenses); 
§ 832(c)(1) 
49012°—54——20 
266 
INTERNAL REVENUE CODE OF 1954 
(2) all interest, as provided in section 163; 
(3) taxes, as provided in section 164; 
(4) losses incurred, as defined in subsection (b) (5) of this 
section; 
(5) capital losses to the extent provided in subchapter P (sec. 
1201 and following, relating to capital gains and losses) plus losses 
from capital assets sold or exchanged in order to obtain funds 
to meet abnormal insurance losses and to provide for the pay-
ment of dividends and similar distributions to policyholders. 
Capital assets shall be considered as sold or exchanged in order 
to obtain funds to meet abnormal insurance losses and to provide 
for the payment of dividends and similar distributions to policy-
holders to the extent that the gross receipts from their sale or 
exchange are not greater than the excess, if any, for the taxable 
year of the sum of dividends and similar distributions paid to 
policyholders in their capacity as such, losses paid, and expenses 
paid over the sum of interest, dividends, rents, and net premiums 
received. 
In the application of section 1211 for purposes of this 
section, the net capital loss for the taxable year shall be the amount 
by which losses for such year from sales or exchangee of capital 
assets exceeds the sum of the gains from such sales or exchanges 
and whichever of the following amounts is the lesser: 
(A) the taxable income (computed without regard to gains or 
losses from sales or exchanges of capital assets or to the deduc-
tions provided in section 242 for partially tax-exempt interest); 
or 
(B) losses from the sale or exchange of capital assets sold or 
exchanged to obtain funds to meet abnormal insurance losses 
and to provide for the payment of dividends and similar dis-
tributions to pohcyholders; 
(6) debts in the nature of agency balances and bills receivable 
which become worthless within the taxable year; 
(7) the amount of interest earned during the taxable year 
which under section 103 is excluded from gross income; 
(8) the depreciation deduction allowed by section 167; 
(9) charitable, etc., contributions, as provided in section 170; 
(10) deductions (other than those specified in this subsection) 
as provided in part VI of subchapter B (sec. 161 and following, relat-
ing to itemized deductions for individuals and corporations); 
(11) dividends and similar distributions paid or declared to 
policyholders in their capacity as such, except in the case of a 
mutual fire insurance company described in section 831 (a). 
For 
purposes of the preceding sentence, the term "paid or declared" 
shall be construed according to the method of accounting regularly 
employed in keeping the books of the insurance company; and 
(12) the special deductions allowed by part VIII of subchapter B 
(sec. 241 and following, relating to partially tax-exempt interest and 
to dividends received). 
(d) 
TAXABLE INCOME OF FOREIGN INSURANCE COMPANIES OTHER 
THAN L I F E OR MUTUAL AND FOREIGN MUTUAL MARINE.—In the case 
of a foreign insurance company (other than a life or mutual insurance 
company), a foreign mutual marine insurance company, and a foreign 
§S32(c)(2) 
CH. 1—NORMAL TAXES AND SURTAXES 
267 
mutual fire insurance company described in section 831 (a), the taxable 
income shall be the taxable income from sources within the United 
States. 
In the case of a company to which the preceding sentence 
applies, the deductions allowed in this section shall be allowed to the 
extent provided in subpart B of part II of subchapter N (sec, 881 and 
following) in the case of a foreign corporation engaged in trade or busi-
ness within the United States. 
(e) DOUBLE DEDUCTIONS.—Nothing in this section shall permit the 
same item to be deducted more than once. 
PART IV—PROVISIONS OF GENERAL APPLICATION 
Sec. 84L Credit for foreign taxes. 
Sec. 842. Computation of gross income. 
SEC. 841. CREDIT FOR FOREIGN TAXES. 
The taxes imposed by foreign countries or possessions of the United 
States shall be allowed as a credit against the tax of a domestic insur-
ance company subject to the tax imposed by section 802, 821, or 831, 
to the extent provided in the case of a domestic corporation in section 
901 (relating to foreign tax credit). 
For purposes of the preceding 
sentence, the term ''taxable income" as used in section 904 means— 
(1) in the case of the tax imposed by section 802, the taxable 
income (as defined in section 803 (g)), 
(2) in the case of the tax imposed by section 831, the taxable 
income (as defined in section 832 (a)). 
SEC. 842. COMPUTATION OF GROSS INCOME. 
The gross income of insurance companies subject to the tax imposed 
by section 802 or 831 shall not be determined in the manner provided 
in part I of subchapter N (relating to determination of sources of 
incorne). 
§842 
268 
INTERNAL REVENUE CODE OF 1954 
Subchapter M—Regulated Investment Companies 
Sec. 851. Definition of regulated investnaent company. 
Sec. 852. Taxation of regulated investment companies and their 
shareholders. 
Sec. 853. Foreign tax credit allowed to shareholders. 
Sec. 854. Limitations applicable to dividends received from regu-
lated investment company. 
Sec. 855. Dividends paid by regulated investment company after 
close of taxable year. 
SEC. 851. DEFINITION OF REGULATED INVESTMENT COMPANY. 
(a) GENERAL RULE.—For purposes of this subtitle, the term 
"regulated investment company" means any domestic corporation 
(other than a personal holding company as defined in section 542)— 
(1) which, at all times during the taxable year, is registered under 
the Investment Company Act of 1940, as amended (54 Stat. 789; 
15 U. S. C. 80 a-1 to 80 b-2), either as a management company or 
as a unit investment trust, or 
(2) which is a common trust fund or similar fund excluded by 
section 3 (c) (3) of such Act (15 U. S. C. 80 a-3 (c)) from the defini-
tion of "investment company" and is not included in the definition 
of "common trust fund" by section 584 (a). 
(b) LIMITATIONS.—^A corporation shall not be considered a regulated 
investment company for any taxable year unless— 
(1) it files m t h its return for the taxable year an election to 
b3 a regulated investment company or has made such election for 
a previous taxable year which began after December 31, 1941; 
(2) at least 90 percent of its gross income is derived from divi-
dends, interest, and gains from the sale or other disposition of stock 
or securities; 
(3) less than 30 percent of its gross income is derived from the 
sale or other disposition of stock or securities held for less than 
3 months; and 
(4) at the close of each quarter of the taxable year— 
(A) at least 50 percent of the value of its total assets is repre-
sented by— 
(i) cash and cash items (including receivables), Government 
securities and securities of other regulated investment com-
panies, and 
(ii) other securities for purposes of this calculation limited, 
except and to the extent provided in subsection (e), in respect 
of any one issuer to an amount not greater in value than 5 
percent of the value of the total assets of the taxpayer and to 
not more than 10 percent of the outstanding voting securities 
of such issuer, and 
(B) not more than 25 percent of the value of its total assets is 
invested in the securities (other than Government securities or the 
securities of other regulated investment companies) of any one 
issuer, or of two or more issuers which the taxpayer controls and 
§851 
CH. 1—NQRMAL TAXES AND SURTAXES 
2 6 9 
which are determined, under regulations prescribed by the Secre-
tary or his delegate, to be engaged in the same or similar trades or 
businesses or related trades or businesses. 
(c) RULES APPLICABLE TO SUBSECTION (b) (4).—For purposes of 
subsection (b) (4) and this subsection— 
(1) In ascertaining the value of the taxpayer's investment in the. 
securities of an issuer, for the purposes of subparagraph (B), there 
shall be included its proper proportion of the investment of any other 
corporation, a member of a controlled group, in the securities of 
such issuer, as determined under regulations prescribed by the 
Secretary or his delegate. 
(2) The term "controls" means the ownership in a corporation 
of 20 percent or more of the total combined voting power of all 
classes of stock entitled to vote. 
(3) The term "controlled group" means one or more chains of 
corporations connected through stock ownership with the taxpayer 
if— 
(A) 20 percent or more of the total combined voting power of 
all classes of stock entitled to vote of each of the corporations 
(except the taxpayer) is owned directly by one or more of the 
other corporations, and 
(B) the taxpayer owns directly 20 percent or more of the total 
combined voting power of all classes of stock entitled to vote, of 
at least one of the other corporations. 
(4) The term "value" means, with respect to securities (other 
than those of majority-owned subsidiaries) for which market quo-
tations are readily available, the market value of such securities; 
and with respect to other securities and assets, fair value as deter-
mined in good faith by the board of directors, except that in the 
case of securities of majority-owned subsidiaries which are invest-
ment companies such fair value shall not exceed market value or 
asset value, whichever is higher. 
(5) All other terms shall have the same meaning as when used 
in the Investment Company Act of 1940, as amended. 
(d) DETERMINATION OF STATUS.—A corporation which meets the 
requirements of subsections (b) (4) and (c) at the close of any quarter 
shall not lose its status as a regulated investment company because 
of a discrepancy during a subsequent quarter between the value of its 
various investments and such requirements unless such discrepancy 
exists immediately after the acquisition of any security or other prop-
erty and is wholly or partly the result of such acquisition. 
A corpo-
ration which does not meet such requirements at the close of any 
quarter by reason of a discrepancy existing immediately after the 
acquisition of any security or other property which is wholly or partly 
the result of such acquisition during such quarter shall not lose its 
status for such quarter as a regulated investment company if such 
discrepancy is eliminated within 30 days after the close of such quarter 
and in such cases it shall be considered to have met such requirements 
at the close of such quarter for purposes of applying the preceding 
sentence. 
§ 851(d) 
270 
INTERNAL REVENUE CODE OF 
1954 
(e) INVESTMENT COMPANIES FURNISHING CAPITAL TO DEVELOP-
MENT CORPORATIONS.— 
(1) GENERAL RULE.—If the Securities and Exchange Commission 
determines, in accordance with regulations issued by it, and certifies 
to the Secretary or his delegate not less than 60 days prior to the 
close of the taxable year of a registered management company, that 
such investment company is principally engaged in the furnishing 
of capital to other corporations which are principally engaged in 
the development or exploitation of inventions, technological im-
provements, new processes, or products not previously generally 
available, such investment company may, in the computation of 
50 percent of the value of its assets under subparagraph (A) of 
subsection (b) (4) for any quarter of such taxable year, include the 
value of any securities of an issuer, whether or not the investment 
company owns more than 10 percent of the outstanding voting 
securities of such issuer, the basis of which, when added to the basis 
of the investment company for securities of such issuer previously 
acquired, did not exceed 5 percent of the value of the total assets 
of the investment company at the time of the subsequent acquisi-
tion of securities. 
The preceding sentence shall not apply to the 
securities of an issuer if the investment company has continuously 
held any security of such issuer (or of any predecessor company 
of such issuer as determined under regulations prescribed by the 
Secretary or his delegate) for 10 or more years preceding such quarter 
of such taxable year. 
(2) LIMITATION.—The provisions of this subsection shall not 
apply at the close of any quarter of a taxable year to an investment 
company if at the close of such quarter more than 25 percent of 
the value of its total assets is represented by securities of issuers 
with respect to each of which the investment company holds more 
than 10 percent of the outstanding voting securities of such issues 
and in respect of each of which or any predecessor thereof the 
investment company has continuously held any security for 10 or 
more years preceding such quarter unless the value of its total 
assets so represented is reduced to 25 percent or less within 30 
days after the close of such quarter. 
(3) DETERMINATION OF STATUS.—For purposes of this subsection, 
unless the Securities and Exchange Commission determines other-
wise, a corporation shall be considered to be principally engaged in 
the development or exploitation of inventions, technological im-
provements, new processes, or products not previously generally 
available, for at least 10 years after the date of the first acquisition 
of any security in such corporation or any predecessor thereof by 
such investment company if at the date of such acquisition the 
corporation or its predecessor was principally so engaged, and an 
investment company shall be considered at any date to be furnish-
ing capital to any company whose securities it holds if within 10 
years prior to such date it has acquired any of such securities, or 
any securities surrendered in exchange therefor, from such other 
company or predecessor thereof. 
For purposes of the certification 
under this subsection, the Securities and Exchange Commission shall 
have authority to issue such rules, regulations and orders, and to 
§ 851(e) 
CH. 1—NORMAL TAXES AND SURTAXES 
271 
conduct such investigations and hearings, either public or private, 
as it may deem appropriate. 
(4) DEFINITIONS.—The terms used in this subsection shall have 
the same meaning as in subsections (b) (4) and (c) of this section. 
SEC. 852. TAXATION OF REGULATED INVESTMENT COMPANIES AND 
THEIR SHAREHOLDERS. 
(a) REQUIREMENTS 
APPLICABLE 
TO 
REGULATED 
INVESTMENT 
COMPANIES.—The provisions of this subchapter shall not be applicable 
to a regulated investment company for a taxable year unless— 
(1) the deduction for dividends paid during the taxable year (as 
defined in section 561, but without regard to capital gains dividends) 
equals or exceeds 90 percent of its investment company taxable 
income for the taxable year (determined without regard to sub-
section (b)^ (2) (D)), and 
(2) the investment company complies for such year with regula-
tions prescribed by the Secretary or his delegate for the purpose of 
ascertaining the actual ownership of its outstanding stock. 
(b) METHOD OF TAXATION OF COMPANIES AND SHAREHOLDERS.— 
(1) IMPOSITION OF NORMAL TAX AND SURTAX ON REGULATED 
INVESTMENT COMPANIES.—There is hereby imposed for each taxable 
year upon the investment company taxable income of every regu-
lated investment company a normal tax and surtax computed as 
provided in section 11, as though the investment company taxable 
income were the taxable income referred to in section 11. 
For 
purposes of computing the normal tax under section 11, the taxable 
income and the dividends paid deduction of such investment 
company for the taxable year (computed without regard to capital 
gains dividends) shall be reduced by the deduction provided by 
section 242 (relating to partially tax-exempt interest). 
(2) INVESTMENT COMPANY TAXABLE INCOME.—The investment 
company taxable income shall be the taxable income of the regulated 
investment company adjusted as follows: 
(A) There shall be excluded the excess, if any, of the net long-
term capital gain over the net short-term capital loss. 
(B) The net operating loss deduction provided in section 172 
shall not be allowed. 
(C) The deductions for corporations provided in part VIII 
(except section 248) in subchapter B (section 241 and following, 
relating to the deduction for dividends received, etc.) shall not 
be allowed. 
(D) The deduction for dividends paid (as defined in section 
561) shall be allowed, but shall be computed without regard to 
capital gains dividends. 
(E) The taxable income shall be computed without regard to 
section 443 (b) (relating to computation of tax on change of annual 
accounting period). 
(3) CAPITAL GAINS.— 
(A) IMPOSITION OF TAX.—There is hereby imposed for each 
taxable year in the case of every regulated investment company a 
tax of 25 percent of the excess, if any, of the net long-term capital 
gain over the sum of— 
•{i) the net short-term capital loss, and 
§ 852(b) (3) (A) (i) 
272 
INTERNAL REVENUE CODE OF 
1954 
(ii) the deduction for dividends paid (as defined in section 
561) determined with reference to capital gains dividends only. 
(B) TREATMENT 
OF CAPITAL 
GAIN 
DIVIDENDS 
BY 
SHARE-
HOLDERS.—A capital gain dividend shall be treated by the share-
holders as a gain from the sale or exchange of a capital asset held 
for more than 6 months. 
(C) DEFINITION OF CAPITAL GAIN DIVIDEND.—A capital gain 
dividend means any dividend, or part thereof, which is designated 
by the company as a capital gain dividend in a written notice 
mailed to its shareholders not later than 30 days after the close 
of its taxable year. 
If the aggregate amount so designated with 
respect to a taxable year of the company (including capital 
gains dividends paid after the close of the taxable year described 
in section 855) is greater than the excess of the net long-term 
capital gain over tTie net short-term capital loss of the taxable 
year, the portion of each distribution which shall be a capital 
gain dividend shall be only that proportion of the amount so 
designated which such excess of the net long-term capital gain 
over the net short-term capital loss bears to the aggregate amount 
so designated. 
(c) EARNINGS AND PROFITS.—The earnings and profits of a regu-
lated investment company for any taxable year (but not its accumu-
lated earnings and profits) shall not be reduced by any amount which 
is not allowable as a deduction in computing its taxable income for 
such taxable year. 
SEC. 853. FOREIGN TAX CREDIT ALLOWED TO SHAREHOLDERS. 
(a) GENERAL RULE.—A regulated investment company— 
(1) more than 50 percent of the value (as defined in section 851 
(c) (4)) of whose total assets at the close of the taxable year consists 
of stock or securities in foreign corporations, and 
(2) which meets the requirements of section 852 (a) for the tax-
able year, 
may, for such taxable year, elect the application of this section with 
respect to income, war profits, and excess profits taxes described in 
section 901 (b) (1), which are paid by the investment company 
during such taxable year to foreign countries and possessions of the 
United States. 
(b) EFFECT OF ELECTION.—If the election provided in subsection 
(a) is effective for a taxable year— 
(1) the regulated investment company— 
(A) shall not, with respect to such taxable year, be allowed a 
deduction under section 164 (a) or a credit under section 901 for 
taxes to which subsection (a) is applicable, and 
(B) shall be allowed as an addition to the dividends paid 
deduction for such taxable year the amount of such taxes; 
(2) each shareholder of such investment company shall— 
(A) include in gross income and treat as paid by him his 
proportionate share of such taxes, and 
(B) treat as gross income from sources within the respective 
foreign countries and possessions of the United States, for pur-
poses of applying subpart A of part III of subchapter N, the 
sum of his proportionate share of such taxes and the portion of 
any dividend paid by such investment company which repre-
§852(b)(3)(A)(ii) 
CH. 1 
NORMAL TAXES AND SURTAXES 
273 
sents income derived from sources within foreign countries or 
possessions of the United States. 
(c) NOTICE TO SHAREHOLDERS.—The amounts to be treated by the 
shareholder, for purposes of subsection (b) (2), as his proportionate 
share of— 
(1) taxes paid to any foreign country or possession of the United 
States, and 
(2) gross income derived from sources within any foreign country 
or possession of the United States, 
shall not exceed the amounts so designated by the company in a 
written notice mailed to its shareholders not later than 30 days after 
the close of its taxable year. 
(d) MANNER 
OF MAKING 
ELECTION 
AND NOTIFYING 
SHARE-
HOLDERS.—The election provided in subsection (a) and the notice 
to shareholders required by subsection (c) shall be made in such 
manner as the Secretary or his delegate may prescribe by regulations. 
(e) CROSS REFERENCES.— 
(1) For treatment by shareholders of taxes paid to foreign countries 
and possessions of the United States, see section 164 (a) and section 
901. 
(2) For definition of foreign corporation, see section 7701 (a) (5). 
SEC. 854. LIMITATIONS APPLICABLE TO DIVIDENDS RECEIVED FROM 
REGULATED INVESTMENT 
COMPANY. 
(a) CAPITAL GAIN DIVIDEND.—For purposes of section 34 (a) 
(relating to credit for dividends received by individuals), section 116 
(relating to an exclusion for dividends received by individuals), and 
section 243 (relating to deductions for dividends received by corpora-
tions), a capital gain dividend (as defined in section 852 (b) (3)) 
received from a regulated investment company shall not be considered 
as a dividend. 
(b) OTHER DIVIDENDS.— 
(1) GENERAL RULE.—In the case of a dividend received from a 
regulated investment company (other than a dividend to which 
subsection (a) applies)— 
(A) if such investment company meets the requirements of 
section 852 (a) for the taxable year during which it paid such 
dividend; and 
(B) the aggregate dividends received by such company during 
such taxable year are less than 75 percent of its gross income, 
then, in computing the credit under section 34 (a), the exclusion 
under section 116, and the deduction under section 243, there shall 
be taken into account only that portion of the dividend which 
bears the same ratio to the amount of such dividend as the aggre-
gate dividends received by such company during such taxable year 
bear to its gross income for such taxable year. 
(2) NOTICE TO SHAREHOLDERS.—The amount of any distribution 
by a regulated investment company which may be taken into ac-
count as a dividend for purposes of the credit under section 34, the 
exclusion under section 116, and the deduction under-section 243 
shall not exceed the amount so designated by the company in a 
written notice to its shareholders mailed not later than 30 days 
after the close of its taxable year. 
§ 854(b)(2) 
274 
INTERNAL REVENUE CODE OF 1954 
(3) DEFINITIONS.—For purposes of this subsection— 
(A) The term "gross income" does not include gain from the 
sale or other disposition of stock or securities. 
(B) The term "aggregate dividends received" includes only 
dividends received from domestic corporations other than divi-
dends described in section 116 (b) (relating to dividends excluded 
from gross income). 
In determining the amount of any dividend 
for purposes of this subparagraph, the rules provided in section 
116 (c) (relating to certain distributions) shall apply. 
SEC. 855. DIVIDENDS PAID BY REGULATED INVESTMENT COMPANY 
AFTER CLOSE OF TAXABLE YEAR. 
(a) GENERAL RULE.—For purposes of this chapter, if a regulated 
investment company— 
(1) declares a dividend prior to the time prescribed by law for 
the filing of its return for a taxable year (including the period of 
any extension of time granted for filing such return), and 
(2) distributes the amount of such dividend to shareholders in 
the 12-month period following the close of such taxable year and 
not later than the date of the first regular dividend payment made 
after such declaration, 
the amount so declared and distributed shall, to the extent the com-
pany elects in such return in accordance with regulations prescribed 
by the Secretary or his delegate, be considered as having been paid 
during such taxable year, except as provided in subsections (b), (c) 
and (d). 
(b) RECEIPT BY SHAREHOLDER.—Amounts to which subsection (a) 
is applicable shall be treated as received by the shareholder in the tax-
able year in which the distribution is made. 
(c) NOTICE TO SHAREHOLDERS.—In the case of amounts to which 
subsection (a) is applicable, any notice to shareholders required under 
this subchapter with respect to such amounts shall be made not 
later than 30 days after the close of the taxable year in which the 
distribution is made. 
(d) FOREIGN TAX ELECTION.—If an investment company to which 
section 853 is applicable for the taxable year makes a distribution as 
provided in subsection (a) of this section, the shareholders shall 
consider the amounts described in section 853 (b) (2) allocable to 
such distribution as paid or received, as the case may be, in the 
taxable year in which the distribution is made. 
§ 854(b)(3) 
CH. 1—NORMAL TAXES AND SURTAXES 
275. 
Subchapter N—Tax Based on Income From Sources 
Within or Without the United States 
Part 
I. Determination of sources of income. 
Part II. Nonresident aliens and foreign corporations. 
Part III. Income from sources without the United States. 
PART I—DETERMINATION OF SOURCES OF INCOME 
Sec. 861. Income from sources within the United States. 
Sec. 862. Income from sources without the United States. 
Sec. 863. Items not specified in section 861 or 862. 
Sec. 864. Definitions. 
SEC. 861. INCOME FROM SOURCES WITHIN THE UNITED STATES. 
(a) GEOSS INCOME FROM SOURCES WITHIN UNITED STATES.—The 
following items of gross income shall be treated as income from sources 
within the United States: 
(1) INTEREST.—Interest from the United States, any Territory, 
any political subdivision of a Territory, or the District of Columbia, 
and interest on bonds, notes, or other interest-bearing obligations 
of residents, corporate or otherwise, not including— 
(A) interest on deposits with persons carrying on the banking 
business paid to persons not engaged in business within the 
United States, 
(B) interest received from a resident alien individual, a resi-
dent foreign corporation, or a domestic corporation, when it is 
shown to the satisfaction of the Secretary or his delegate that 
less than 20 percent of the gross income of such resident payor 
or domestic corporation has been derived from sources within the 
United States, as determined under the provisions of this part, 
for the 3-year period ending with the close of the taxable 
year of such payor preceding the payment of such interest, or 
for such part of such period as may be applicable, and 
(C) income derived by a foreign central bank of issue from 
bankers' acceptances. 
(2) DIVIDENDS.—The amount received as dividends— 
(A) from a domestic corporation other than a corporation 
entitled to the benefits of section 931, and other than a cor-
poration less than 20 percent of whose gross income is shown 
to the satisfaction of the Secretary or his delegate to have been 
derived from sources within the United States, as determined 
under the provisions of this part, for 
the 3-year 
period 
ending with the close of the taxable year of such corporation 
preceding the declaration of such dividends (or for such part of 
such period as the corporation has been in existence), or 
(B) from a foreign corporation unless less than 50 percent of 
the gross income of such foreign corporation for the 3-year period 
ending with the close of its taxable year preceding the declara-
tion of such dividends (or for such part of such period as the 
corporation has been in existence) was derived from sources 
§ 861(a)(2)(B) 
276 
INTERNAL REVENUE CODE OF 1954 
within the United States as determined under the provisions of 
this part; but only in an amount which bears the same ratio 
to such dividends as the gross income of the corporation for such 
period derived from sources within the United States bears to 
its gross income from all sources; but dividends from a foreign 
corporation shall, for purposes of subpart A of part III (relating 
to foreign tax credit), be treated as income from sources without 
the United States to the extent exceeding the amount of the de-
duction allowable under section 245 in respect of such dividends, 
(3) PERSONAL SERVICES,—Compensation for labor or personal 
services performed in the United States; except that compensation 
for labor or services performed in the United States shall not be 
deemed to be income from sources within the United States if— 
(A) the labor or services are performed by a nonresident alien 
individual temporarily present in the United States for a period 
or periods not exceeding a total of 90 days during the taxable year, 
(B) such compensation does not exceed $3,000 in the aggregate, 
and 
(C) the compensation is for labor or services performed as an 
employee of or under a contract with— 
(i) a nonresident alien, foreign partnership, or foreign cor-
poration, not engaged in trade or business within the United 
States, or 
(ii) a domestic corporation, if such labor or services are per-
formed for an office or place of business maintained in a foreign 
country or in a possession of the United States by such cor-
poration. 
(4) RENTALS AND ROYALTIES.—Rentals or royalties from prop-
erty located in the United States or from any interest in such 
property, including rentals or royalties for the use of or for the 
privilege of using in the United States patents, copyrights, secret 
processes and formulas, good will, trade-marks, trade brands, fran-
chises, and other like property. 
(5) SALE OF REAL PROPERTY.—Gains, profits, and income from 
the sale of real property located in the United States. 
(6) SALE OF PERSONAL PROPERTY.—Gains, profits, and income 
derived from the purchase of personal property without the United 
States (other than within a possession of the United States) and its 
sale within the United States. 
(b) TAXABLE INCOME FROM SOURCES WITHIN UNITED STATES.— 
From the items of gross income specified in subsection (a) as being 
income from sources within the United States there shall be deducted 
the expenses, losses, and other deductions properly apportioned or 
allocated thereto and a ratable part of any expenses, losses, or other 
deductions which cannot definitely be allocated to some item or class 
of gross income. 
The remainder, if any, shall be included in full as 
taxable income from sources within the United States. 
SEC. 862. INCOME FROM SOURCES WITHOUT THE UNITED STATES. 
(a) GROSS INCOME FROM SOURCES WITHOUT UNITED STATES.—The 
following items of gross income shall be treated as income from sources 
without the United States: 
(1) interest other than that derived from sources witifciin the 
United States as provided in section 861 (a) (1); 
§ 861(a)(2)(B) 
CH. 1—NORMAL TAXES AND SURTAXES 
277 
(2) dividends other than those derived from sources within the 
United States as provided in section 861 (a) (2); 
(3) compensation for labor or personal services performed with-
out the United States; 
(4) rentals or royalties from property located without 
the 
United States or from any interest in such property, including 
rentals or royalties for the use of or for the privilege of using with-
out the United States patents, copyrights, secret processes and 
formulas, good will, trade-marks, trade brands, franchises, and 
other like properties; 
(5) gains, profits, and income from the sale of real property 
located without the United States; and 
(6) gains, profits, and income derived from the purchase of 
personal property within the United States and its sale without 
the United States. 
(b) TAXABLE INCOME FROM SOURCES WITHOUT UNITED STATES.— 
From the items of gross income specified in subsection (a) there shall be 
deducted the expenses, losses, and other deductions properly appor-
tioned or allocated thereto, and a ratable part of any expenses, losses, 
or other deductions which cannot definitely be allocated to some item 
or class of gross income. 
The remainder, if any, shall be treated in 
full as taxable income from sources without the United States. 
SEC. 863. ITEMS NOT SPECIFIED IN SECTION 861 OR 862. 
(a) ALLOCATION UNDER REGULATIONS.—Items of gross income, 
expenses, losses, and deductions, other than those specified in sections 
861 (a) and 862 (a), shall be allocated or apportioned to sources 
within or without the United States, under regulations prescribed 
by the Secretary or his delegate. 
Where items of gross income 
are separately allocated to sources within the United States, there 
shall be deducted (for the purpose of computing the taxable income 
therefrom) the expenses, losses, and other deductions properly appor-
tioned or allocated thereto and a ratable part of other expenses, losses, 
or other deductions which cannot definitely be allocated to some item 
or class of gross income. The remainder, if any, shall be included in 
full as taxable income from sources within the tJnited States. 
(b) INCOME PARTLY FROM WITHIN AND PARTLY FROM WITHOUT 
THE UNITED STATES.—In the case of gross income derived from sources 
partly within and partly without the United States, the taxable in-
come may first be computed by deducting the expenses, losses, or other 
deductions apportioned or allocated thereto and a ratable part of 
any expenses, losses, or other deductions which cannot definitely be 
allocated to some item or class of gross income; and the portion of 
such taxable income attributable to sources within the United States 
may be determined by processes or formulas of general apportionment 
prescribed by the Secretary or his delegate. 
Gains, profits, and 
income— 
(1) from transportation or other services rendered partly within 
and partly without the United States, 
(2) from the sale of personal property produced (in whole or in 
part) by the taxpayer within and sold without the United States, 
or produced (in whole or in part) by the taxpayer without and 
sold within the United States, or 
^8&3 (b)(2) 
278 
INTERNAL REVENUE CODE OF 1954 
(3) derived from the purchase of personal property within a 
possession of the United States and its sale within the United 
States, 
shall be treated as derived partly from sources within and partly from 
sources without the United States. 
SEC. 864. DEFINITIONS. 
For purposes of this part, the word "sale" includes "exchange"; the 
word "sold" includes "exchanged"; and the word "produced" includes 
"created", "fabricated", "manufactured", "extracted", "processed", 
"cured", or "aged". 
PART II—NONRESIDENT ALIENS AND FOREIGN 
CORPORATIONS 
Subpart A. Nonresident alien individuals. 
Subpart B. Foreign corporations. 
Subpart C. Miscellaneous provisions. 
Subpart A—Nonresident Alien Individuals 
Sec. 871. Tax on nonresident alien individuals. 
Sec. 872. Gross income. 
Sec. 873. Deductions. 
Sec. 874. Allowance of deductions and credits. 
Sec. 875. Partnerships. 
Sec. 876. Alien residents of Puerto Rico. 
Sec. 877. Foreign educational, charitable, and 
certain other 
exempt organizations. 
SEC. 871. TAX ON NONRESIDENT ALIEN INDIVIDUALS. 
(a) No 
UNITED STATES BUSINESS AND GROSS INCOME OF N O T 
MORE THAN $15,400.— 
(1) IMPOSITION OF TAX.—Except as otherwise provided in sub-
section (b) there is hereby imposed for each taxable year, in lieu-
of the tax imposed by section 1, on the amount received, by every 
nonresident alien individual not engaged in trade or business with-
in the United States, from sources within the United States, as 
interest (except interest on deposits with persons carrying on the 
banking business), dividends, rents, salaries, wages, premiums, 
annuities, compensations, remunerations, emoluments, or other 
fixed or determinable annual or periodical gains, profits, and income 
(including amounts described in section 402 (a) (2), section 631 (b) 
and (c), and section 1235, which are considered to be gains from 
the sale or exchange of capital assets), a tax of 30 percent of such 
amount. 
(2) CAPITAL GAINS OP ALIENS TEMPORARILY PRESENT IN THE 
UNITED STATES.—In the case of a nonresident alien individual not 
engaged in trade or business in the United States, there is hereby 
imposed for each taxable year, in addition to the tax imposed by 
paragraph (1)— 
(A) if he is present in the United States for a period or periods 
aggregating less than 90 days during such taxable year—a tax of 
30 percent of the amount by which his gains, derived from 
sources within the United States, from sales or exchanges of 
capital assets effected during his presence in the United States 
§ 863(b)(3) 
CH. 1—NORMAL TAXES AND SURTAXES 
279 
exceed his losses, allocable to sources within the United States, 
from such sales or exchanges effected during such presence; or 
(B) if he is present in the United States for a period or periods 
aggregating 90 days or more during such taxable year—a tax of 
30 percent of the amount by which his gains, derived from 
sources within the United States, from sales or exchanges of 
capital assets effected at any time during such year exceed his 
losses, allocable to sources within the United States, from such 
sales or exchanges effected at any time during such year. 
For purposes of this paragraph, gains and losses shall be taken 
into account only if, and to the extent that, they would be recog-
nized and taken into account if such individual were engaged in 
trade or business in the United States, except that such gains and 
losses shall be computed without regard to section 1202 (relating to 
deduction for capital gains) and such losses shall be determined 
without the benefits of the capital loss carryover provided in sec-
tion 1212. 
(b) No 
UNITED STATES BUSINESS AND GROSS INCOME OP MORE 
THAN $15,400.—A nonresident alien individual not engaged in trade 
or business within the United States shall be taxable without regard 
to subsection (a) if during the taxable year the sum of the aggregate 
amount received from the sources specified in subsection (a) (1), plus 
the amount by which gains from sales or exchanges of capital assets 
exceed losses from such sales or exchanges (determined in accordance 
with subsection (a) (2)) is more than $15,400, except that— 
(1) the gross income shall include only income from the sources 
specified in subsection (a) (1) plus any gain (to the extent provided 
in subchapter P; sec. 1201 and following, relating to capital gains 
and losses) from a sale or exchange of a capital asset if such gain 
would be taken into account were the tax being determined under 
• subsection (a) (2) ; 
(2) the deductions (other than the deduction for charitable con-
tributions and gifts provided in section 873 (c)) shall be allowed 
only if and to the extent that they are properly allocable to the 
gross income from the sources specified in subsection (a), except 
that any loss from the sale or exchange of a capital asset shall be 
allowed (to the extent provided in subchapter P without the benefit 
of the capital loss carryover provided in section 1212) if such 
loss would be taken into account were the tax being determined 
under subsection (a) (2); 
(3) the taxes imposed by this subtitle (under section 1, or under 
: section 1201 (b)) shall, in no case, be less than 30 percent of the 
sum of— 
(A) the aggregate amount received from the sources specified 
in subsection (a) (1), plus 
(B) the amount, determined under subsection (a) (2), by 
which gains from sales or exchanges of capital assets exceed 
losses from such sales or exchanges. 
(c) UNITED STATES BUSINESS.—^A nonresident alien individual 
engaged in trade or business within the United States shall be taxable 
without regard to subsection (a). 
For purposes of part I, this section, 
sections 881 and 882, and chapter 3, the term "engaged in trade or 
business within the United States" includes the performance of 
§871(0 
280 
INTERNAL REVENUE CODE OF 1954 
personal services within the United States at any time within the 
taxable year, but does not include the performance of personal 
services— 
(1) for a nonresident alien individual, foreign partnership, or 
foreign corporation, not engaged in trade or business within the 
United States, or 
(2) for an office or place of business maintained by a domestic 
corporation in a foreign country or in a possession of the United 
States, 
by a nonresident alien individual temporarily present in the United 
States for a period or periods not exceeding a total of 90 days during 
the taxable year and whose compensation for such services does not 
exceed in the aggregate $3,000. 
Such term does not include the 
effecting, through a resident broker, commission agent, or custodian, 
of transactions in the United States in stocks or securities, or in com-
modities (if of a kind customarily dealt in on an organized commodity 
exchange, if the transaction is of the kind customarily consummated 
at such place, and if the alien, partnership, or corporation has no office 
or place of business in the United States at any tirrie during the taxable 
year through w^hich or by the direction of which such transactions in 
commodities are effected), 
(d) 
DOUBLING OF T A X . — 
For doubling of tax on citizens of certain foreign countries, see sec-
tion 89X. 
SEC. 872. 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) EXCLUSIONS.—The following items shall not be included in 
gross income of a nonresident alien individual, and shall be exempt 
from taxation under this subtitle: 
(1) SHIPS UNDER FOREIGN FLAG.—^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. 
(2) AIRCRAFT OF FOREIGN REGISTRY.—Earnings derived from 
the operation of aircraft registered 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. 
SEC. 873. 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 part I, under regulations prescribed by the 
Secretary or his delegate. 
(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 165 (c) (2) (relating to losses) shall be allowed whether 
or not connected with income from sources within the United States, 
§871(0) 
CH. 1—NORMAL TAXES AND SURTAXES 
281 
' b u t only if the profit, if such transaction had resulted in a profit, 
would be taxable under this subtitle. 
(2) The deduction for losses of property not connected with the 
trade or business if arising from certain casualties or theft, allowed 
by section 165 (c) (3), shall be allowed whether or not connected 
with income from sources within the United States, but only if the 
ul loss is of property within the United States. 
(c) CHARITABLE CONTRIBUTIONS.—The deduction for charitable 
contributions and gifts provided by section 170 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 corpo-
rations, or to community chests, funds, or foundations, created in the 
United States. 
(d) PERSONAL EXEMPTION.—In the case of a nonresident alien 
individual who is not a resident of a contiguous country, only one 
exemption under section 151 shall be allowed as a deduction. 
(e) STANDARD DEDUCTION.— 
For disallowance of standard deduction, see section 142 (b) (1). 
SEC. 874. ALLOWANCE OF DEDUCTIONS AND CREDITS. 
(a) RETURN PREREQUISITE TO ALLOWANCE.—A nonresident alien 
individual shall receive the benefit of the deductions and credits 
allowed to him in this subtitle only by filing or causing to be filed a 
true and accurate return of his total income received from all sources 
in the United States, in the manner prescribed in subtitle F (sec. 6001 
and following,, relating to procedure and administration), including 
therein all the information which the Secretary or his delegate may 
deem necessary for the calculation of such deductions and credits. 
This subsection shall not be construed to deny the credits provided 
by sections 31 and 32 for tax withheld at the source. 
(b) TAX WITHHELD AT SOURCE.—The benefit of the deduction for 
exemptions under section 151 may, in the discretion of the Secretary 
or his delegate, and under regulations prescribed by the Secretary or 
his delegate, be received by a nonresident alien individual .entitled 
thereto, by filing a claim therefor with the withholding agent. 
(c) FOREIGN TAX CREDIT N O T ALLOWED.—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 901. 
SEC. 875. PARTNERSHIPS. 
For purposes of this subtitle, a nonresident alien individual shall 
be considered as being engaged in a trade or business within the 
United States if the partnership of which he is a member is so engaged. 
SEC. 876. ALIEN RESIDENTS OF PUERTO RICO. 
(a) No APPLICATION TO CERTAIN ALIEN RESIDENTS OP PUERTO 
Rico.—This subpart shall not apply to an alien individual who is a 
bona fide resident of Puerto Rico during the entire taxable year, and 
such alien shall be subject to the tax imposed by section 1. 
(b) CROSS REFERENCE.— 
For exclusion from gross income of income derived from sources 
within Puerto Rico, see section 933. 
§ 876(b) 
49012°—54 
21 
282 
INTERNAL REVENUE CODE OF 1954 
SEC. 877. FOREIGN 
EDUCATIONAL, 
CHARITABLE, 
AND 
CERTAIN 
OTHER EXEMPT 
ORGANIZATIONS. 
For special provisions relating to unrelated 
business income 
of 
foreign educational, charitable, and other exempt trusts, see section 
512 (a). 
Subpart B—Foreign Corporations 
Sec. 881. Tax on foreign corporations not engaged in business in 
United States. 
Sec. 882. Tax on resident foreign corporations. 
Sec. 883. Exclusions from gross income. 
Sec. 884. Cross references. 
SEC. 881. TAX ON FOREIGN CORPORATIONS NOT ENGAGED IN BUSI-
NESS IN UNITED STATES. 
(a) IMPOSITION OF TAX.—In the case of every foreign corporation 
not engaged in trade or business within the United States, there is 
hereby imposed for each taxable year, in lieu of the taxes imposed by 
section 11, a tax of 30 percent of the amount received from sources 
within the United States as interest (except interest on deposits 
with persons carrying on the banking business), dividends, rents, 
salaries, wages, premiums, annuities, compensations, remunerations, 
emoluments, or other fixed or determinable annual or periodical gains, 
profits, and income (including amounts described in section 631 (b) 
and (c) which are considered to be gains from the sale or exchange of 
capital assets). 
(b) DOUBLING OF T A X . — 
For doubling of tax on corporations of certain foreign countries, see 
section 891. 
SEC. 882. TAX ON RESIDENT FOREIGN CORPORATIONS. 
(a) IMPOSITION OF TAX.—A foreign corporation engaged in trade or 
business within the United States shall be taxable as provided in sec-
tion 11. 
(b) GEOSS INCOME.—In the case of a foreign corporation, gross in-
come includes only the gross income from sources within the United 
States. • 
(c) ALLOWANCE OF DEDUCTIONS AND CREDITS.— 
(1) DEDUCTIONS ALLOWED ONLY IF RETURN FILED.—A foreign 
corporation shall receive the benefit of the deductions allowed to it 
in this subtitle only by filing or causing to be filed with the Secretary 
or his delegate a true and accurate return of its total income received 
from all sources in the United States, in the manner prescribed in 
subtitle F, including therein all the information which the Secretary 
or his delegate may deem necessary for the calculation of such 
deductions. 
(2) ALLOCATION OF DEDUCTIONS.—In the case of a foreign cor-
poration 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 part I, under regulations 
prescribed by the Secretary or his delegate. 
(3) CHARITABLE CONTRIBUTIONS.—The deduction for charitable 
contributions and gifts provided by section 170 shall be allowed 
whether or not connected with income from sources within the 
United States. 
§877 
&,._.^:,|--,-„.-,;.;,t. 
CH. 1—NORMAL TAXES AND SURTAXES 
283 
(4) FOREIGN TAX CREDIT.—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 901. 
(d) RETURNS OF TAX BY AGENT.—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 required under section 6012 shall be made 
by the agent. 
. 
SEC. 883. EXCLUSIONS FROM GROSS INCOME. 
The following items shall not be included in gross income of a 
foreign corporation, and shall be exempt from taxation under this 
subtitle: 
(1) SHIPS UNDER FOREIGN FLAG.—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. 
(2) AIRCRAFT OF FOREIGN REGISTRY.—Earnings derived from the 
operation of aircraft registered 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. 
SEC. 884. CROSS REFERENCES. 
(1) For withholding at source of tax on income of foreign corpora-
^fy 
tions, see section 1442. 
^,j,, 
(2) For rules applicable in determining whether any foreign corpora-
P 
tion is engaged in trade or business within the United States, see 
''' 
section 871 (c). 
-* 
(3) For special provisions relating to foreign insurance companies, 
()u .
, 
see subchapter L (sec. 801 and following). 
(4) For special provisions relating to unrelated business income of 
foreign educational, charitable, and certain other exempt organizations, 
* 
see section 512 (a). 
II-... 
Subpart C—Miscellaneous Provisions 
85' 
Sec. 891. Doubling of rates of tax on citizens and corporations of 
certain foreign countries. 
Sec. 892, Income of foreign governments and of international organi-
-^^' 
zations. 
&!•• 
Sec. 893. Compensation of employees of foreign governments or 
ge 
international organizations. 
Sec. 894. Income exempt under treaty. 
SEC. 891. DOUBLING OF RATES OF TAX ON CITIZENS AND CORPORA-
TIONS OF CERTAIN FOREIGN COUNTRIES. 
Whenever the President finds that, under the laws of any foreign 
country, citizens or corporations of the United States are being sub-
jected to discriminatory or extraterritorial taxes, the President shall 
so proclaim and the rates of tax imposed by sections 1,3, 11, 802, 821, 
831, 852, 871, and 881 shall, for the taxable year during which 
such proclamation is made and for each taxable year thereafter, be 
doubled in the case of each citizen and corporation of such foreign 
country; but the tax at such doubled rate shall be considered as 
imposed by such sections as the case may be. 
In no case shall this 
section operate to increase the taxes imposed by such sections (com-
puted without regard to this section) to an amount in excess of 80 
percent of the taxable income of the taxpayer (computed without 
regard to the deductions allowable under section 151 and under part 
§ 891 
284 
INTERNAL REVENUE CODE OF 1954 
VIII of subchapter B). 
Whenever the President finds that the laws 
of any foreign country with respect to which the President has made 
a proclamation under the preceding provisions of this section have 
been modified so that discriminatory and extraterritorial 
taxes 
applicable to citizens and corporations of the United States have 
been removed, he shall so proclaim, and the provisions of this section 
providing for doubled rates of tax shall not apply to any citizen or 
corporation of such foreign country with respect to any taxable year 
beginning after such proclamation is made. 
SEC. 892. INCOME OF FOREIGN GOVERNMENTS AND OF INTER-
NATIONAL ORGANIZATIONS. 
The income of foreign governments or international organizations 
received from investments in the United States in stocks, bonds, 
or other domestic securities, owned by such foreign governments 
or by international organizations, or from interest on deposits in 
banks in the United States of moneys belonging to such foreign 
governments or international organizations, or from any other source 
within the United States, shall not be included in gross income and 
shall be exempt from taxation under this subtitle. 
SEC. 893. COMPENSATION OF EMPLOYEES OF FOREIGN GOVERN-
MENTS OR INTERNATIONAL ORGANIZATIONS. 
(a) KuLE FOR EXCLUSION.—Wages, fees, or salary of any employee 
of a foreign government or of an international organization (including 
a consular or other officer, or a nondiplomatic representative), received 
as compensation for official services to such government or interna-
tional organization shall not be included in gross income and shall be 
exempt from taxation under this subtitle if— 
(1) such employee is not a citizen of the United States, or is a 
citizen of the Republic of the Philippines (whether or not a citizen 
of the United States); and 
(2) in the case of an employee of a foreign government, the 
services are of a character similar to those performed by employees 
of the Government of the United States in foreign countries; and 
(3) in the case of an employee of a foreign government, the 
foreign government grants an equivalent exemption to employees 
of the Government of the United States performing similar services 
in such foreign country, 
(b) CERTIFICATE BY SECRETARY OF STATE.—The Secretary of State 
shall certify to the Secretary of the Treasury the names of the foreign 
countries which grant an equivalent exemption to the employees of the 
Government of the United States performing services in such foreign 
countries, and the character of the services performed by employees 
of the Government of the United States in foreign countries. 
SEC. 894. INCOME EXEMPT UNDER TREATY. 
Income of any kind, to the extent required by any treaty obligation 
of the United States, shall not be included in gross income and shall 
be exempt from taxation under this subtitle. 
§891 
CH. 1—NORMAL TAXES AND SURTAXES 
285 
PART III—INCOME FROM SOURCES WITHOUT THE UNITED 
STATES 
Subpart A. Foreign tax credit. 
Subpart B. Earned income of citizens of United States. 
Subpart C. Western Hemisphere trade corporations. 
Subpart D. Possessions of the United States. 
'itJ» Ui &ii 
Subpart E. China Trade Act corporations. 
|j> 
Subpart A—Foreign Tax Credit 
„ 
Sec. 901. Taxes of foreign countries and of possessions of United 
«
^
^ 
States. 
(>; 
Sec. 902. Credit for corporate stockholder in foreign corporation. 
•oj 
Sec. 903. Credit for taxes in lieu of income, etc., taxes. 
'2', J 
Sec. 904. Limitation on credit. 
^^"' 
Sec. 905. Applicable rules. 
SEC. 901. TAXES OF FOREIGN COUNTRIES AND OF POSSESSIONS OF 
UNITED STATES. 
(a) ALLOWANCE or CREDIT.—If the taxpayer chooses to have the 
benefits of this subpart, the tax imposed by this chapter shall, subject 
to the limitation of section 904, be credited with the amounts provided 
in the applicable paragraph of subsection (b) plus, in the case of a 
corporation, the taxes deemed to have been paid under section 902. 
Such choice may be made or changed at any time prior to the expira-
tion of the period prescribed for making a claim for credit or refund of 
the tax against which the credit is allowable. 
The credit shall not be 
allowed against the tax imposed by section 531 (relating to the tax on 
accumulated earnings), against the additional tax imposed for the tax-
able year under section 1333 (relating to war loss recoveries), or against 
the personal holding company tax imposed by section 541. 
(b) AMOUNT ALLOWED.—Subject to the limitation of section 904, 
the following amounts shall be allowed as the credit under sub-
section (a): 
(1) CITIZENS AND DOMESTIC CORPORATIONS.—In the case of a 
citizen of the United States and of a domestic corporation, the 
'T! amount of any income, war profits, and excess profits taxes paid or 
accrued during the taxable year to any foreign country or to any 
possession of the United States; and 
b 
(2) RESIDENT OF THE UNITED STATES OR PUERTO RICO.—In the 
- case of a resident of the United States and in the case of an indi-
vidual who is a bona fide resident of Puerto Rico during the entire 
taxable year, the amount of any such taxes paid or accrued during 
the taxable year to any possession of the United States; and 
• J 
ro 
'lir 
§ 901(b)(2) 
286 
INTERNAL REVENUE CODE OF 19 
54 
(3) ALIEN RESIDENT OF THE UNITED STATES OR PUERTO RICO.—In 
the case of an alien resident of the United States and in the case 
of an ahen individual who is a bona fide resident of Puerto Rico 
during the entire taxable year, the amount of any such taxes paid 
or accrued during the taxable year to any foreign country, if the 
foreign country of which such alien resident is a citizen or subject, 
in imposing such taxes, allows a similar credit to citizens of the 
United States residing in such country; and 
(4) PARTNERSHIPS AND ESTATES.—In the case of any individual 
described in paragraph (1), (2), or (3), who is a member of a 
partnership or a beneficiary of an estate or trust, the amount of 
his proportionate share of the taxes (described in such paragraph) 
of the partnership or the estate or trust paid or accrued during 
the taxable year to a foreign country or to any possession of the 
United States, as the case may be. 
(c) CORPORATIONS TREATED AS FOREIGN.—For purposes of this 
subpart, the following corporations shall be treated as foreign cor-
porations: 
(1) a corporation entitled to the benefits of section 931, by reason 
of receiving a large percentage of its gross income from sources 
within a possession of the United States; and 
(2) a corporation organized under the China Trade Act, 1922 
(15 U. S. C , chapter 4), and entitled to the deduction provided in 
section 941. 
(d) CROSS EEEERENCE.— 
(1) For deductions of income, war profits, and excess profits taxes 
paid to a foreign country or a possession of the United States, see 
section 164. 
(2) For right of each partner to malie election under this section, 
see section 703 (b). 
(3) For right of estate or trust to the credit for taxes imposed by 
foreign countries and possessions of the United States under 
this 
section, see section 642 (a) (2). 
SEC. 
902. 
CREDIT FOR CORPORATE STOCKHOLDER IN FOREIGN 
CORPORATION. 
(a) TREATMENT OF TAXES PAID BY FOREIGN CORPORATION.—For 
purposes of this subpart, a domestic corporation which owns at least 
10 percent of the voting stock of a foreign corporation from which it 
receives dividends in any taxable year shall be deemed to have paid 
the same proportion of any income, war profits, or excess profits taxes 
paid or deemed to be paid by such foreign corporation to any foreign 
country or to any possession of the United States, on or with respect 
to the accumulated profits of such foreign corporation from which 
such dividends were paid, which the amount of such dividends bears 
to the amount of such accumulated profits. 
(b) FOREIGN 
SUBSIDIARY 
OF FOREIGN 
CORPORATION.—If such 
foreign corporation owns 50 percent or more of the voting stock of 
another foreign corporation from which it receives dividends in any 
taxable year, it shall be deemed to have paid the same proportion of 
any income, war profits, or excess profits taxes paid by such other 
foreign corporation to any foreign country or to any possession of the 
United States, on or with respect to the accumulated profits of the 
corporation from which such dividends were paid, which the amount 
of such dividends bears to the amount of such accumulated profits. 
§ 901(b)(3) 
CH. 1—NORMAL TAXES AND SURTAXES 
287 
(c) APPLICABLE RULES.— 
(1) The term "accumulated profits", when used in this section 
in reference to a foreign corporation, means the amount of its gains, 
profits, or income in excess of the income, war profits, and excess 
profits taxes imposed on or with respect to such profits or income; 
and the Secretary or his delegate shall have full power to determine 
from the accumulated profits of what year or years such dividends 
were paid, treating dividends paid in the first 60 days of any year 
as having been paid from the accumulated profits of the preceding 
year or years (unless to his satisfaction shown otherwise), and in 
other respects treating dividends as having been paid from the most 
recently accumulated gains, profits, or earnings. 
(2) In the case of a foreign corporation, the income, war profits, 
and excess profits taxes of which are determined on the basis of an 
accounting period of less than 1 year, the word "year" as used in 
this subsection shall be construed to mean such accounting period. 
(d) 
SPECIAL RULES FOR CERTAIN WHOLLY-OWNED FOREIGN COR-
PORATIONS.—For purposes of this subtitle, if— 
(1) a domestic corporation owns, directly or indirectly, 100 percent 
of all classes of outstanding stock of a foreign corporation engaged 
in manufacturing, production, or mining, 
(2) such domestic corporation receives property in the form of a 
royalty or compensation from such foreign corporation pursuant 
to any form of contractual arrangement under which the do-
mestic corporation agrees to furnish services or property in 
consideration for the property so received, and 
(3) such contractual arrangement provides that the property 
so received by such domestic corporation shall be accepted by such 
domestic corporation in lieu of dividends and that such foreign 
corporation shall neither declare nor pay any dividends of any 
kind in any calendar year in which such property is paid to such 
domestic corporation by such foreign corporation, 
then the excess of the fair market value of such property so received 
by such domestic corporation over the cost to such doniestic corpora-
tion of the property and services so furnished by such domestic cor-
poration shall be treated as a distribution by such foreign corporation 
to such domestic corporation, and for purposes of section 301, the 
amount of such distribution shall be such excess, in lieu of any amount 
otherwise determined under section 301 without regard to this sub-
section; and the basis of such property so received by such domestic 
corporation shall be the fair market value of such property, in lieu 
of the basis otherwise determined under section 301 (d) without 
regard to this subsection. 
SEC. 903. CREDIT FOR TAXES IN LIEU OF INCOME, ETC., TAXES. 
For purposes of this subpart and of section 164 (b), the term 
"income, war profits, and excess profits taxes" shall include a tax 
paid in lieu of a tax on income, war profits, or excess profits otherwise 
generally imposed by any foreign country or by any possession of 
the United States. 
SEC. 904. LIMITATION ON CREDIT. 
(a) LIMITATION.—The amount of the credit in respect of the tax 
paid or accrued to any country shall not exceed the same proportion 
§ 904(a) 
288 
INTERNAL REVENUE CODE 
OF 1954 
of the tax against which such credit is taken which the taxpayer's tax-
able income from sources within such country (but not in excess of the 
taxpayer's entire taxable income) bears to his entire taxable income 
for the same taxable year. 
(b) TAXABLE INCOME FOR PURPOSE OF COMPUTING LIMITATION.— 
For purposes of computing the limitation under subsection (a), the 
taxable income in the case of an individual, estate, or trust shall be 
computed without any deduction for personal exemptions under 
section 151 or 642 (b). 
SEC. 905. APPLICABLE RULES. 
(a) YEAR IN WHICH CREDIT TAKEN.—The credits provided in 
this subpart may, at the option of the taxpayer and irrespective of 
the method of accounting employed in keeping his books, be taken 
in the year in which the taxes of the foreign country or the possession 
of the United States accrued, subject, however, to the conditions 
prescribed in subsection (c). If the taxpayer elects to take such 
credits in the year in which the taxes of the foreign country or the 
possession of the United States accrued, the credits for all subsequent 
years shall be taken on the same basis, and no portion of any such 
taxes shall be allowed as a deduction in the same or any succeeding 
year. 
. (b) PROOF OF CREDITS.—The credits provided in this subpart shall 
be allowed only if the taxpayer establishes to the satisfaction of the 
Secretary or his delegate— 
(1) the total amount of income derived from sources without the 
United States, determined as provided in part I, 
(2) the amount of income derived from each country, the tax paid 
or accrued to which is claimed as a credit under this subpart, such 
amount to be determined under regulations prescribed by the 
Secretary or his delegate, and 
(3) all other information necessary for the verification and 
computation of such credits. 
(c) ADJUSTMENTS ON PAYMENT OF ACCRUED TAXES.—If accrued 
taxes when paid differ from the amounts claimed as credits by the 
taxpayer, or if any tax paid is refunded in whole or in part, the tax-
payer shall notify the Secretary or his delegate, who shall redetermine 
the amount of the tax for the year or years affected. 
The amount 
of tax due on such redetermination, if any, shall be paid by the 
taxpayer on notice and demand by the Secretary or his delegate, or 
the amount of tax overpaid, if any, shall be credited or refunded to the 
taxpayer in accordance with subchapter B of chapter 66 (sec. 6511 and 
following). In the case of such a tax accrued but not paid, the Secre-
tary or his delegate, as a condition precedent to the allowance of this 
credit, may require the taxpayer to give a bond, with sureties satis-
factory to and to be approved by the Secretary or his delegate, in such 
sum as the Secretary or his delegate may require, conditioned on the 
payment by the taxpayer of any amount of tax found due on any such 
redetermination; and the bond herein prescribed shall contain such 
further conditions as the Secretary or his delegate may require. In 
such redetermination by the Secretary or his delegate of the amount 
of tax due from the taxpayer for the year or years affected by a refund, 
the amount of the taxes refunded for which credit has been allowed 
under this section shall be reduced by the amount of any tax described 
§ 904(a) 
CH. 1—NORMAL TAXES AND SURTAXES 
289 
in section 901 imposed by the foreign country or possession of the 
United States with respect to such refund; but no credit under this 
subpart, and no deduction under section 164 (relating to deduction for 
taxes) shall be allowed for any taxable year with respect to such tax 
imposed on the refund. 
No interest shall be assessed or collected on 
any amount of tax due on any redetermination by the Secretary or 
his delegate, resulting from a refund to the taxpayer, for any period 
before the receipt of such refund, except to the extent interest was paid 
by the foreign country or possession of the United States on such 
refund for such period. 
Subpart B—Earned Income of Citizens of United States 
Sec. 911. Earned income from sources without the United States. 
l,i 
Sec. 912. Exemption for certain allowances. 
SEC. 911. EARNED INCOME FROM SOURCES WITHOUT THE UNITED 
STATES. 
(a) GENERAL RULE.—The following items shall not be included in 
gross income and shall be exempt from taxation under this subtitle: 
(1) BONA FIDE RESIDENT OF FOREIGN COUNTRY.—In the case of an 
individual citizen of the United States, who establishes to the satis-
^ faction of the Secretary or his delegate that he has been a bona fide 
^ resident of a foreign country or countries for an uninterrupted period 
^ which includes an entire taxable year, amounts received from sources 
without the United States (except amounts paid by the United 
States or any agency thereof) if such amounts constitute earned 
income (as defined in subsection (b)) attributable to such period; 
but such individual shall not be allowed as a deduction from his 
gross income any deductions (other than those allowed by section 
151, relating to personal exemptions) properly allocable to or 
chargeable against amounts excluded from gross income under this 
* paragraph. 
(2) PRESENCE IN FOREIGN COUNTRY FOR 17 MONTHS.—In 
the 
f case of an individual citizen of the United States, who during any 
^ period of 18 consecutive months is present in a foreign country or 
'^: countries during at least 510 full days in such period, amounts 
*' received from sources without the United States (except amounts 
paid by the United States or an agency thereof) if such amounts 
^ constitute earned income (as defined in subsection (b)) attributable 
^ to such period; but such individual shall not be allowed as a deduc-
^ tion from his gross income any deductions (other than those allowed 
^ by section 151, relating to personal exemptions) properly allocable 
to or chargeable against amounts excluded from gross income under 
"
^ this paragraph. 
If the 18-month period includes the entire taxa-
^ ble year, the amount excluded under this paragraph for such 
taxable year shall not exceed $20,000. 
If the 18-month period 
" does not include the entire taxable year, the amount excluded 
^ under this paragraph for such taxable year shall not exceed an 
' amount which bears the same ratio to $20,000 as the number of 
\; days in the part of the taxable year within the 18-month period 
^ bears to the total number of days in such year. 
(b) DEFINITION OF EARNED INCOME.—For purposes of this sec-
tion, the term "earned income" means wages, salaries, or professional 
§ 911(b) 
'290 
INTERNAL REVENUE CODE OF 19 5 4 ^ 
fees, and other amounts received as compensation for personal serv-
ices actually rendered, but does not include that part of the compen-
sation derived by the taxpayer for personal services rendered by him 
to a corporation which represents a distribution of earnings or profits 
rather than a reasonable allowance as compensation for the personal 
services actually rendered. 
In the case of a taxpayer engaged in a 
trade or business in which both personal services and capital are 
material income-producing factors, under regulations prescribed by 
the Secretary or his delegate, a reasonable allowance as compensation 
for the personal services rendered by the taxpayer, not in excess of 
30 percent of his share of the net profits of such trade or business, 
shall be considered as earned income. 
SEC. 912. EXEMPTION FOR CERTAIN ALLOWANCES. 
The following items shall not be included in gross income, and shall 
be exempt from taxation under this subtitle: 
(1) COST-OF-LIVING ALLOWANCES.—In the case of civilian officers 
or employees of the Government of the United States stationed 
outside continental United States, amounts received as cost-of-
living allowances in accordance with regulations approved by the 
President. 
(2) FoEEiGN SERVICE ALLOWANCES.—In the casc of an ofiicer or 
employee of the Foreign Service of the United States, amounts 
received by such officer or employee as allowances or otherwise 
under the terms of title IX of the Foreign Service Act of 1946 (22 
U. S. C. 1131-1158). 
Subpart C—Western Hemisphere Trade Corporations 
Sec. 921. Definition of Western Hemisphere trade corporations. 
Sec. 922. Special deduction. 
SEC. 921. DEFINITION 
OF WESTERN 
HEMISPHERE 
TRADE 
COR-
PORATIONS. 
For purposes of this subtitle, the term "Western Hemisphere trade 
corporation" means a domestic corporation all of whose business 
(other than incidental purchases) is done in any country or countries 
in North, Central, or South America, or in the West Indies, and which 
satisfies the following conditions: 
(1) if 95 percent or more of the gross income of such domestic 
corporation for the 3-year period immediately 
preceding 
the 
close of the taxable year (or for such part of such period during 
which the corporation was in existence) was derived from sources 
without the United States; and 
(2) if 90 percent or more of its gross income for such period or 
such part thereof was derived from the active conduct of a trade 
or business. 
For any taxable year beginning prior to January 1, 1954, the deter-
mination as to whether any corporation meets the requirements of 
section 109 of the Internal Revenue Code of 1939 shall be made as 
if this section had not been enacted and without inferences drawn 
from the fact that this section is not expressly made applicable with 
respect to taxable years beginning prior to January 1, 1954. 
§ 911(b) 
CH. 1 
NORMAL TAXES AND SURTAXES 
291 
SEC. 922. 
SPECIAL DEDUCTION. 
In the case of a Western Hemisphere trade corporation there shall 
be allowed as a deduction in computing taxable income an amount 
computed as follows— 
(1) First determine the taxable income of such corporation com-
puted without regard to this section. 
(2) Then multiply the amount determined under paragraph (1) 
£ by the fraction— 
(A) the numerator of which is 14 percent, and 
I) 
(B) the denominator of which is that percentage which equals 
s 
the sum of the normal tax rate and the surtax rate for the tax-
•o_ 
able year prescribed by section 11. 
If' 
Subpart D—Possessions of the United States 
Sec. 931. Income from sources within possessions of the United 
States. 
Sec. 932. Citizens of possessions of the United States. 
Sec. 933. Income from sources within Puerto Rico. 
SEC. 931. INCOME FROM SOURCES WITHIN POSSESSIONS OF THE 
UNITED STATES. 
(a) GENEEAL RULE.—In the case of citizens of the United States 
or domestic corporations, gross income means only gross income from 
sources within the United States if the conditions of both paragraph 
(1) and paragraph (2) are satisfied: 
(1) THREE-YEAR PERIOD.—If 80 percent or more of the gross in-
come of such citizen or domestic corporation (computed without the 
benefit of this section) for the 3-year period immediately pre-
£ ceding the close of the taxable year (or for such part of such period 
{
i immediately preceding the close of such taxable year as may be 
applicable) was derived from sources within a possession of the 
5
, United States; and 
,. 
(2) TRADE OR BUSINESS.—If— 
T 
(A) in the case of such corporation, 50 percent or more of 
I 
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 
'^- 
(B) in the case of such citizen, 50 percent 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 
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.—For purposes of this section, the term "possession 
of the United States" does not include the Virgin Islands of the United 
States, and such term when used with respect to citizens of the 
United States does not include Puerto Rico. 
(d) 
DEDUCTIONS.— 
(1) Citizens of the United States entitled to the benefits of this 
section shall have the same deductions as are allowed by section 873 
§ 931(d)(1) 
292 
INTERNAL REVENUE CODE OF 1954 
in the case of a nonresident alien individual engaged in trade or 
business within the United States. 
(2) Domestic corporations entitled to the benefits of this section 
shall have the same deductions as are allowed by section 882 (c) in 
the case of a foreign corporation engaged in trade or business 
within the United States. 
(e) DEDUCTION 
FOR PERSONAL 
EXEMPTION.—A citizen of the 
United States entitled to the benefits of this section shall be allowed a 
deduction for only one exemption under section 151. 
(f) ALLOWANCE OF DEDUCTIONS AND CREDITS.—Persons entitled 
to the benefits of this section shall receive the benefit of the deductions 
and credits allowed to them in this subtitle only by filing or causing 
to be filed with the Secretary or his delegate a true and accurate 
return of their total income received from all sources in the United 
States, in the manner prescribed in subtitle F, including therein all 
the information which the Secretary or his delegate may deem neces-
sary for the calculation of such deductions and credits. 
(g) FOREIGN TAX CREDIT.—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 901. 
(h) INTERNEES.—In the case of a citizen of the United States 
interned by the enemy while serving as an employee within a possession 
of the United States— 
(1) if such citizen was confined in any place not within a posses-
sion of the United States, such place of confinement shall, for 
purposes of this section, be considered as within a possession of 
the United States; and 
(2) subsection (b) shall not apply to any compensation received 
within the United States by such citizen attributable to the period 
of time during which such citizen was interned by the enemy. 
(i) EMPLOYEES OP THE UNITED STATES.—For purposes of this 
section, amounts paid for services performed by a citizen of the 
United States as an employee of the United States or any agency 
thereof shall be deemed to be derived from sources within the United 
States. 
SEC. 932. CITIZENS OF POSSESSIONS OF THE UNITED STATES. 
(a) GENERAL RULE.—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 subtitle 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 condi-
tions as in the case of other persons who are taxable only as to income 
derived from such sources. 
This section shall have no application in 
the case of a citizen of Puerto Rico. 
(b) VIRGIN ISLANDS.—Nothing in this section shall be construed to 
alter or amend 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 (48 U. S. C. 1397), relating 
to the imposition of income taxes in the Virgin Islands of the United 
States. 
§ 931(d)(1) 
CH. 1—NORMAL TAXES AND SURTAXES 
293 
(c) 
GUAM.— 
For applicability of United States income tax laws in Guam, see sec-
tion 31 of the Act of August 1, 1950 (48 U. S. C. 1421i); for disposition 
of the proceeds of such taxes, see section 30 of such Act (48 U. S. C. 
1421h). 
SEC. 933. INCOME FROM SOURCES WITHIN PUERTO RICO. 
The following items shall not be included in gross income and shall 
be exempt from taxation under this subtitle: 
(1) RESIDENT OF PUERTO RICO FOR ENTIRE TAXABLE YEAR.—In 
the case of an individual who is a bona fide resident of Puerto Rico 
during the entire taxable year, income derived from sources within 
Puerto Rico (except amounts received for services performed as an 
employee of the United States or any agency thereof); but such 
individual shall not be allowed as a deduction from his gross income 
any deductions (other than the deduction under section 151, relating 
to personal exemptions) properly allocable to or chargeable against 
amounts excluded from gross income under this paragraph. 
(2) TAXABLE YEAR OF CHANGE OF RESIDENCE FROM PUERTO 
RICO.—In the case of an individual citizen of the United States who 
has been a bona fide resident of Puerto Rico for a period of at least 
2 years before the date on which he changes his residence from 
Puerto Rico, income derived from sources therein (except amounts 
received for services performed as an employee of the United States 
or any agency thereof) which is attributable to that part of such 
period of Puerto Rican residence before such date; but such indi-
vidual shall not be allowed as a deduction from his gross income any 
deductions (other than the deduction for personal exemptions under 
section 151) properly allocable to or chargeable against amounts 
excluded from gross income under this paragraph. 
Ih'i: 
Subpart E—China Trade Act Corporations 
c 
Sec. 941. Special deduction for China Trade Act corporations. 
Sec. 942. Disallowance of foreign tax credit. 
Sec. 943. Exclusion of dividends to residents of Formosa or Hong 
• -' 
K o n g . 
SEC. 941. SPECIAL DEDUCTION FOR CHINA TRADE ACT CORPORA-
TIONS. 
(a) ALLOWANCE OF DEDUCTION,—For purposes only of the taxes 
imposed by section 11, there shall be allowed, in the case of a cor-
poration organized under the China Trade Act, 1922 (15 U. S. C. 
ch. 4, sec. 141 and following), in addition to the deductions from 
taxable income otherwise allowed such corporation, a special deduc-
tion, in computing the taxable income, of an amount equal to the 
proportion of the taxable income derived from sources within Formosa 
and Hong Kong (determined without regard to this section and deter-
mined in a similar manner to that provided in part I) 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 Formosa, Hong Kong, the United States, 
or possessions of the United States, and 
(2) individual citizens of the United States wherever resident, 
bears to the par value of the whole number of shares of stock of the 
corporation outstanding on such date. 
In no case shall the diminu-
§ 941(a)(2) 
294 
INTERNAL REVENUE CODE OF 19 54 
tion, by reason of such special deduction, of the taxes imposed by-
section 11 (computed without regard to this section) exceed the 
amount of the special dividend certified under subsection (b) of this 
section. 
(b) SPECIAL DIVIDEND.—The special deduction provided in sub-
section (a) shall not be allowed unless the Secretary of Commerce 
has certified to the Secretary of the Treasury or his delegate— 
(1) the amount which, during the year ending on the date fixed 
by law for filing the return, the corporation has distributed as a 
special dividend to or for the benefit of such persons as on the last 
day of the taxable year were resident in Formosa, Hong Kong, the 
United States, or possessions of the United States, or were individual 
citizens of the United States, and owned shares of stock of the 
corporation; 
(2) that such special dividend was in addition to all other 
amounts, payable or to be payable to such persons or for their 
benefit, by reason of their interest in the corporation; and 
(3) that such distribution has been made to or for the benefit 
of such persons in proportion to the par value of the shares of 
stock of the corporation owned by each; except that if the cor-
poration has more than one class of stock, the certificates shall 
contain a statement that the articles of incorporation provide a 
method for the apportionment of such special dividend among such 
persons, and that the amount certified has been distributed in 
accordance with the method so provided. 
(c) OWNERSHIP OF STOCK.—For purposes of this section, shares 
of stock of a corporation shall be considered to be owned by the 
person in whom the equitable right to the income from such shares is 
in good faith vested. 
SEC. 942. DISALLOWANCE OF FOREIGN TAX CREDIT. 
A corporation organized under the China Trade Act, 1922, shall 
not be allowed the credits against the tax for taxes of foreign countries 
and possessions of the United States allowed by section 901. 
SEC. 943. EXCLUSION OF DIVIDENDS TO RESIDENTS OF FORMOSA OR 
HONG KONG 
Amounts distributed as dividends to or for the benefit of any 
person by a corporation organized under the China Trade Act, 1922, 
shall not be included in gross income and shall be exempt from 
taxation under this subtitle if, at the time of such distribution, such 
person is a resident of Formosa or Hong Kong, and the equitable right 
to the income of the shares of stock of the corporation is in good faith 
vested in him. 
1941(a)(2) 
CH. 1—NORMAL TAXES AND SURTAXES 
295 
Subchapter O—Gain or Loss on Disposition of Property 
Part 
I. Determination of amount of and recognition of gain or 
loss. 
Part 
II. Basis rules of general application. 
Part III. Common nontaxable exchanges. 
.teLfit 
Part IV. Special rules. 
Part 
V. Changes to effectuate F. C. C. policy. 
Part VI. Exchanges in obedience to S. E. C. orders. 
'>^*' " 
Part VII. Wash sales of stock or securities. 
PART I—DETERMINATION OF AMOUNT OF 
A N D ' 
RECOGNITION OF GAIN OR LOSS 
Sec. 1001. Determination of amount of and recognition of gain or 
>-,- - 
loss. 
Sec. 1002. Recognition of gain or loss. 
SEC. 1001. DETERMINATION OF AMOUNT OF AND RECOGNITION OF 
GAIN OR LOSS. 
(a) COMPUTATION OF GAIN OR LOSS.—The gain from the sale or 
other disposition of property shall be the excess of the amount realized 
therefrom over the adjusted basis provided in section 1011 for de-
termining gain, and the loss shall be the excess of the adjusted basis 
provided in such section for determining loss over the amount realized. 
(b) AMOUNT REALIZED.—The amount realized from the sale or 
other disposition of property shall be the sum of any money received 
plus the fair market value of the property (other than money) received. 
In determining the amount realized— 
(1) there shall not be taken into account any amount received as 
reimbursement for real property taxes which are treated under sec-
tion 164 (d) as imposed on the purchaser, and 
(2) there shall be taken into account amounts representing real 
property taxes which are treated under section 164 (d) as imposed 
on the taxpayer if such taxes are to be paid by the purchaser. 
(c) RECOGNITION OF GAIN OR LOSS.—In the case of a sale or ex-
change of property, the extent to which the gain or loss determined 
under this section shall be recognized for purposes of this subtitle shall 
be determined under section 1002. 
(d) INSTALLMENT SALES.—Nothing in this section shall be con-
strued to prevent (in the case of property sold under contract pro-
viding for payment in installments) the taxation of that portion of 
any installment payment representing gain or profit in the year in 
which such payment is received. 
SEC. 1002. RECOGNITION OF GAIN OR LOSS. 
Except as otherwise provided in this subtitle, on the sale or exchange 
of property the entire amount of the gain or loss, determined under 
section 1001, shall be recognized. 
§ 1002 
296 
INTERNAL REVENUE CODE OF 1954 
PART II—BASIS RULES OF GENERAL APPLICATION 
Sec. 1011. Adjusted basis for determining gain or loss. 
Sec. 1012. Basis of property—cost. 
Sec. 1013. Basis of property included in inventory. 
Sec. 1014. Basis of property acquired from a decedent. 
Sec. 1015. Basis of property acquired by gifts and transfers in trust. 
Sec. 1016. Adjustments to basis. 
Sec. 1017. Discharge of indebtedness. 
Sec. 1018. Adjustment of capital structure before September 22, 
1938. 
Sec. 1019. Property on which lessee has made improvements. 
Sec. 1020. Election in respect of depreciation, etc., allowed before 
1952. 
Sec. 1021. Sale of annuities. 
Sec. 1022. Cross references. 
SEC. 1011. ADJUSTED BASIS FOR DETERMINING GAIN OR LOSS. 
The adjusted basis for determining the gain or loss from the sale 
or other disposition of property, whenever acquired, shall be the basis 
(determined under section 1012 or other applicable sections of this 
subchapter and subchapters C (relating to corporate distributions and 
adjustments), K (relating to partners and partnerships), and P (relating 
to capital gains and losses)), adjusted as provided in section 1016. 
SEC. 1012. BASIS OF PROPERTY—COST. 
The basis of property shall be the cost of such property, except as 
otherwise provided in this subchapter and subchapters C (relating 
to corporate distributions and adjustments), K (relating to partners 
and partnerships), and P (relating to capital gains and losses). 
The 
cost of real property shall not include any amount in respect of real 
property taxes which are treated under section 164 (d) as imposed on 
the taxpayer. 
SEC. 1013. BASIS OF PROPERTY INCLUDED IN INVENTORY. 
If the property should have been included in the last inventory, the 
basis shall be the last inventory value thereof. 
SEC. 1014. BASIS OF PROPERTY ACQUIRED FROM A DECEDENT. 
(a) IN GENERAL.—Except as otherwise provided in this section, the 
basis of property in the hands of a person acquiring the property from 
a decedent or to whom the property passed from a decedent shall, 
if not sold, exchanged, or otherwise disposed of before the decedent's 
death by such person, be the fair market value of the property at the 
date of the decedent's death, or, in the case of an election under 
either section 2032 or section 811 (j) of the Internal Revenue Code of 
1939 where the decedent died after October 21, 1942, its value at the 
applicable valuation date prescribed by those sections. 
(b) PEOPERTY ACQUIRED FROM THE DECEDENT.—For purposes of 
subsection (a), the following property shall be considered to have been 
acquired from or to have passed from the decedent: 
(1) Property acquired by bequest, devise, or inheritance, or by 
the decedent's estate from the decedent; 
§ 1011 
CH. 1—NORMAL TAXES AND SURTAXES 
2 9 7 
(2) Property transferred by the decedent during his Hfetime in 
trust to pay the income for life to or on the order or direction 
of the decedent, with the right reserved to the decedent at all 
times before his death to revoke the trust; 
(3) In the case of decedents dying after December 31, 1951, 
property transferred by the decedent during his lifetime in trust 
to pay the income for life to or on the order or direction of the 
decedent with the right reserved to the decedent at all times before 
his death to make any change in the enjoyment thereof through 
the exercise of a power to alter, amend, or terminate the trust; 
(4) Property passing without full and adequate consideration 
under a general power of appointment exercised by the decedent 
by will; 
(5) In the case of decedents dying after August 26,1937, property 
acquired by bequest, devise, or inheritance or by the decedent's 
estate from the decedent, if the property consists of stock or 
securities of a foreign corporation, which with respect to its taxable 
year next preceding the date of the decedent's death was, under the 
law applicable to such year, a foreign personal holding company. 
In such case, the basis shall be the fair market value of such property 
at the date of the decedent's death or the basis in the hands of the 
decedent, whichever is lower; 
(6) In the case of decedents dying after December 31, 1947, 
property which represents the surviving spouse's one-half share of 
community property held by the decedent and the surviving spouse 
under the community property laws of any State, Territory, or 
possession of the United States or any foreign country, if at least 
one-half of the whole of the community interest in such property 
was includible in determining the value of the decedent's gross 
estate under chapter 11 of subtitle B (section 2001 and following, 
relating to estate tax) or section 811 of the Internal Revenue Code 
of 1939; 
(7) In the case of decedents dying after October 21, 1942, and 
on or before December 31, 1947, such part of any property, repre-
senting the surviving spouse's one-half share of property held by a 
decedent and the surviving spouse under the community property 
laws of any State, Territory, or possession of the United States or 
any foreign country, as was included in determining the value of 
the gross estate of the decedent, if a tax under chapter 3 of the 
Internal Revenue Code of 1939 was payable on the transfer of the 
net estate of the decedent. 
In such case, nothing in this paragraph 
shall reduce the basis below that which would exist if the Revenue 
Act of 1948 had not been enacted; 
(8) In the case of decedents dying after December 31, 1950, and 
before January 1, 1954, property which represents the survivor's 
interest in a joint and survivor's annuity if the value of any part 
of such interest was required to be included in determining the value 
of decedent's gross estate under section 811 of the Internal Revenue 
Code of 1939; 
(9) In the case of decedents dying after December 31, 1953, 
property acquired from the decedent by reason of death, form of 
ownership, or other conditions (including property acquired through 
the exercise or non-exercise of a power of appointment), if by reason 
§ 1014(b)(9) 
49012°—54 
—22 
298 
INTERNAL REVENUE CODE OF 1954 
thereof the property is required to be included in determining the 
value of the decedent's gross estate under chapter 11 of subtitle B 
or under the Internal Revenue Code of 1939. In such case, if the 
property is acquired before the death of the decedent, the basis shall 
be the amount determined under subsection (a) reduced by the 
amount allowed to the taxpayer as deductions in computing tax-
able income under this subtitle or prior income tax laws for exhaus-
tion, wear and tear, obsolescence, amortization, and depletion on 
such property before the death of the decedent. 
Such basis shall be 
applicable to the property commencing on the death of the decedent. 
This paragraph shall not apply to— 
(A) annuities described in section 72; 
(B) property to which paragraph (5) would apply if the 
property had been acquired by bequest; and 
(C) property described in any other paragraph of this sub-
section. 
(c) PROPERTY REPRESENTING INCOME IN RESPECT OF A D E -
CEDENT.—This section shall not apply to property which constitutes 
a right to receive an item of income in respect of a decedent under 
section 691. 
(d) EMPLOYEE STOCK OPTIONS.—This section shall not apply to 
restricted stock options described in section 421 which the employee 
has not exercised at death. 
SEC. 1015. BASIS OF PROPERTY ACQUIRED BY GIFTS AND TRANSFERS 
IN TRUST. 
(a) GIFTS AFTER DECEMBER 31, 1920.—If the property was ac-
quired by gift after December 31, 1920, the basis shall be the same 
as it would be in the hands of the donor or the last preceding owner 
by whom it was not acquired by gift, except that if such basis (ad-
justed for the period before the date of the gift as provided in section 
1016) is greater than the fair market value of the property at the time 
of the gift, then for the purpose of determining loss the basis shall be 
such fair market value. If the facts necessary to determine the basis 
in the hands of the donor or the last preceding owner are unknown 
to the donee, the Secretary or his delegate shall, if possible, obtain 
such facts from such donor or last preceding owner, or any other 
person cognizant thereof. If the Secretary or his delegate finds it 
impossible to obtain such facts, the basis in the hands of such donor 
or last preceding owner shall be the fair market value of such property 
as found by the Secretary or his delegate as of the date or approxi-
mate date at which, according to the best information that the 
Secretary or his delegate is able to obtain, such property was acquired 
by such donor or last preceding owner. 
(b) TRANSFER IN TRUST 
AFTER DECEMBER 31, 1920.—If 
the 
property was acquired after December 31, 1920, by a transfer in 
trust (other than by a transfer in trust by a gift, bequest, or devise),, 
the basis shall be the same as it would be in the hands of the grantor 
increased in the amount of gain or decreased in the amount of loss 
recognized to the grantor on such transfer under the law applicable 
to the year in which the transfer was made. 
(c) GIFT OR TRANSFER IN TRUST BEFORE JANUARY 1, 1921.—If 
the property was acquired by gift or transfer in trust on or before 
§ 1014(b)(9) 
CH. 1—NORMAL TAXES AND SURTAXES 
299 
December 31, 1920, the basis shall be the fair market value of such 
property at the time of such acquisition. 
SEC. 1016. ADJUSTMENTS TO BASIS. 
(a) GENEEAL RULE.—Proper adjustment in respect of the property 
shall in all cases be made— 
(1) for expenditures, receipts, losses, or other items, properly 
^ chargeable to capital account, but no such adjustment shall be 
made— 
' 
(A) for taxes or other carrying charges described in section 266, 
! 
or 
(B) for expenditures described in section 173 (relating to cir-
culation expenditures), 
for which deductions have been taken by the taxpayer in determin-
ing taxable income for the taxable year or prior taxable years; 
(2) in respect of any period since February 28, 1913, for 
' exhaustion, 
wear 
and 
tear, 
obsolescence, 
amortization, 
and 
' depletion, to the extent of the amount— 
(A) allowed as deductions in computing taxable income under 
this subtitle or prior income tax laws, and 
" 
(B) resulting (by reason of the deductions so allowed) in a 
I 
reduction for any taxable year of the taxpayer's taxes under 
' 
this subtitle (other than chapter 2, relating to tax on self-employ-
ment income), or prior income, war-profits, or excess-profits tax 
^ 
laws, 
but not less than the amount allowable under this subtitle or 
prior income tax laws. 
Where no method has been adopted under 
' section 167 (relating to depreciation deduction), the amount allow-
, able shall be determined under section 167 (b) (1). 
Subparagraph 
(B) of this paragraph shall not apply in respect of any period since 
' 
February 28, 1913, and before January 1, 1952, unless an election 
I has been made under section 1020. 
Where for any taxable year 
' before the taxable year 1932 the depletion allowance was based on 
discovery value or a percentage of income, then the adjustment for 
depletion for such year shall be based on the depletion which would 
\ have been allowable for such year if computed without reference to 
• discovery value or a percentage of income; 
(3) in respect of any period— 
j
= 
(A) before March 1, 1913, and 
(B) since February 28, 1913, during which such property was 
I 
held by a person or an organization not subject to income tax-
ation under this chapter or prior income tax laws, 
, for exhaustion, wear and tear, obsolescence, amortization, and 
: depletion, to the extent sustained; 
' 
(4) in the case of stock (to the extent not provided for in the 
,; foregoing paragraphs) for the amount of distributions previously 
made which, under the law applicable to the year in which the 
distribution was made, either were tax-free or were applicable in 
reduction of basis (not including distributions made by a corpora-
tion which was classified as a personal service corporation under 
the provisions of the Revenue Act of 1918 (40 Stat. 1057), or the 
Revenue Act of 1921 (42 Stat. 227), out of its earnings or profits 
which were taxable in accordance with the provisions of section 218 
• of the Revenue Act of 1918 or 1921); 
§ 1016(a) (4) 
300 
' INTERNAL REVENUE CODE OF 1954 
^ 
(5) in the case of any bond (as defined in section 171 (d)) the 
interest on which is wholly exempt from the tax imposed by this 
subtitle, to the extent of the amortizable bond premium disallowable 
as a deduction pursuant to section 171 (a) (2), and in the case of any 
other bond (as defined in section 171 (d)) to the extent of the deduc-
tions allowable pursuant to section 171 (a) (1) with respect thereto; 
(6) in the case of any short-term municipal bond (as defined in 
section 75 (b)), to the extent provided in section 75 (a) (2); 
(7) in the case of a residence the acquisition of which resulted, 
under section 1034, in the nonrecognition of any part of the gain 
realized on the sale, exchange, or involuntary conversion of another 
residence, to the extent provided in section 1034 (e); 
(8) in the case of property pledged to the Commodity Credit 
Corporation, to the extent of the amount received as a loan from 
the Commodity Credit Corporation and treated by the taxpayer 
as income for the year in which received pursuant to section 77, 
and to the extent of any deficiency on such loan with respect to 
which the taxpayer has been relieved from liability; 
(9) for amounts allowed as deductions as deferred expenses 
under section 616 (b) (relating to certain expenditures in the de-
velopment of mines) and resulting in a reduction of the taxpayer's 
taxes under this subtitle, but not less than the amounts allowable 
under such section for the taxable year and prior years; 
(10) for amounts allowed as deductions as deferred expenses 
under section 615 (b) (relating to certain exploration expendi-
tures) and resulting in a reduction of the taxpayer's taxes under 
this subtitle but not less than the amounts allowable under such 
section for the taxable year and prior years: 
(11) for deductions to the extent disallowed under section 268 
(relating to sale of land with unharvested crops), notwithstanding 
the provisions of any other paragraph of this subsection; 
(12) to the extent provided in section 28 (h) of the Internal 
Revenue Code of 1939 in the case of amounts specified in a share-
holder's consent made under section 28 of such code; 
(13) to the extent provided in section 551 (f) in the case of the 
stock of United States shareholders in a foreign personal holding 
company; 
(14) for amounts allowed as deductions as deferred expenses 
under section 174 (b) (1) (relating to research and experimental 
expenditures) and resulting in a reduction of the taxpayers' taxes 
under this subtitle, but not less than the amounts allowable under 
such section for the taxable year and prior years; 
(15) for deductions to the extent disallowed under section 272 
(relating to disposal of coal), notwithstanding the provisions of 
any other paragraph of this subsection. 
(b) SUBSTITUTED BASIS.—Whenever it appears that the basis of 
property in the hands of the taxpayer is a substituted basis, then the 
adjustments provided in subsection (a) shall be made after first making 
in respect of such substituted basis proper adjustments of a similar 
nature in respect of the period during which the property was held by 
the transferor, donor, or grantor, or during which the other property 
was held by the person for whom the basis is to be determined. 
A 
similar rule shall be applied in the case of a series of substituted bases. 
§ 1016(a)(5) 
CH. 1 
NORMAL TAXES AND SURTAXES 
301 
The term "substituted basis" as used in this section means a basis 
determined under any provision of this subchapter and subchapters C 
(relating to corporate distributions and adjustments), K (relating to 
partners and partnerships), and P (relating to capital gains and losses), 
or under any corresponding provision of a prior income tax law, pro-
viding that the basis shall be determined— 
(1) by reference to the basis in the hands of a transferor, donor, 
or grantor, or 
(2) by reference to other property held at any time by the 
person for whom the basis is to be determined. 
(c) SEPARATE MINERAL INTERESTS TREATED AS ONE PROPERTY.— 
For treatment of separate mineral interests as one property, see 
section 614. 
SEC. 1017. DISCHARGE OF INDEBTEDNESS. 
Where any amount is excluded from gross income under section 108 
(a) (relating to income from discharge of indebtedness) on account of 
the discharge of indebtedness the whole or a part of the amount so 
excluded from gross income shall be applied in reduction of the basis 
of any property held (whether before or after the time of the discharge) 
by the taxpayer during any portion of the taxable year in which such 
discharge occurred. 
The amount to be so applied (not in excess of 
the amount so excluded from gross income, reduced by the amount 
of any deduction disallowed under section 108 (a)) and the particular 
properties to which the reduction shall be allocated, shall be deter-
mined under regulations (prescribed by the Secretary or his delegate) 
in effect at the time of the filing of the consent by the taxpayer 
referred to in section 108 (a). 
The reduction shall be made as of the 
first day of the taxable year in which the discharge occurred, except 
in the case of property not held by the taxpayer on such first day, 
in which case it shall take effect as of the time the holding of the 
taxpayer began. 
SEC. 1018. 
ADJUSTMENT OF CAPITAL STRUCTURE BEFORE SEPTEM-
BER 22, 1938. 
Where a plan of reorganization of a corporation, approved by the 
court in a proceeding under section 77B of the National Bankruptcy 
Act, as amended (48 Stat. 912), is consummated by adjustment of 
the capital or debt structure of such corporation without the transfer 
of its assets to another corporation, and a final judgment or decree 
in such proceeding has been entered before September 22, 1938, 
then the provisions of section 270 of the Bankruptcy Act, as amended 
(54 Stat. 709; 11 U. S. C. 670), shall not apply in respect of the property 
of such corporation. 
For purposes of this section, the term "re-
organization" shall not be limited by the definition of such term in 
section 112 (g) of the Internal Revenue Code of 1939. 
SEC. 1019. PROPERTY ON WHICH LESSEE HAS MADE IMPROVEMENTS, 
Neither the basis nor the adjusted basis of any portion of real prop-
erty shall, in the case of the lessor of such property, be increased or 
diminished on account of income derived by the lessor in respect of 
such property and excludable from gross income under section 109 
(relating to improvements by lessee on lessor's property). 
If an 
amount representing any part of the value of real property attrib-
utable to buildings erected or other improvements made by a lessee 
§1019 
302 
INTERNAL REVENUE CODE OF 1954 
in respect of such property was included in gross income of the lessor 
for any taxable year beginning before January 1, 1942, the basis of 
each portion of such property shall be properly adjusted for the 
amount so included in gross income. 
SEC. 1020. ELECTION IN RESPECT OF DEPRECIATION, ETC., ALLOWED 
BEFORE 1952. 
Any person may elect to have subparagraph (B) of section 1016 (a) 
(2) apply in respect of periods since February 28, 1913, and before 
January 1, 1952. Such an election shall be made in such manner as 
the Secretary or his delegate may by regulations prescribe and shall 
be irrevocable when made, except that an election made on or before 
December 31, 1952, may be revoked at any time before January 1, 
1955. 
A revocation of an election shall be made in such manner as the 
Secretary or his delegate may by regulations prescribe, and no election 
may be made by any person after he has so revoked an election. 
The 
election shall apply in respect of all property held by the person making 
the election at any time on or before December 31, 1952, and in respect 
of all pe'riods since February 28, 1913, and before January 1, 1952, 
during which such person held such property or for which adjustments 
must be made under section 1016 (b). 
An election or a revocation of 
an election by a transferor, donor, or grantor made after the date of the 
transfer, gift, or grant of property shall not affect the basis of such 
property in the hands of the transferee, donee, or grantee. No election 
may be made under this section after December 31, 1954. 
SEC. 1021. SALE OF ANNUITIES. 
In case of the sale of an annuity contract, the adjusted basis shall 
in no case be less than zero. 
SEC. 1022. CROSS REFERENCES. 
(1) For certain distributions by a corporation which are applied in 
reduction of basis of stock, see section 301 (c) (2). 
(2) For basis of property in case of certain reorganizations and 
arrangements under the Bankruptcy Act, see sections 270, 396, and 522 
of that Act, as amended (11 U. S. C. 670, 796, 922). 
(3) For basis in case of construction of new vessels, see section 511 
of the Merchant Marine Act, 1936, as amended (46 U. S. C. 1161). 
(4) For rules applicable in case of payments in violation of Defense 
Production Act of 1950, as amended, see section 405 of that Act. 
PART III—COMMON NONTAXABLE EXCHANGES 
Sec. 1031. Exchange of property held for productive use or invest-
ment. 
Sec. 1032. Exchange of stock for property. 
Sec. 1033. Involuntary conversions. 
Sec. 1034. Sale or exchange of residence. 
Sec. 1035. Certain exchanges of insurance policies. 
Sec. 1036. Stock for stock of same corporation. 
SEC. 1031. EXCHANGE OF PROPERTY HELD FOR PRODUCTIVE USE 
OR INVESTMENT. 
(a) NONRECOGNITION OF G A I N OR LoSS F R O M EXCHANGES SoLELY 
IN KIND.—No gain or loss shall be recognized if property held for pro-
ductive use in trade or business or for investment (not including stock 
in trade or other property held primarily for sale, nor stocks, bonds, 
notes, choses in action, certificates of trust or beneficial interest, or 
other securities or evidences of indebtedness or interest) is exchanged 
§ 1019 
, 
CH. 1—NORMAL TAXES AND SURTAXES 
3 ^ 
solely for property of a like kind to be held either for productive use in 
trade or business or for investment. 
(b) GAIN FROM EXCHANGES NOT SOLELY IN KIND,—If an exchange 
would be within the provisions of subsection (a), of section 1035 (a), 
or of section 1036 (a), if it were not for the fact that the property 
received in exchange consists not only of property permitted by such 
provisions to be received without the recognition of gain, but also of 
other property or money, then the gain, if any, to the recipient shall 
be recognized, but in an amount not in excess of the sum of such 
money and the fair market value of such other property. 
(c) Loss FROM EXCHANGES NOT SOLELY IN KIND.—If an exchange 
would be within the provisions of subsection (a), of section 1035 (a), 
or of section 1036 (a), if it were not for the fact that the property 
received in exchange consists not only of property permitted by such 
provisions to be received without the recognition of gain or loss, but 
also of other property or money, then no loss from the exchange shall 
be recognized. 
(d) BASIS.—If property was acquired on an exchange described in 
this section, section 1035 (a), or section 1036 (a), then the basis shall 
be the same as that of the property exchanged decreased in the amount 
of any money received by the taxpayer and increased in the amount 
of gain to the taxpayer that was recognized on such exchange. If the 
property so acquired consisted in part of the type of property per-
mitted by this section, section 1035 (a), or section 1036 (a), to be 
received without the recognition of gain or loss, and in part of other 
property, the basis provided in this paragraph shall be allocated 
between the properties (other than money) received, and for the pur-
pose of the allocation there shall be assigned to such other property 
an amount equivalent to its fair market value at the date of the 
exchange. For purposes of this section, section 1035 (a), and sec-
tion 1036 (a), where as part of the consideration to the taxpayer 
another party to the exchange assumed a liability of the taxpayer or 
acquired from the taxpayer property subject to a liability, such 
assumption or acquisition (in the amount of the liability) shall be 
considered as money received by the taxpayer on the exchange. 
SEC. 1032. EXCHANGE OF STOCK FOR PROPERTY. 
(a) NONRECOGNITION OF GAIN OR Loss.—No gain or loss shall 
be recognized to a corporation on the receipt of money or other 
property in exchange for stock (including treasury stock) of such 
corporation. 
(b) BASIS.— 
For basis of property acquired by a corporation in certain exchanges 
for its stock, see section 362. 
SEC. 1033. INVOLUNTARY CONVERSIONS. 
(a) GENERAL RULE.—If property (as a result of its destruction in 
whole or in part, theft, seizure, or requisition or condemnation or threat 
or imminence thereof) is compulsorily or involuntarily converted— 
(1) CONVERSION INTO SIMILAR PROPERTY.—Into property similar 
or related in service or use to the property so converted, no gain 
shall be recognized. 
(2) CONVERSION 
INTO MONEY WHERE 
DISPOSITION 
OCCURRED 
PRIOR TO 1951.—Into money, and the disposition of the converted 
property occurred before January 1, 1951, no gain shall be recognized 
§ 1033(a)(2) 
304 
INTERNAL REVENUE CODE OF 1954 
if stich money is forthwith in good faith, under regulations pre-
scribed by the Secretary or his delegate, expended in the acquisition 
of other property similar or related in service or use to the property 
so converted, or in the acquisition of control of a corporation owning 
such other property, or in the establishment of a replacement fund. 
If any part of the money is not so expended, the gain shall be recog-
nized to the extent of the money which is not so expended (regardless 
of whether such money is received in one or more taxable years and 
regardless of whether or not the money which is not so expended 
constitutes gain). 
For purposes of this paragraph and paragraph 
(3), the term "disposition of the converted property" means the 
destruction, theft, seizure, requisition, or condemnation of the con-
verted property, or the sale or exchange of such property under 
threat or imminence of requisition or condemnation. 
(3) 
CONVERSION INTO MONEY WHERE DISPOSITION OCCURRED 
AFTER 1950.—Into moucy or into property not similar or related in 
service or use to the converted property, and the disposition of the 
converted property (as defined in paragraph (2)) occurred after 
December 31,1950, the gain (if any) shall be recognized except to the 
extent hereinafter provided in this paragraph: 
(A) NONRECOGNITION OF GAIN.—If the taxpayer during the 
period specified in subparagraph (B), for the purpose of replac-
ing the property so converted, purchases other property similar or 
related in service or use to the property so converted, or purchases 
stock in the acquisition of control of a corporation owning such 
other property, at the election of the taxpayer the gain shall 
be recognized only to the extent that the amount realized upon 
such conversion (regardless of whether such amount is received 
in one or more taxable years) exceeds the cost of such other prop-
erty or such stock. 
Such election shall be made at such time and 
in such manner as the Secretary or his delegate may by regulations 
prescribe. 
For purposes of this paragraph— 
(i) no property or stock acquired before the disposition of 
the converted property shall be considered to have been ac-
quired for the purpose of replacing such converted property 
unless held by the taxpayer on the date of such disposition; 
and 
(ii) the taxpayer shall be considered to have purchased prop-
erty or stock only if, but for the provisions of subsection (c) of 
this section, the unadjusted basis of such property or stock 
would be its cost within the meaning of section 1012. 
(B) 
PERIOD WITHIN WHICH PROPERTY MUST BE REPLACED.— 
The period referred to in subparagraph (A) shall be the period be-
ginning with the date of the disposition of the converted property, 
or the earliest date of the threat or imminence of requisition or 
condemnation of the converted property, whichever is the earlier, 
and ending— 
' (i) one year after the close of the first taxable year in which 
any part of the gain upon the conversion is realized, or 
(ii) subject to such terms and conditions as may be specified 
by the Secretary or his delegate, at the close of such later date 
as the Secretary or his delegate may designate on application 
by the taxpayer. 
Such application shall be made at such time 
§ 1033(a)(2) 
~ 
, 
CH. 1—NORMAL TAXES AND SURTAXES 
305 
and in such manner as the Secretary or his delegate may by 
regulations prescribe. 
(C) TIME FOK ASSESSMENT OF DEFICIENCY ATTRIBUTABLE TO 
GAIN UPON CONVERSION.—If a taxpayer has made the election pro-
vided in subparagraph (A), then— 
(i) the statutory period for the assessment of any deficiency, 
for any taxable year in which any part of the gain on such 
conversion is realized, attributable to such gain shall not expire 
prior to the expiration of 3 years from the date the Secretary 
or his delegate is notified by the taxpayer (in such manner as 
the Secretary or his delegate may by regulations prescribe) of 
the replacement of the converted property or of an intention 
not to replace, and 
(ii) such deficiency may be assessed before the expiration 
of such 3-year period notwithstanding the provisions of section 
6212 (c) or the provisions of any other law or rule of law which 
would otherwise prevent such assessment. 
(D) 
TIME FOR ASSESSMENT OF OTHER DEFICIENCIES ATTRIBUT-
ABLE TO ELECTION.—If the election provided in subparagraph (A) 
is made by the taxpayer and such otlier property or such stock was 
purchased before the beginning of the last taxable year in which 
any part of the gain upon such conversion is realized, any de-
ficiency, to the extent resulting from such election, for any taxable 
year ending before such last taxable year may be assessed (not-
withstanding the provisions of section 6212 (c) or 6501 or the pro-
visions of any other law or rule of law which would otherwise 
prevent such assessment) at any time before the expiration of the 
period within which a deficiency for such last taxable year may 
be assessed. 
(b) RESIDENCE OF TAXPAYER.—Subsection (a) shall not apply, in 
the case of property used by the taxpayer as his principal residence, 
if the destruction, theft, seizure, requisition, or condemnation of the 
residence, or the sale or exchange of such residence under threat or 
imminence thereof, occurred after December 31, 1950, and before 
January 1, 1954. 
(c) BASIS OF PROPERTY ACQUIRED THROUGH INVOLUNTARY CON-
VERSION.—If the property was acquired, after February 28, 1913, 
as the result of a compulsory or involuntary conversion described in 
subsection (a) (1) or (2), the basis shall be the same as in the case of 
the property so converted, decreased in the amount of any money 
received by the taxpayer which was not expended in accordance with 
the provisions of law (applicable to the year in which such conversion 
was made) determining the taxable status of the gain or loss upon such 
conversion, and increased in the amount of gain or decreased in the 
amount of loss to the taxpayer recognized upon such conversion under 
the law applicable to the year in which such conversion was made. 
This subsection shall not apply in respect of property acquired as a 
result of a compulsory or involuntary conversion of property used by 
the taxpayer as his principal residence if the destruction, theft, seizure, 
requisition, or condemnation of such residence, or the sale or exchange 
of such residence under threat or imminence thereof, occurred after 
December 31, 1950, and before January 1, 1954. In the case of 
property purchased by the taxpayer in a transaction described in 
§ 1033(c) 
306 
INTERNAL REVENUE CODE OF 1954 
subsection (a) (3) which resulted in the nonrecognition of any part 
of the gain reahzed as the result of a compulsory or involuntary 
conversion, the basis shall be the cost of such property decreased in 
the amount of the gain not so recognized; and if the property pur-
chased consists of more than one piece of property, the basis deter-
mined under this sentence shall be allocated to the purchased proper-
ties in proportion to their respective costs. 
(d) PROPEKTY 
SOLD 
PURSUANT 
TO RECLAMATION 
LAWS.—For 
purposes of this subtitle, if property lying within an irrigation project 
is sold or otherwise disposed of in order to conform to the acreage 
limitation provisions of Federal reclamation laws, such sale or dis-
position shall be treated as an involuntary conversion to which this 
section applies. 
(e) LIVESTOCK DESTROYED BY DISEASE.—For purposes of this 
subtitle, if livestock are destroyed by or on account of disease, or 
are sold or exchanged because of disease, such destruction or such 
sale or exchange shall be treated as an involuntary conversion to 
which this section applies. 
(f) CROSS REFERENCES.— 
(1) For determination of the period for which the taxpayer has held 
property involuntarily converted, see section 1223. 
(2) For treatment of gains from involuntary conversions as capital 
gains in certain cases, see section 1231 (a). 
SEC. 1034. SALE OR EXCHANGE OF RESIDENCE. 
(a) NONRECOGNITION OF GAIN.—If property (in this section called 
"old residence") used by the taxpayer as his principal residence is 
sold by him after December 31, 1953, and, within a period beginning 
1 year before the date of such sale and ending 1 year after such 
date, property (in this section called "new residence") is purchased 
and used by the taxpayer as his principal residence, gain (if any) 
from such sale shall be recognized only to the extent that the tax-
payer's adjusted sales price (as defined in subsection (b)) of the old 
residence exceeds the taxpayer's cost of purchasing the new residence. 
(b) ADJUSTED SALES PRICE DEFINED.— 
(1) I N GENERAL.—For purposes of this section, the term "ad-
justed sales price" means the amount realized, reduced by the 
aggregate of the expenses for work performed on the old residence 
in order to assist in its sale. 
(2) LIMITATIONS.—The reduction provided in paragraph 
(1) 
applies only to expenses— 
(A) for work performed during the 90-day period ending on 
the day on which the contract to sell the old residence is entered 
into; 
(B) which are paid on or before the 30th day after the date of 
the sale of the old residence; and 
(C) which are— 
(i) not allowable as deductions in computing taxable income 
under section 63 (a) (defining taxable income), and 
(ii) not taken into account in computing the amount realized 
from the sale of the old residence. 
(3) EFFECTIVE DATE.—The reduction provided in paragraph (1) 
applies to expenses for work performed in any taxable year (whether 
beginning before, on, or after January 1, 1954), but only in the case 
§ 1033(c) 
CH. 1—NORMAL TAXES AND SURTAXES 
307 
of a sale or exchange of an old residence which occurs after Decem-
ber 31, 1953. 
(c) RULES FOR APPLICATION or SECTION.—For purposes of this 
section: 
(1) An exchange by the taxpayer of his residence for other prop-
erty shall be treated as a sale of such residence, and the acquisition 
of a residence on the exchange of property shall be treated as a 
purchase of such residence. 
(2) A residence any part of which was constructed or recon-
structed by the taxpayer shall be treated as purchased by the 
taxpayer. 
In determining the taxpayer's cost of purchasing a 
residence, there shall be included only so much of his cost as is 
attributable to the acquisition, construction, reconstruction, and 
improvements made which are properly chargeable to capital 
account, during the period specified in subsection (a). 
(3) If a residence is purchased by the taxpayer before the date 
of his sale of the old residence, the purchased residence shall not be 
treated as his new residence if sold or otherwise disposed of by him 
before the date of the sale of the old residence. 
(4) If the taxpayer, during the period described in subsection 
(a), purchases more than one residence which is used by him as his 
principal residence at some time within 1 year after the date of 
the sale of the old residence, only the last of such residences so used 
by him after the date of such sale shall constitute the new residence. 
(5) In the case of a new residence the construction of which was 
commenced by the taxpayer before the expiration of one year after 
the date of the sale of the old residence, the period specified in sub-
section (a), and the 1 year referred to in paragraph (4) of this 
subsection, shall be treated as including a period of 18 months 
beginning with the date of the sale of the old residence. 
(d) LIMITATION.—Subsection (a) shall not apply with respect to 
the sale of the taxpayer's residence if within 1 year before the 
date of such sale the taxpayer sold at a gain other property used by 
him as his principal residence, and any part of such gain was not 
recognized by reason of subsection (a) or section 112 (n) of the Internal 
Revenue Code of 1939. 
(e) BASIS OF N E W RESIDENCE.—Where the purchase of a 
new 
residence results, under subsection (a) or under section 112 (n) of 
the Internal Revenue Code of 1939, in the nonrecognition of gain 
on the sale of an old residence, in determining the adjusted basis of 
the new residence as of any time following the sale of the old residence, 
the adjustments to basis shall include a reduction by an amount 
equal to the amount of the gain not so recognized on the sale of the 
old residence. 
For this purpose, the amount of the gain not so 
recognized on the sale of the old residence includes only so much of 
such gain as is not recognized by reason of the cost, up to such time, 
of purchasing the new residence. 
(f) TENANT-STOCKHOLDER IN A COOPERATIVE HOUSING CORPORA-
TION.—For purposes of this section, section 1016 (relating to adjust-
ments to basis), and section 1223 (relating to holding period), refer-
ences to property used by the taxpayer as his principal residence, and 
references to the residence of a taxpayer, shall include stock held by 
a tenant-stockholder (as defined in section 216, relating to deduction 
§ 1034(f) 
308 
INTERNAL REVENUE CODE OF 
1954 
-
for amounts representing taxes and interest paid to a cooperative 
housing corporation) in a cooperative housing corporation (as defined 
in such section) if— 
(1) in the case of stock sold, the house or apartment which the 
taxpayer was entitled to occupy as such stockholder was used by 
him as his principal residence, and 
(2) in the case of stock purchased, the taxpayer used as his 
principal residence the house or apartment which he was entitled 
to occupy as such stockholder. 
(g) HUSBAND AND WIFE.—If the taxpayer and his spouse, in accord-
ance with regulations which shall be prescribed by the Secretary or 
his delegate pursuant to this subsection, consent to the application 
of paragraph (2) of this subsection, then— 
(1) for purposes of this section— 
(A) the taxpayer's adjusted sales price of the old residence is 
the adjusted sales price (of the taxpayer, or of the taxpayer and 
his spouse) of the old residence, and 
(B) the taxpayer's cost of purchasing the new residence is the 
cost (to the taxpayer, his spouse, or both) of purchasing the new 
residence (whether held by the taxpayer, his spouse, or the 
taxpayer and his spouse); and 
(2) so much of the gain on the sale of the old residence as is not 
recognized solely by reason of this subsection, and so much of the 
adjustment under subsection (e) to the basis of the new residence 
as results solely from this subsection shall be allocated between 
the taxpayer and his spouse as provided in such regulations. 
This subsection shall apply only if the old residence and the new 
residence are each used by the taxpayer and his spouse as their princi-
pal residence. In case the taxpayer and his spouse do not consent to 
the application of paragraph (2) of this subsection then the recognition 
of gain on the sale of the old residence shall be determined under this 
section without regard to the rules provided in this subsection. 
(h) MEMBERS OF ARMED FORCES.—The running of any period of 
time specified in subsection (a) or (c) (other than the 1 year referred 
to in subsection (c) (4)) shall be suspended during any time that the 
taxpayer (or his spouse if the old residence and the new residence are 
each used by the taxpayer and his spouse as their principal residence) 
serves on extended active duty with the Armed Forces of the United 
States after the date of the sale of the old residence and during an 
induction period (as defined in section 112 (c) (5)) except that any 
such period of time as so suspended shall not extend beyond the date 
4 years after the date of the sale of the old residence. For purposes of 
this subsection, the term "extended active duty" means any period of 
active duty pursuant to a call or order to such duty for a period in 
excess of 90 days or for an indefinite period. 
(i) SPECIAL RULE FOR INVOLUNTARY CONVERSIONS.— 
(1) I N GENERAL.—For purposes of this section, the destruction, 
theft, seizure, requisition, or condemnation of property, or the sale 
or exchange of property under threat or imminence thereof— 
(A) if occurring after December 31, 1950, and before January 
1, 1954, shall be treated as the sale of such property; and 
(B) if occurring after December 31, 1953, shall not be treated 
as the sale of such property. 
§ 1034(f) 
CH. 1—NORMAL TAXES AND SURTAXES 
309 
' (2) CROSS REFERENCE.— 
For treatment of residences involuntarily converted after December 
31, 1953, see section 1033 (relating to involuntary conversions). 
(j) STATUTE OF LIMITATIONS.—If after December 31, 1950, the 
taxpayer during a taxable year sells at a gain property used by him 
as his principal residence, then— 
(1) the statutory period for the assessment of any deficiency 
attributable to any part of such gain shall not expire before the 
expiration of 3 years from the date the Secretary or his delegate 
is notified by the taxpayer (in such manner as the Secretary or 
his delegate may by regulations prescribe) of— 
(A) the taxpayer's cost of purchasing the new residence which 
the taxpayer claims results in nonrecognition of any part of such 
(B) the taxpayer's mtention not to purchase a new residence 
within the period specified in subsection (a),- or 
(C) a failure to make such purchase within such period; and 
(2) such deficiency may be assessed before the expiration of such 
3-year period notwithstanding the provisions of any other law or 
rule of law which would otherwise prevent such assessment. 
SEC. 1035. CERTAIN EXCHANGES OF INSURANCE 
POLICIES. 
(a) GENERAL RULES.—No gain or loss shall be recognized on the 
exchange of— 
(1) a contract of life insurance for another contract of life insur-
ance or for an endowment or annuity contract; or 
(2) a contract of endowment insurance (A) for another contract 
of endowment insurance which provides for regular payments 
beginning at a date not later than the date payments would have 
begun under the contract exchanged, or (B) for an annuity con-
tract; or 
(3) an annuity contract for an annuity contract. 
(b) DEFINITIONS.—For the purpose of this section— 
(1) ENDOWMENT CONTRACT.—A contract of endowment insurance 
is a contract with a life insurance company as defined in section 801 
which depends in part on the life expectancy of the insured, but 
which may be payable in fuU in a single payment during his life. 
(2) ANNUITY CONTRACT.—An annuity contract is a contract to 
which paragraph (1) applies but which may be payable during the 
life of the annuitant only in installments. 
(3) LIFE INSURANCE CONTRACT.—A contract of life insurance is a 
contract to which paragraph (1) applies but which is not ordinarily 
payable in full during the life of the insured. 
(c) CROSS REFERENCES.— 
(1) For rules relating to recognition of gain or loss where an exchange 
is not solely in kind, see subsections (b) and (c) of section 1031. 
(2) For rules relating to the basis of property acquired in an exchange 
described in subsection (a), see subsection (d) of section 1031. 
SEC. 1036. STOCK FOR STOCK OF SAME 
CORPORATION. 
(a) GENERAL RULE.—No gain or loss shall be recognized if common 
stock in a corporation is exchanged solely for common stock in the 
same corporation, or if preferred stock in a corporation is exchanged 
solely for preferred stock in the same corporation. 
§ 1036(a) 
310 
INTERNAL REVENUE CODE OF 1954 
(b) 
CROSS REFERENCES.— 
- 
"^ 
" ^ 
(1) For rules relating to recognition of gain or loss where an exchange 
is not solely in kind, see subsections (b) and (c) of section 1031. 
(2) For rules relating to the basis of property acquired in an exchange 
described in subsection (a), see subsection (d) of section 1031. 
PART IV—SPECIAL RULES 
Sec. 1061. Property acquired during afBliation. 
Sec. 1052. Basis established by the Revenue Act of 1932 or 1934 
or by the Internal Revenue Code of 1939. 
Sec. 1053. Property acquired before March 1, 1913. 
Sec. 1054. Cross references. 
SEC. 1051. PROPERTY ACQUIRED DURING 
AFFILIATION. 
In the case of property acquired by a corporation, during a period of 
affiliation, from a corporation with which it was afRHated, the basis of 
such property, after such period of affiliation, shall be determined, in 
accordance with regulations prescribed by the Secretary or his dele-
gate, without regard to inter-company transactions in respect of which 
gain or loss was not recognized. 
For purposes of this section, the 
term "period of affiliation" means the period during which such corpo-
rations were affiliated (determined in accordance with the law ap-
plicable thereto) but does not include any taxable year beginning on 
or after January 1, 1922, unless a consolidated return was made, nor 
any taxable year after the taxable year 1928. 
The basis in case of 
property acquired by a corporation during any period, in the taxable 
year 1929 or any subsequent taxable year, in respect of which a con-
solidated return was made by such corporation under chapter 6 of this 
subtitle (sec. 1501 and following) or under section 141 of the Internal 
Revenue Code of 1939 or of the Revenue Act of 1938, 1936, 1934, 1932, 
or 1928 shall be determined in accordance with regulations prescribed 
under section 1502 or in accordance with regulations prescribed 
under the appropriate section 141, as the case may be. 
The basis in 
the case of property held by a corporation during any period, in the 
taxable year 1929 or any subsequent taxable year, in respect of which 
a consolidated return was made by such corporation under chapter 6 
of this subtitle or such section 141 shall be adjusted in respect of 
any items relating to such period, in accordance with regulations 
prescribed under section 1502 or in accordance with regulations 
prescribed under the appropriate section 141, as the case may be. 
SEC. 1052. BASIS ESTABLISHED BY THE REVENUE ACT OF 1932 OR 
1934 OR BY THE INTERNAL REVENUE CQDE OF 1939. 
(a) REVENUE ACT OF 1932.—If the property was acquired, after 
February 28, 1913, in any taxable year beginning before January 1, 
1934, and the basis thereof, for purposes of the Revenue Act of 1932 
was prescribed by section 113 (a) (6), (7), or (9) of such Act (47 Stat. 
199), then for purposes of this subtitle the basis shall be the same as 
the basis therein prescribed in the Revenue Act of 1932. 
(b) REV:ENUE ACT OF 1934.—If the property was acquired, after 
February 28, 1913, in any taxable year beginning before January 1, 
1936, and the basis thereof, for purposes of the Revenue Act of 1934, 
was prescribed by section 113 (a) (6), (7), or (8) of such Act (48 Stat. 
706), then for purposes of this subtitle the basis shall be the same as 
the basis therein prescribed in the Revenue Act of 1934. 
§ 1036(b) 
CH. 1—NORMAL TAXES AND SURTAXES 
311 
(c) INTEENAL REVENUE CODE OF 1939.—If the property was ac-
quired, after February 28, 1913, in a transaction to which the Internal 
Revenue Code of 1939 appHed, and the basis thereof, for purposes of 
the Internal Revenue Code of 1939, was prescribed by section 113 (a) 
(6), (7), (8), (13), (15), (18), (19), or (23) of such code, then for pur-
poses of this subtitle the basis shall be the same as the basis therein 
prescribed in the Internal Revenue Code of 1939. 
SEC. 1053. PROPERTY ACQUIRED BEFORE MARCH 1, 1913. 
In the case of property acquired before March 1, 1913, if the basis 
otherwise determined under this part, adjusted (for the period before 
March 1, 1913) as provided in section 1016, is less than the fair 
market value of the propertj^ as of March 1, 1913, then the basis for 
determining gain shall be such fair market value. 
In determining 
the fair market value of stock in a corporation as of March 1, 1913, 
due regard shall be given to the fair market value of the assets of the 
corporation as of that date. 
SEC. 1054. CROSS REFERENCES. 
(1) For nonrecognition of gain in connection with the transfer of 
obsolete vessels to the Maritime Administration under section 510 of the 
I • 
Merchant Marine Act, 1936, see subsection (e) of that section, as 
amended August 4, 1939 (46 U. S. C. 1160). 
(2) For recognition of gain or loss in connection with the construction 
of new vessels, see section 511 of such Act, as amended (46 U. S. C. 
1161). 
(3) For nonrecognition of gain in connection with vessels exchanged 
with the Maritime Administration under section 8 of the Merchant Ship 
Sales Act of 1946, see subsection (a) of that section (50 U. S. C. App. 
1741). 
PART V—CHANGES TO EFFECTUATE F. C. C. POLICY 
Sec. 1071. Gain from sale or exchange to effectuate policies of 
F. C. C. 
SEC. 1071. GAIN FROM SALE OR EXCHANGE TO EFFECTUATE POLICIES 
OF F. C. C. 
(a) NONRECOGNITION OF GAIN OR Loss.—If the sale or exchange of 
property (including stock in a corporation) is certified by the Federal 
Communications Commission to be necessary or appropriate to effec-
tuate the policies of the Commission with respect to the ownership 
and control of radio broadcasting stations, such sale or exchange shall, 
if the taxpayer so elects, be treated as an involuntary conversion of 
such property within the meaning of section 1033. For purposes of 
such section as made applicable by the provisions of this section, 
stock of a corporation operating a radio broadcasting station, whether 
or not representing control of such corporation, shall be treated as 
property similar or related in service or use to the property so con-
verted. 
The part of the gain, if any, on such sale or exchange to 
which section 1033 is not applied shall nevertheless not be recognized, 
if the taxpayer so elects, to the extent that it is applied to reduce the 
basis for determining gain or loss on sale or exchange of property, 
of a character subject to the allowance for depreciation under section 
167, remaining in the hands of the taxpayer immediately after the 
sale or exchange, or acquired in the same taxable year. The manner 
and amount of such reduction shall be determined under regulations 
prescribed by the Secretary or his delegate. Any election made by the 
§ 1071(a) 
312 
INTERNAL REVENUE CODE OF 1954 
taxpayer under this section shall be made by a statement to that ejffect 
in his return for the taxable year in which the sale or exchange takes 
place, and such election shall be binding for the taxable year and all 
subsequent taxable years, 
(b) 
BASIS.— 
For basis of property acquired on a sale or exchange treated as an 
involuntary conversion under subsection (a), see section 1033 (c). 
PART VI—EXCHANGES IN OBEDIENCE TO S. E. C. ORDERS 
Sec. 1081. Nonrecognition of gain or loss on exchanges or distribu-
tions in obedience to orders of S. E. C. 
Sec. 1082. Basis for determining gain or loss. 
Sec. 1083. Definitions. 
SEC. 1081. NONRECOGNITION OF GAIN OR LOSS ON EXCHANGES OR 
DISTRIBUTIONS IN OBEDIENCE TO ORDERS OF S. E. C. 
(a) EXCHANGES OF STOCK OR SECURITIES ONLY.—No gain or loss 
shall be recognized to the transferor if stock or securities in a cor-
poration which is a registered holding company or a majority-owned 
subsidiary company are transferred to such corporation or to an 
associate company thereof which is a registered holding company or 
a majority-owned subsidiary company solely in exchange for stock 
or securities (other than stock or securities which are nonexempt 
property), and the exchange is made by the transferee corporation in 
obedience to an order of the Securities and Exchange Commission. 
(b) EXCHANGES AND SALES OF PROPERTY BY CORPORATIONS.— 
(1) GENERAL RULE.—No gain shall be recognized to a transferor 
corporation which is a registered holding company or an associate 
company of a registered holding company, if such corporation, 
in obedience to an order of the Securities and Exchange Commis-
sion, transfers property in exchange for property, and such order 
recites that such exchange by the transferor corporation is necessary 
or appropriate to the integration or simplification of the holding 
company system of which the transferor corporation is a member. 
Any gain, to the extent that it cannot be applied in reduction of 
basis under section 1082 (a) (2), shall be recognized. 
(2) NONEXEMPT PROPERTY.—If any such property so received is 
nonexempt property, gain shall be recognized unless such nonexempt 
property or an amount equal to the fair market value of such 
property at the time of the transfer is, within 24 months of the 
transfer, under regulations prescribed by the Secretary or his dele-
gate, and in accordance with an order of the Securities and Exchange 
Commission, expended for property other than nonexempt property 
or is invested as a contribution to the capital, or as paid-in surplus, 
of another corporation, and such order recites that such expenditure 
or investment by the transferor corporation is necessary or appro-
priate to the integration or simplification of the holding company 
system of which the transferor corporation is a member. If the fair 
market value of such nonexempt property at the time of the transfer 
exceeds the amount expended and the amount invested, as required 
in the preceding sentence, the gain, if any, to the extent of such 
excess, shall be recognized. 
(3) CANCELLATION OR REDEMPTION OF STOCK OR SECURITIES.— 
For purposes of this subsection, a distribution in cancellation or 
§ 1071(a) 
CH. 
1—NORMAL TAXES AND SURTAXES 
313 
redemption (except a distribution having the effect of a dividend) 
£ of the whole or a part of the transferor's own stock (not acquired 
on the transfer) and a payment in complete or partial retirement or 
cancellation of securities representing indebtedness of the transferor 
or a complete or partial retirement or cancellation of such securities 
which is a part of the consideration for the transfer shall be con-
^^ sidered an expenditure for property other than nonexempt property, 
and if, on the transfer, a liability of the transferor is assumed, or 
w property of the transferor is transferred subject to a liability, the 
s amount of such liability shall be considered to be an expenditure by 
the transferor for property other than nonexempt property. 
(4) CONSENTS.—This subsection shall not apply unless the 
es transferor corporation consents, at such time and in such manner 
as the Secretary or his delegate may by regulations prescribe to the 
o* regulations prescribed under section 1082 (a) (2) in effect at the time 
of filing its return for the taxable year in which the transfer occurs. 
(c) DISTRIBUTION OF STOCK OR SECURITIES ONLY.— 
ii( 
(1) I N GENERAL.—If there is distributed, in obedicnce to an Order 
of the Securities and Exchange Commission, to a shareholder in a 
Iv corporation which is a registered holding company or a majority-
- owned subsidiary company, stock or securities (other than stock or 
securities which are nonexempt property), without the surrender by 
,j such shareholder of stock or securities in such corporation, no gain 
-f to the distributee from the receipt of the stock or securities so dis-
^c tributed shall be recognized. 
-r 
(2) SPECIAL RULE.—If— 
(A) there is distributed to a shareholder in a corporation rights 
to acquire common stock in a second corporation without the 
i(- 
surrender by such shareholder of stock in the first corporation, 
9I 
(B) such distribution is in accordance with an arrangement 
e£ 
forming a ground for an order of the Securities and Exchange 
3i 
Commission issued pursuant to section 3 of the Public Utility 
n 
Holding Company Act of 1935 (49 Stat. 810; 15 U. S. C. 79c) that 
' 
such corporation is exempt from any provision or provisions of 
such Act, and 
(C) before January 1, 1958, the first corporation disposes of 
all of the common stock in the second corporation which it owns, 
jy then no gain to the distributee from the receipt of the rights so 
distributed shall be recognized. 
If the first corporation does not, 
before January 1, 1958, dispose of all of the common stock which. 
^if it owns in the second corporation, then the periods of limitation 
If: provided in sections 6501 and 6502 on the making of an assessment 
ill or the collection by levy or a proceeding in court shall, with respect 
-ci to any deficiency (including interest and additions to the tax) 
resulting solely from the receipt of such rights to acquire stock, 
include one year immediately following the date on which the 
first corporation notifies the Secretary or his delegate whether or 
not the requirements of subparagraph (C) of the preceding sentence 
have been met; and such assessment and collection may be made 
ai notwithstanding any provision of law or rule of law which would 
-r otherwise prevent such assessment and collection. 
(IB ih</ 
§ 1081(c)(2) 
49012°—54 
23 
3 1 4 
INTERNAL REVENUE CODE OF 1954 ? 
(d) TRANSFERS WITHIN SYSTEM GROUP.— 
(1) GENERAL RULE.—No gain or loss shall be recognized to a 
corporation which is a member of a system group— 
(A) if such corporation transfers property to another corpora-
tion which is a member of the same system group in exchange for 
other property, and the exchange by each corporation is made in 
obedience to an order of the Securities and Exchange Commission, 
or 
(B) if there is distributed to such corporation as a shareholder 
in a corporation which is a member of the same system group, 
property, without the surrender by such shareholder of stock or 
securities in the corporation making the distribution, and the 
distribution is made and received in obedience to an order of the 
Securities and Exchange Commission. 
If an exchange by or a distribution to a corporation with respect to 
which no gain or loss is recognized under any of the provisions of 
this paragraph may also be considered to be within the provisions 
of subsection (a), (b), or (c), then the provisions of this paragraph 
only shall apply. 
(2) SALES OF STOCK OR SECURITIES.—If the property received 
on an exchange which is within any of the provisions of para-
graph (1) consists in whole or in part of stock or securities issued 
by the corporation from which such property was received, and 
if in obedience to an order of the Securities and Exchange Com-
mission such stock or securities (other than stock which is not 
preferred as to both dividends and assets) are sold and the pro-
ceeds derived therefrom are applied in whole or in part in the 
retirement or cancellation of stock or of securities of the recipient 
corporation outstanding at the time of such exchange, no gain or 
loss shall be recognized to the recipient corporation on the sale 
of the stock or securities with respect to which such order was 
made; except that if any part of the proceeds derived from the 
sale of such stock or securities is not so applied, or if the amount 
of such proceeds is in excess of the fair market value of such stock 
or securities at the time of such exchange, the gain, if any, shall 
be recognized, but in an amount not in excess of the proceeds which 
are not so applied, or in an amount not more than the amount by 
which the proceeds derived from such sale exceed such fair market 
value, whichever is the greater. 
(e) EXCHANGES N O T SOLELY IN K I N D . — 
(1) GENERAL RULE.—If an exchange (not within any of the 
provisions of subsection (d)) would be within the provisions of 
subsection (a) if it were not for the fact that property received in 
exchange consists not only of property permitted by such sub-
section to be received without the recognition of gain or loss, but 
also of other property or money, then the gain, if any, to the re-
cipient shall be recognized, but in an amount not in excess of the 
sum of such money and the fair market value of such other property, 
and the loss, if any, to the recipient shall not be recognized. 
(2) DISTRIBUTION TREATED AS DIVIDEND.—If an exchange is 
within the provisions of paragraph (1) and if it includes a distri-
bution which has the effect of the distribution of a taxable dividend, 
then there shall be taxed as a dividend to each distributee such an 
§ 1081(d) 
' J - 
'3 
-: 
CH. 1 
NORMAL TAXES AND SURTAXES 
315 
amount of the gain recognized under such paragraph as is not in 
excess of his ratable share of the undistributed earnings and profits 
of the corporation accumulated after February 28, 1913. 
The 
remainder, if any, of the gain recognized under paragraph (1) 
shall be taxed as a gain from the exchange of property. 
(f) CONDITIONS FOR APPLICATION OF SECTION.—Except in the case 
of a distribution described in subsection (c) (2), the provisions of this 
section shall not apply to an exchange, expenditure, investment, 
distribution, or sale unless— 
(1) the order of the Securities and Exchange Commission in 
io obedience to which such exchange, expenditure, investment, dis-
lu tribution, or sale was made recites that such exchange, expenditure, 
investment, distribution, or sale is necessary or appropriate to 
effectuate the provisions of section 11 (b) of the Public Utility 
Holding Company Act of 1935 (49 Stat. 820; 15 U. S. C, 79k (b)), 
(2) such order specifies and itemizes the stock and securities and 
other property which are ordered to be acquired, transferred, 
i{ received, or sold on such exchange, acquisition, expenditure, dis-
tribution, or sale, and, in the case of an investment, the in 
vest-
si ment to be made, and 
le 
(3) such exchange, acquisition, expenditure, investment, dis-
ic tribution, or sale was made in obedience to such order, and was 
completed within the time prescribed therefor. 
m (g) NONAPPLICATION OF OTHER PROVISIONS.—If a distribution 
described in subsection (c) (2), or an exchange or distribution made 
in obedience to an order of the Securities and Exchange Commission, 
is within any of the provisions of this part and may also be considered 
to be within any of the other provisions of this subchapter or sub-
chapter C (sec. 301 and following, relating to corporate distributions 
and adjustments), then the provisions of this part only shall apply. 
SEC. 1082. BASIS FOR DETERMINING GAIN OR LOSS. 
(a) EXCHANGES GENERALLY.— 
"^ 
(1) EXCHANGES SUBJECT TO THE PROVISIONS OF SECTION IO81 (a) 
OR (e).—If the property was acquired on an exchange subject to 
^" the provisions of section 1081 (a) or (e), or the corresponding pro-
visions of prior internal revenue laws, the basis shall be the same 
as in the case of the property exchanged, decreased in the amount 
of any money received by the taxpayer, and increased in the amount 
of gain or decreased in the amount of loss to the taxpayer that was 
recognized on such exchange under the law applicable to the year 
in which the exchange was made. 
If the property so acquired 
consisted in part of the type of property permitted by section 
1081 (a) to be received without the recognition of gain or loss, and 
in part of nonexempt property, the basis provided in this subsection 
shall be allocated between the properties (other than money) 
received, and for the purpose of the allocation there shall be as-
signed to such nonexempt property (other than money) an amount 
equivalent to its fair market value at the date of the exchange. 
This subsection shall not apply to property acquired by a cor-
poration by the issuance of its stock or securities as the considera-
tion in whole or in part for the transfer of the property to it. 
(2) EXCHANGES SUBJECT TO THE PROVISIONS OF SECTION IO81 (b).— 
The gain not recognized on a transfer by reason of section 1081 (b) 
§ 1082(a)(2) 
316 
INTERNAL REVENUE CODE OF 
1954 
or the corresponding provisions of prior internal revenue laws 
shall be applied to reduce the basis for determining gain or loss on 
sale or exchange of the following categories of property in the hands 
of the transferor immediately after the transfer, and property 
acquired within 24 months after such transfer by an expenditure 
or investment to which section 1081 (b) relates on account of the 
acquisition of which gain is not recognized under such subsection, 
in the following order: 
(A) property of a character subject to the allowance for depre-
ciation under section 167; 
(B) property (not described in subparagraph (A)) with respect 
to which a deduction for amortization is allowable under section 
168 or 169; 
(C) property with respect to which a deduction for depletion 
is allowable under section 611 but not allowable under section 613; 
(D) stock and securities of corporations not members of the 
system group of which the transferor is a member (other than 
stock or secm-ities of a corporation of which the transferor is a 
subsidiary); 
(E) securities (other than stock) of corporations which are 
members of the system group of which the transferor is a member 
(other than securities of the transferor or of a corporation of 
which the transferor is a subsidiary); 
(F) stock of corporations which are members of the system 
group of which the transferor is a member (other than stock of 
the transferor or of a corporation of which the transferor is a 
subsidiary); 
(G) all other remaining property of the transferor (other than 
stock or securities of the transferor or of a corporation of which 
the transferor is a subsidiary). 
The manner and amount of the reduction to be applied to particular 
property within any of the categories described in subparagraphs 
(A) to (G), inclusive, shall be determined under regulations pre-
scribed by the Secretary or his delegate. 
(3) BASIS IN CASE OF PRE-1942 ACQUISITION.—Notwithstanding 
the provisions of paragraph (1) or (2), if the property was acquired 
in a taxable year beginning before January 1, 1942, in any manner 
described in section 372 of the Internal Revenue Code of 1939 
before its amendment by the Revenue Act of 1942, the basis shall be 
that prescribed in such section (before its amendment by such Act) 
with respect to such property. 
(b) TRANSFERS TO CORPORATIONS.—If, in connection with a trans-
fer subject to the provisions of section 1081 (a), (b), or (e) or the cor-
responding provisions of prior internal revenue laws, the property 
was acquired by a corporation, either as paid-in surplus or as a con-
tribution to capital, or in consideration for stock or securities issued 
by the corporation receiving the property (including cases where part 
of the consideration for the transfer of such property to the corpora-
tion consisted of property or money in addition to such stock or 
securities), then the basis shall be the same as it would be in the hands 
of the transferor, increased in the amount of gain or decreased in the 
amount of loss recognized to the transferor on such transfer under 
the law applicable to the year in which the transfer was made. 
§ 1082(a)(2) 
CH. 1—NORMAL TAXES AND SURTAXES 
317 
(c) DISTRIBUTIONS OF STOCK OR SECURITIES.—If the stock or 
securities were received in a distribution subject to the provisions of 
section 1081 (c) or the corresponding provisions of prior internal rev-
enue laws, then the basis in the case of the stock in respect of which 
the distribution was made shall be apportioned, under regulations 
prescribed by the Secretary or his delegate, between such stock and 
the stock or securities distributed. 
(d) TRANSFERS WITHIN SYSTEM GROUP.—If the property was ac-
quired by a corporation which is a member of a system group on 
a transfer or distribution described in section 1081 (d) (1), then the 
basis shall be the same as it would be in the hands of the transferor; 
except that if such property is stock or securities issued by the cor-
poration from which such stock or securities were received and they 
were issued— 
(1) as the sole consideration for the property transferred to such 
corporation, then the basis of such stock or securities shall be 
either— 
(A) the same as in the case of the property transferred there-
for, or 
J 
(B) the fair market value of such stock or securities at the 
time of their receipt, whichever is the lower; or 
* 
(2) as part consideration for the property transferred to such cor-
j- poration, then the basis of such stock or securities shall be either— 
I 
(A) an amount which bears the same ratio to the basis of the 
property transferred as the fair market value of such stock or 
securities at the time of their receipt bears to the total fair market 
s 
value of the entire consideration received, or 
(B) the fair market value of such stock or securities at the 
time of their receipt, whichever is the lower. 
SEC. 1083. DEFINITIONS 
(a) ORDER OF SECURITIES AND EXCHANGE COMMISSION.—For pur-
poses of this part, the term "order of the Securities and Exchange 
Commission" means an order issued after May 28, 1938, by the Securi-
ties and Exchange Commission which requires, authorizes, permits, or 
approves transactions described in such order to effectuate section 
II (b) of the Public Utility Holding Company Act of 1935 (49 Stat. 
820; 15 U. S. C. 79k (b)), which has become or becomes final in accord-
ance with law. 
(b) REGISTERED HOLDING COMPANY; HOLDING COMPANY SYSTEM; 
ASSOCIATE COMPANY.—For purposes of this part, the terms "registered 
holding company", "holding company system", and "associate com-
pany 
shall have the meanings assigned to them by section 2 of the 
Pubhc UtiHty Holding Company Act of 1935 (49 Stat. 804; 15 U. S. C. 
79b (a)). 
(c) MAJORITY-OWNED SUBSIDIARY COMPANY.—For purposes of this 
part, the term "majority-owned subsidiary company" of a registered 
holding company means a corporation, stock of which, representing in 
the aggregate more than 50 percent of the total combined voting power 
of all classes of stock of such corporation entitled to vote (not includ-
ing stock which is entitled to vote only on default or nonpayment 
of dividends or other special circumstances) is owned wholly by such 
registered holding company, or partly by such registered holding 
company and partly by one or more majority-owned subsidiary 
§ 1083(c) 
318 
INTERNAL REVENUE CODE OP 1954 ^ 
companies thereof, or by one or more majority-owned subsidiary 
companies of such registered holding company. 
(d) SYSTEM GROUP.—For purposes of this part, the term "system 
group" means one or more chains of corporations connected through 
stock ownership with a common parent corporation if— 
(1) at least 90 percent of each class of the stock (other than 
(A) stock which is preferred as to both dividends and assets, and 
(B) stock which is limited and preferred as to dividends but which 
is not preferred as to assets but only if the total value of such stock 
is less than 1 percent of the aggregate value of all classes of stock 
which are not preferred as to both dividends and assets) of each of 
the corporations (except the common parent corporation) is owned 
directly by one or more of the other corporations; and 
(2) the common parent corporation owns directly at least 90 
percent of each class of the stock (other than stock, which is pre-
ferred as to both dividends and assets) of at least one of the other 
corporations; and 
(3) each of the corporations is either a registered holding com-
pany or a majority-owned subsidiary company. 
(e) NoNEXEMPT PROPERTY.—^For purposes of this part, the term 
"nonexempt property" means— 
(1) any consideration in the form of evidences of indebtedness 
owed by the transferor or a cancellation or assumption of debts 
or other liabilities of the transferor (including a continuance of 
encumbrances subject to which the property was transferred); 
(2) short-term obligations (including notes, drafts, bills of ex-
change, and bankers' acceptances) having a maturity at the time 
of issuance of not exceeding 24 months, exclusive of days of grace; 
(3) securities issued or guaranteed as to principal or interest 
by a government or subdivision thereof (including those issued 
by a corporation which is an instrumentality of a government or 
subdivision thereof); 
(4) stock or securities which were acquired from a registered 
holding company or an associate company of a registered holding 
company which acquired such stock or securities after February 
28, 1938, unless such stock or securities (other than obligations 
des'cribed as nonexempt property in paragraph (1), (2), or (3)) 
were acquired in obedience to an order of the Securities and Ex-
change Commission or were acquired with the authorization or 
approval of the Securities and Exchange Commission under any 
section of the Public Utility Holding Company Act of 1935 (49 
Stat. 820; 15 U. S. C. 79k (b)); 
(5) money, and the right to receive money not evidenced by a 
security other than an obligation described as nonexempt property 
in paragraph (2) or (3). 
(f) STOCK OR SECURITIES.—For purposes of this part, the term 
"stock or securities" means shares of stock in any corporation, 
certificates of stock or interest in any corporation, notes, bonds, 
debentures, and evidences of indebtedness (including any evidence 
of an interest in or right to subscribe to or purchase any of the 
foregoing). 
§ 1083(c) 
CH. 1—NORMAL TAXES AND SURTAXES 
319 
PART VII—WASH SALES OF STOCK OR SECURITIES 
Sec. 1091. Loss from wash sales of stock or securities. 
SEC. 1091. LOSS FROM WASH SALES OF STOCK OR SECURITIES. 
(a) DISALLOWANCE OF LOSS DEDUCTION.—In the case of any loss 
claimed to have been sustained from any sale or other disposition of 
shares of stock or securities where it appears that, within a period 
beginning 30 days before the date of such sale or disposition and 
ending 30 days after such date, the taxpayer has acquired (by pur-
chase or by an exchange on which the entire amount of gain or loss 
was recognized by law), or has entered into a contract or option so to 
acquire, substantially identical stock or securities, then no deduction 
for the loss shall be allowed under section 165 (c) (2); nor shall such 
deduction be allowed a corporation under section 165 (a) unless it is 
a dealer in stocks or securities, and the loss is sustained in a transaction 
made in the ordinary course of its business. 
(b) STOCK ACQUIRED LESS THAN STOCK SOLD.—If the amount of 
stock or securities acquired (or covered by the contract or option to 
acquire) is less than the amount of stock or securities sold or other-
wise disposed of, then the particular shares of stock or securities the 
loss from the sale or other disposition of which is not deductible shall 
be determined under regulations prescribed by the Secretary or his 
delegate. 
(c) STOCK ACQUIRED NOT LESS THAN STOCK SOLD.—If the amount 
of stock or securities acquired (or covered by the contract or option to 
acquire) is not less than the amount of stock or securities sold or other-
wise disposed of, then the particular shares of stock or securities the 
acquisition of which (or the contract or option to acquire which) 
resulted in the nondeductibility of the loss shall be determined under 
regulations prescribed by the Secretary or his delegate. 
(d) UNADJUSTED BASIS IN CASE OP WASH SALE OF STOCK.—If the 
property consists of stock or securities the acquisition of which (or the 
contract or option to acquire which) resulted in the nondeductibility 
(under this section or corresponding provisions of prior internal reve-
nue laws) of the loss from the sale or other disposition of substantially 
identical stock or securities, then the basis shall be the basis of the 
stock or securities so sold or disposed of, increased or decreased, as 
the case may be, by the difference, if any, between the price at which the 
property was acquired and the price at which such substantially 
identical stock or securities were sold or otherwise disposed of. 
it 
9in. 
. 
•; 
§ 1091(d) 
320 
INTERNAL REVENUE CODE OF 1954 
Subchapter P—Capital Gains and Losses 
Part 
I. Treatment of capital gains. 
Part II. Treatment of capital losses. 
Part III. General rules for determining capital gains and losses. 
Part IV. Special rules for determining capital gains and losses. 
PART I—TREATMENT OF CAPITAL GAINS 
Sec. 1201. Alternative tax. 
Sec. 1202. Deduction for capital gains. 
SEC. 1201. ALTERNATIVE TAX. 
(a) CORPORATIONS.—If for any taxable year the net long-term 
capital gain of any corporation exceeds the net short-term capital 
loss, then, in lieu of the tax imposed by sections 11, 511, 821 (a) (1) or 
(b), and 831 (a), there is hereby imposed a tax (if such tax is less than 
the tax imposed by such sections) which shall consist of the sum of— 
(1) a partial tax computed on the taxable income reduced by the 
amount of such excess, at the rates and in the manner as if this sub-
section had not been enacted, and 
(2) an amount equal to 25 percent of such excess, or, in the case 
of a taxable year beginning before April 1, 1954, an amount equal 
to 26 percent of such excess. 
In the case of a taxable year beginning before April 1, 1954, the amount 
under paragraph (2) shall be determined without regard to section 21 
(relating to effect of change of tax rates). 
(b) OTHER TAXPAYERS.—If for any taxable year the net long-term 
capital gain of any taxpayer (other than a corporation) exceeds the 
net short-term capital loss, then, in lieu of the tax imposed by sec-
tions 1 and 511, there is hereby imposed a tax (if such tax is less than 
the tax imposed by such sections) which shall consist of the sum of— 
(1) a partial tax computed on the taxable income reduced by an 
amount equal to 50 percent of such excess, at the rate and in the 
manner as if this subsection had not been enacted, and 
(2) an amount equal to 25 percent of the excess of the net long-
term capital gain over the net short-term capital loss. 
SEC. 1202. DEDUCTION FOR CAPITAL GAINS. 
In the case of a taxpayer other than a corporation, if for any taxable 
year the net long-term capital gain exceeds the net short-term capital 
loss, 50 percent of the amount of such excess shall be a deduction from 
gross income. In the case of an estate or trust, the deduction shall be 
computed by excluding the portion (if any), of the gains for the taxable 
year from sales or exchanges of capital assets, which, under sections 
652 and 662 (relating to inclusions of amounts in gross income of 
beneficiaries of trusts), is includible by the income beneficiaries as 
gain derived from the sale or exchange of capital assets. 
§ 1201 
CH. 1—NORMAL TAXES AND SURTAXES 
t3^1. 
.YlwqoT PART II—TREATMENT OF CAPITAL LOSSES 
,.; 
, 
Sec. 1211. Limitation on capital losses. 
' 
Sec. 1212. Capital loss carryover. 
SEC. 1211. LIMITATION ON CAPITAL LOSSES. 
(a) CORPORATIONS.—In the case of a corporation, losses from 
sales or exchanges of capital assets shall be allowed only to the extent 
of gains from such sales or exchanges. 
(b) OTHER TAXPAYERS.—In the case of a taxpayer other than 
a corporation, losses from sales or exchanges of capital assets shall 
be allowed only to the extent of the gains from such sales or ex-
changes, plus the taxable income of the taxpayer or $1,000, whichever 
is smaller. 
For purposes of this subsection, taxable income shall be 
computed without regard to gains or losses from sales or exchanges 
of capital assets and without regard to the deductions provided in 
section 151 (relating to personal exemptions) or any deduction in 
lieu thereof. 
If the taxpayer elects to pay the optional tax imposed 
by section 3, "taxable income" as used in this subsection shall be 
read as "adjusted gross income". 
SEC. 1212. CAPITAL LOSS CARRYOVER. 
If for any taxable year the taxpayer has a net capital loss, the 
amount thereof shall be a short-term capital loss in each of the 5 
succeeding taxable years to the extent that such amount exceeds the 
total of any net capital gains of any taxable years intervening between 
the taxable year in which the net capital loss arose and such succeed-
ing taxable year. 
For purposes of this section, a net capital gain 
shall be computed without regard to such net capital loss or to any 
net capital losses arising in any such intervening taxable years, and 
a net capital loss for a taxable year beginning before October 20, 
1951, shall be determined under the applicable law relating to the 
computation of capital gains and losses in effect before such date. 
PART III—GENERAL RULES FOR DETERMINING CAPITAL 
GAINS AND LOSSES 
Sec. 1221. Capital asset defined. 
(cr 
Sec. 1222. Other items relating to capital gains and losses. 
^, 
Sec. 1223. Holding period of property. 
SEC. 1221. CAPITAL ASSET DEFINED. 
For purposes of this subtitle, the term "capital asset" means 
property held by the taxpayer (whether or not connected with his 
trade or business), but does not include— 
' 
(1) stock in trade of the taxpayer or other property of a kind 
" which would properly be included in the inventory of the taxpayer 
if on hand at the close of the taxable year, or property held by the 
taxpayer primarily for sale to customers in the ordinary course of 
I his trade or business; 
' 
(2) property, used in his trade or business, of a character which 
is subject to the allowance for depreciation provided in section 167, 
or real property used in his trade or business; 
^ 
(3) a copyright, a literary, musical, or artistic composition, or 
similar property, held by— 
^
^ 
§1221(3) 
322 
INTERNAL REVENUE CODE OF 1954 
(A) a taxpayer whose personal efforts created such property, 
or 
(B) a taxpayer in whose hands the basis of such property is 
determined, for the purpose of determining gain from a sale or 
exchange, in whole or in part by reference to the basis of such 
property in the hands of the person whose personal efforts created 
such property; 
(4) accounts or notes receivable acquired in the ordinary course 
of trade or business for services rendered or from the sale of 
property described in paragraph (1); or 
(5) an obligation of the United States or any of its possessions, 
or of a State or Territory, or any political subdivision thereof, or 
of the District of Columbia, issued on or after March 1, 1941, on 
a discount basis and payable without interest at a fixed maturity 
date not exceeding one year from the date of issue. 
SEC. 1222. OTHER TERMS RELATING TO CAPITAL GAINS AND LOSSES. 
For purposes of this subtitle— 
(1) SHORT-TERM CAPITAL GAIN.—The term "short-term capital 
gain" means gain from the sale or exchange of a capital asset held 
for not more than 6 months, if and to the extent such gain is taken 
into account in computing gross income. 
(2) SHORT-TERM CAPITAL LOSS.—The term "short-term capital 
loss" means loss from the sale or exchange of a capital asset held for 
not more than 6 months, if and to the extent that such loss is taken 
into account in computing taxable income. 
(3) LONG-TERM CAPITAL GAIN.—The term "long-term capital 
gain" means gain from the sale or exchange of a capital asset held 
for more than 6 months, if and to the extent such gain is taken into 
account in computing gross income. 
(4) LONG-TERM CAPITAL LOSS.—The term "long-term capital 
loss" means loss from the sale or exchange of a capital asset held for 
more than 6 months, if and to the extent that such loss is taken into 
account in computing taxable income. 
(5) N E T SHORT-TERM CAPITAL GAIN.—The term "net short-term 
capital gain" means the excess of short-term capital gains for the 
taxable year over the short-term capital losses for such year. 
(6) N E T SHORT-TERM CAPITAL LOSS.—The term "net short-term 
capital loss" means the excess of short-term capital losses for the 
taxable year over the short-term capital gains for such year. 
(7) N E T LONG-TERM CAPITAL GAIN.—The term "net long-term 
capital gain" means the excess of long-term capital gains for the 
taxable year over the long-term capital losses for such year. 
(8) N E T LONG-TERM CAPITAL LOSS.—The term "net long-term 
capital loss" means the excess of long-term capital losses for the 
taxable year over the long-term capital gains for such year. 
(9) N E T CAPITAL GAIN.— 
(A) CORPORATIONS.—In the case of a corporation, the term 
"net capital gain" means the excess of the gains from sales or 
exchanges of capital assets over the losses from such sales or ex-
changes. 
(B) OTHER TAXPAYERS.—In the case of a taxpayer other than 
a corporation, the term "net capital gain" means the excess of— 
§1221(3)(A) 
CH. 1—NORMAL TAXES AND SURTAXES 
323 
noil 
(i) the sum of the gains from sales or exchanges of capital 
assets, plus taxable income (computed without regard to the 
e 
deductions provided by section 151, relating to personal 
exemptions or any deduction in heu thereof) of the taxpayer 
or $1,000, whichever is smaller, over 
[ 
(ii) the losses from such sales or exchanges. 
c 
For purposes of this subparagraph, taxable income shall be 
•
J 
computed without regard to gains or losses from sales or exchanges 
i 
of capital assets. 
If the taxpayer elects to pay the optional tax 
under section 3, the term "taxable income" as used in this 
t) 
subparagraph shall be read as "adjusted gross income." 
Ii 
(10) N E T CAPITAL LOSS.—The term "net capital loss" means the 
excess of the losses from sales or exchanges of capital assets over 
f the sum allowed under section 1211. 
For the purpose of determining 
1 losses under this paragraph, amounts which are short-term capital 
losses uader section 1212 shall be excluded. 
SEC. 1223. HOLDING PERIOD OF PROPERTY. 
For purposes of this subtitle— 
•
^ 
(1) In determining the period for which the taxpayer has held 
•' property received in an exchange, there shall be included the 
' period for which he held the property exchanged if, under this 
^ chapter, the property has, for the purpose of determining gain or 
^ logs from a sale or exchange, the same basis in whole or in part 
"'' in his hands as the property exchanged, and, in the case of such 
'
^ exchanges after March 1, 1954, the property exchanged at the 
time of such exchange was a capital asset as defined in section 1221 
or property described in section 1231. For purposes of this para-
graph— 
,
^ 
(A) an involuntary conversion described in section 1033 shall 
'^ 
be considered an exchange of the property converted for the 
property acquired, and 
^' 
(B) a distribution to which section 355 (or so much of section 
"' 
356 as relates to section 355) applies shall be treated as an 
exchange. 
(2) In determining the period for which the taxpayer has held 
property however acquired there shall be included the period for 
• which such property was held by any other person, if under this 
chapter such property has, for the purpose of determining gain or 
loss from a sale or exchange, the same basis in whole or in part in 
his hands as it would have in the hands of such other person. 
(3) In determining the period for which the taxpayer has held 
stock or securities received upon a distribution where no gain was 
recognized to the distributee under section 1081 (c) (or under sec-
tion 112 (g) of the Revenue Act of 1928, 45 Stat. 818, or the 
Revenue Act of 1932, 48 Stat. 705), there shall be included the 
period for which he held the stock or securities in the distributing 
corporation before the receipt of the stock or securities on such 
distribution. 
(4) In determining the period for which the taxpayer has held 
stock or securities the acquisition of which (or the contract or option 
§ 1223(4) 
324 
INTERNAL REVENUE CODE OF 1954 > 
to acquire which) resulted in the nondeductibility (under section 
1091 relating to wash sales) of the loss from the sale or other disposi-
tion of substantially identical stock or securities, there shall be 
included the period for which he held the stock or securities the loss 
from the sale or other disposition of which was not deductible. 
(5) In determining the period for which the taxpayer has held 
stock or rights to acquire stock received on a distribution, if the 
basis of such stock or rights is determined under section 307 (or 
under so much of section 1052 (c) as refers to section 113 (a) (23) 
of the Internal Revenue Code of 1939), there shall (under regula-
tions prescribed by the Secretary or his delegate) be included the 
period for which he held the stock in the distributing corporation 
before the receipt of such stock or rights upon such distribution. 
(6) In determining the period for which the taxpayer has held 
stock or securities acquired from a corporation by the exercise of 
rights to acquire such stock or securities, there shall be included only 
the period beginning with the date on which the right to acquire 
was exercised. 
(7) In determining the period for which the taxpayer has held a 
residence, the acquisition of which resulted under section 1034 in the 
nonrecognition of any part of the gain realized on the sale or ex-
change of another residence, there shall be included the period for 
which such other residence had been held as of the date of such sale 
or exchange. 
For purposes of this paragraph, the term "sale or 
exchange" includes an involuntary conversion occurring after 
December 31, 1950, and before January 1, 1954. 
(8) In determining the period for which the taxpayer has held a 
commodity acquired in satisfaction of a commodity futures contract 
there shall be included the period for which he held the commodity 
futures contract if such commodity futures contract was a capital 
asset in his hands. 
(9) Any reference in this section to a provision of this title shall, 
where applicable, be deemed a reference to the corresponding pro-
vision of the Internal Kevenue Code of 1939, or prior internal 
revenue laws. 
(10) 
CROSS REFERENCE.— 
For special holding period provision relating to certain partnership 
distributions, see section 735 (b). 
§ 1223(4) 
CH. 1 
NORMAL TAXES AND SURTAXES 
325 
PART IV—SPECIAL RULES FOR DETERMINING 
CAPITAL 
GAINS AND LOSSES 
iiUi 
Sec. 1231. Property used in the trade or business and involuntary 
conversions. 
Sec. 1232. Bonds and other evidences of indebtedness. 
Sec. 1233. Gains and losses from short sales. 
Sec. 1234, Options to buy or sell. 
> 
Sec. 1235. Sale or exchange of patents. 
> 
Sec. 1236, Dealers in securities. 
^ 
, 
Sec. 1237. Real property subdivided for sale. 
' 
'-^'••'•'^ 
Sec. 1238. Amortization in excess of depreciation. 
Sec. 1239. Gain from sale of certain property between spouses or 
between an individual and a controlled corporation. 
Sec. 1240. Taxability to employee of termination payments. 
Sec. 1241. Cancellation of lease or distributor's agreement. 
SEC. 1231. PROPERTY USED IN THE TRADE OR BUSINESS AND IN-
VOLUNTARY 
CONVERSIONS. 
(a) GENERAL RULE.—If, during the taxable year, the recognized 
gains on sales or exchanges of property used in the trade or business, 
plus the recognized gains from the compulsory or involuntary con-
version (as a result of destruction in whole or in part, theft or seizure, 
or an exercise of the povs^er of requisition or condemnation or the 
threat or imminence thereof) of property used in the trade or business 
and capital assets held for more than 6 months into other property 
or money, exceed the recognized losses from such sales, exchanges, 
and conversions, such gains and losses shall be considered as gains 
and losses from sales or exchanges of capital assets held for more than 
6 months. 
If such gains do not exceed such losses, such gains and 
losses shall not be considered as gains and losses from sales or exchanges 
of capital assets. For purposes of this subsection— 
(1) in determining under this subsection whether gains exceed 
losses, the gains described therein shall be included only if and to 
the extent taken into account in computing gross income and the 
losses described therein shall be included only if and to the extent 
taken into account in computing taxable income, except that 
section 1211 shall not apply; and 
(2) losses upon the destruction, in whole or in part, theft or 
seizure, or requisition or condemnation of property used in the 
trade or business or capital assets held for more than 6 months shall 
be considered losses from a compulsory or involuntary conversion. 
(b) 
DEFINITION OF PROPERTY USED IN THE TRADE OR BUSINESS.— 
For purposes of this section— 
(1) GENERAL RULE.—The term "property used in the trade or 
business" means property used in the trade or business, of a charac-
ter which is subject to the allowance for depreciation provided in 
section 167, held for more than 6 months, and real property used 
in the trade or business, held for more than 6 months, which is 
not— 
(A) property of a kind which would properly be includible 
in the inventory of the taxpayer if on hand at the close of the 
I 
taxable year, 
(B) property held by the taxpayer primarily for sale to cus-
tomers in the ordinary course of his trade or business, or 
§ 1231(b)(1)(B) 
326 
INTERNAL REVENUE CODE OF 1954 
(C) a copyright, a literary, musical, or artistic composition, 
or similar property, held by a taxpayer described in paragraph 
(3) of section 1221. 
(2) TiMBEE O
R COAL.—Such term includes timber and coal with 
respect to which section 631 applies. 
(3) LIVESTOCK.—Such term also includes livestock, regardless 
of age, held by the taxpayer for draft, breeding, or dairy purposes, 
and held by him for 12 months or more from the date of acquisition. 
Such term does not include poultry. 
(4) UNHARVESTED CROP.—In the case of an unharvested crop 
on land used in the trade or business and held for more than 6 
months, if the crop and the land are sold or exchanged (or com-
pulsorily or involuntarily converted) at the same time and to the 
same person, the crop shall be considered as "property used in the 
trade or business." 
SEC. 1232. BONDS AND OTHER EVIDENCES OF INDEBTEDNESS. 
(a) GENERAL RULE.—For purposes of this subtitle, in the case of 
bonds, debentures, notes, or certificates or other evidences of indebted-
ness, which are capital assets in the hands of the taxpayer, and which 
are issued by any corporation, or government or political subdivision 
thereof— 
(1) RETIREMENT.—Amounts received by the holder on retire-
ment of such bonds or other evidences of indebtedness shall be 
considered as amounts received in exchange therefor (except that 
in the case of bonds or other evidences of indebtedness issued 
before January 1, 1955, this paragraph shall apply only to those 
issued with interest coupons or in registered form, or to those in 
such form on March 1, 1954). 
(2) SALE OR EXCHANGE.— 
(A) GENERAL RULE.—Except as provided in subparagraph (B), 
upon sale or exchange of bonds or other evidences of indebtedness 
issued after December 31, 1954, held by the taxpayer more than 6 
months, any gain realized which does not exceed an amount 
which bears the same ratio to the original issue discount (as 
defined in subsection (b)) as the number of complete months that 
the bond or other evidences of indebtedness was held by the tax-
payer bears to the number of complete months from the date 
of original issue to the date of maturity, shall be considered as 
gain from the sale or exchange of property which is not a capital 
asset. 
Gain in excess of such amount shall be considered gain 
from the sale or exchange of a capital asset held more than 6 
months. 
(B) EXCEPTIONS.—This paragraph shall not apply to— 
(i) obligations the interest on which is not includible in 
gross income under section 103 (relating to certain govern-
mental obligations), or 
(ii) any holder who has purchased the bond or other evidence 
of indebtedness at a premium. 
(C) ELECTION AS TO INCLUSION.—In the case of obligations 
with respect to which the taxpayer has made an election provided 
by section 454 (a) and (c) (relating to accounting rules for certain 
obligations issued at a discount), this section shall not require the 
inclusion of any amount previously includible in gross income. 
§ 1231(b)(1)(C) 
CH. 1—NORMAL TAXES AND SURTAXES 
327 
(b) DEFINITIONS.—• 
(1) OEIGINAL ISSUE DISCOUNT.—For purposes of subsection (a), 
the term "original issue discount" means the difference between the 
issue price and the stated redemption price at maturity. 
If the 
original issue discount is less than one-fourth of 1 percent of the 
redemption price at maturity multiplied by the number of complete 
years to maturity, then the issue discount shall be considered to 
be zero. For purposes of this paragraph, the term "stated redemp-
tion price at maturity" means the amount fixed by the last modifica-
tion of the purchase agreement and includes dividends payable at 
that time. 
(2) ISSUE PRICE.—In the case of issues of bonds or other evidences 
of indebtedness registered with the Securities and Exchange Com-
mission, the term "issue price" means the initial offering price to 
the public (excluding bond houses and brokers) at which price a 
substantial amount of such bonds or other evidences of indebtedness 
were sold. 
In the case of privately placed issues of bonds or other 
evidence of indebtedness, the issue price of each such bond or other 
evidence of indebtedness is the price paid by the first buyer of such 
bond. 
For purposes of this paragraph, the terms "initial offering 
price" and "price paid by the first buyer" include the aggregate 
payments made by the purchaser under the purchase agreement, 
including modifications thereof. 
(3) ISSUE DATE.—In the case of issues of bonds or other evidences 
of indebtedness registered with the Securities and Exchange Com-
• mission, the term "date of original issue" means the date on which 
the issue was first sold to the public at the issue price. 
In the case 
of privately placed issues of bonds or other evidences of indebted-
( ness, the term "date of original issue" means the date on which each 
( 
such bond or other evidence of indebtedness was sold by the issuer. 
(c) BOND W I T H EXCESS NUMBER OF COUPONS DETACHED.—If— 
(1) a bond or other evidence of indebtedness issued at any time 
I with interest coupons is purchased after the date of enactment of 
( 
this title, and 
(2) the purchaser does not receive all the coupons which first 
become payable more than 12 months after the date of the purchase, 
then the gain on the sale or other disposition of such evidence of in-
debtedness by such purchaser shall be considered as gain from the 
sale or exchange of property which is not a capital asset to the extent 
that the market value (determined as of the time of the purchase) of 
the evidence of indebtedness with coupons attached exceeds the pur-
chase price. 
If this subsection and subsection (a) (2) (A) apply with 
respect to gain realized on the retirement of any bond, then subsec-
tion (a) (2) (A) shall apply with respect to that part of the gain to 
which this subsection does not apply. 
(d) CROSS REFERENCE.— 
For special treatment of face-amount certificates on retirement, see 
section 72. 
SEC. 1233. GAINS AND LOSSES FROM SHORT SALES. 
(a) CAPITAL AssETS.-For purposes of this subtitle, gain or loss 
from the short sale of property, other than a hedging transaction 
in commodity futures, shall be considered as gain or loss from the 
sale or exchange of a capital asset to the extent that the property, 
§ 1233(a) 
328 
INTERNAL REVENUE CODE OF 19 
54 
including a commodity future, used to close the short sale constitutes 
a capital asset in the hands of the taxpayer. 
(b) SHORT-TERM GAINS AND HOLDING PERIODS.—If gain or loss 
from a short sale is considered as gain or loss from the sale or exchange 
of a capital asset under subsection (a) and if on the date of such short 
sale substantially identical property has been held by the taxpayer 
for not more than 6 months (determined without regard to the effect, 
under paragraph (2) of this subsection, of such short sale on the holding 
period), or if substantially identical property is acquired by the tax-
payer after such short sale and on or before the date of the closing 
thereof— 
(1) any gain on the closing of such short sale shall be considered 
as a gain on the sale or exchange of a capital asset held for not 
more than 6 months (notwithstanding the period of time any 
property used to close such short sale has been held); and 
(2) the holding period of such substantially identical property 
shall be considered to begin (notwithstanding section 1223, relating 
to the holding period of property) on the date of the closing of the 
short sale, or on the date of a sale, gift, or other disposition of such 
property, whichever date occurs first. 
This paragraph shall apply 
to such substantially identical property in the order of the dates of 
the acquisition of such property, but only to so much of such prop-
erty as does not exceed the quantity sold short. 
For purposes of this subsection, the acquisition of an option to sell 
property at a fixed price shall be considered as a short sale, and the 
exercise or failure to exercise such option shall be considered as a 
closing of such short sale. 
(c) CERTAIN OPTIONS TO SELL.—Subsection (b) shall not include 
an option to sell property at a fixed price acquired on the same day on 
which the property identified as intended to be used in exercising such 
option is acquired and which, if exercised, is exercised through the 
sale of the property so identified. 
If the option is not exercised, the 
cost of the option shall be added to the basis of the property with 
which the option is identified. 
This subsection shall apply only to 
options acquired after the date of enactment of this title. 
(d) LONG-TERM LOSSES.—If on the date of such short sale sub-
stantially identical property has been held by the taxpayer for more 
than 6 months, any loss on the closing of such short sale shaU be 
considered as a loss on the sale or exchange of a capital asset held 
for more than 6 months (notwithstanding the period of time any 
property used to close such short sale has been held, and notwith-
standing section 1234). 
(e) RULES FOR APPLICATION OF SECTION— 
(1) Subsection (b) (1) or (d) shall not apply to the gain or loss, 
respectively, on any quantity of property used to close such short 
sale which is in excess of the quantity of the substantially identical 
property referred to in the applicable subsection. 
(2) For purposes of subsections (b) and (d)— 
(A) the term "property" includes only stocks and securities 
(including stocks and securities dealt with on a "when issued" 
basis), and commodity futures, which are capital assets in the 
hands of the taxpayer; 
§ 1233(a) 
CH. 1—NORMAL TAXES AND SURTAXES 
329 
(B) in the case of futures transactions in any commodity on 
or subject to the rules of a board of trade or commodity exchange, 
a commodity future requiring delivery in 1 calendar month shall 
not be considered as property substantially identical to another 
commodity future requiring delivery in a different calendar 
month; and 
Y,„ 
(C) in the case of a short sale of property by an individual, 
the term "taxpayer", in the application of this subsection and 
subsections (b) and (d), shall be read as "taxpayer or his spouse"; 
, but an individual who is legally separated from the taxpayer 
under a decree of divorce or of separate maintenance shall not 
be considered as the spouse of the taxpayer. 
(3) Where the taxpayer enters into 2 commodity futures trans-
actions on the same day, one requiring delivery by him in one 
market and the other requiring delivery to him of the same (or 
substantially identical) commodity in the same calendar month 
in a different market, and the taxpayer subsequently closes both 
such transactions on the same day, subsections (b) and (d) shall 
have no application to so much of the commodity involved in 
either such transaction as does not exceed in quantity the com-
modity involved in the other. 
SEC. 1234. OPTIONS TO BUY OR SELL. 
Gain or loss attributable to the sale or exchange of, or loss on failure 
to exercise, a privilege or option to buy or sell property which in 
the hands of the taxpayer constitutes (or if acquired would consti-
tute) a capital asset shall be considered gain or loss from the sale 
or exchange of a capital asset; and, if the loss is attributable to 
failure to exercise such privilege or option, the privilege or option 
shall be deemed to have been sold or exchanged on the day it expired. 
This section shall not apply to losses on failure to exercise options de-
scribed in section 1233 (c). 
SEC. 1235. SALE OR EXCHANGE OF PATENTS. 
(a) GENERAL.—A transfer (other than by gift, inheritance, or 
devise) of property consisting of all substantial rights to a patent, or an 
undivided interest therein which includes a part of all such rights, by 
any holder shall be considered the sale or exchange of a capital asset 
held for more than 6 months, regardless of whether or not payments 
in consideration of such transfer are— 
. 
(1) payable periodically over a period generally coterminous with 
the transferee's use of the patent, or 
(2) contingent on the productivity, use, or disposition of the 
property transferred. 
(b) "HOLDER" DEFINED.—For purposes of this section, the term 
"holder" means— 
(1) any individual whose efforts created such property, or 
(2) any other individual who has acquired his interest in such 
property in exchange for consideration in money or money's worth 
paid to such creator prior to actual reduction to practice of the 
invention covered by the patent, if such individual is neither— 
(A) the employer of such creator, nor 
i 
(B) related to such creator (within the meaning of subsection 
(d)). 
§ 1235(b)(2)(B) 
49012°—54 
24 
330 
INTERNAL REVENUE CODE OF 1954 
(c) EFFECTIVE DATE.—This section shall be applicable with regard 
to any amounts received, or payments made, pursuant to a transfer 
described in subsection (a) in any taxable year to which this subtitle 
applies, regardless of the taxable year in which such transfer occurred. 
(d) RELATED PERSONS.—Subsection (a) shall not apply to any sale 
or exchange between an individual and any other related person (as 
defined in section 267 (b)), except brothers and sisters, whether by 
the whole or half blood. 
(e) CROSS REFERENCE.— 
For special rule relating to nonresident aliens, see section 871 (a). 
SEC. 1236. DEALERS IN SECURITIES. 
(a) CAPITAL GAINS.—Gain by a dealer in securities from the sale 
or exchange of any security shall in no event be considered as gain 
from the sale or exchange of a capital asset unless— 
(1) the security was, before the expiration of the 30th day after 
the date of its acquisition, clearly identified in the dealer's records 
as a security held for investment or if acquired before October 20, 
1951, was so identified before INovember 20, 1951; and 
(2) the security was not, at any time after the expiration of 
such 30th day, held by such dealer primarily for sale to customers in 
the ordinary course of his trade or business. 
(b) ORDINARY LOSSES.—Loss by a dealer in securities from the sale 
or exchange of any security shall, except as otherwise provided in 
section 582 (c), (relating to bond, etc., losses of banks), in no event be 
considered as loss from the sale or exchange of property which is 
not a capital asset if at any time after November 19, 1951, the security 
was clearly identified in the dealer's records as a security held for 
investment. 
(c) DEFINITION OF SECURITY.—For purposes of this section, the 
term "security" means any share of stock in any corporation, certifi-
cate of stock or interest in any corporation, note, bond, debenture, 
or evidence of indebtedness, or any evidence of an interest in or right 
to subscribe to or purchase any of the foregoing. 
SEC. 1237. REAL PROPERTY SUBDIVIDED FOR SALE. 
(a) GENERAL.—Any lot or parcel which is part of a tract of real 
property in the hands of a taxpayer other than a corporation shall not 
be deemed to be held primarily for sale to customers in the ordinary 
course of trade or business at the time of sale solely because of the 
taxpayer having subdivided such tract for purposes of sale or because 
of any activity incident to such subdivision or sale, if— 
(1) such tract, or any lot or parcel thereof, had not previously 
been held by such taxpayer primarily for sale to customers in the 
ordinary course of trade or business (unless such tract at such 
previous time would have been covered by this section) or, in the 
same taxable year in which the sale occurs, such taxpayer does not 
so hold any other real property; and 
(2) no substantial improvement that substantially enhances the 
value of the lot or parcel sold is made by the taxpayer on such tract 
while held by the taxpayer or is made pursuant to a contract of 
sale entered into between the taxpayer and the buyer. 
For pur-
poses of this paragraph, an improvement shall be deemed to be 
made by the taxpayer if such improvement was made by— 
§ 1235(C) 
1,2 
^.g—^l:t.o(U. 
CH. 1 
NORMAL TAXES AND SURTAXES 
331 
- ^' 
(A) the taxpayer or members of his family (as defined in sec-
tion 267 (c) (4)), by a corporation controlled by the taxpayer, or 
by a partnership which included the taxpayer as a partner; or 
(B) a lessee, but only if the improvement constitutes income to 
the taxpayer; or 
(C) Federal, State, or local government, or political subdivi-
sion thereof, but only if the improvement constitutes an addition 
, 
to basis for the taxpayer; and 
(3) such lot or parcel, except in the case of real property acquired 
. by inheritance or devise, is held by the taxpayer for a period of 5 
years. 
. 
(b) SPECIAL RULES FOE APPLICATION OF SECTION.—• 
(1) GAINS.—If more than 5 lots or parcels contained in the 
same tract of real property are sold or exchanged, gain from any 
sale or exchange (which occurs in or after the taxable year in which 
the sixth lot or parcel is sold or exchanged) of any lot or parcel which 
comes within the provisions of paragraphs (1), (2) and (3) of sub-
section (a) of this section shall be deemed to be gain from the sale 
" of property held primarily for sale to customers in the ordinary 
course of the trade or business to the extent of 5 percent of the selling 
price. 
(2) EXPENDITURES OF SALE.—For the purpose of computing 
* gain under paragraph (1) of this subsection, expenditures incurred 
*
" in connection with the sale or exchange of any lot or parcel shall 
neither be allowed as a deduction in computing taxable income, 
nor treated as reducing the amount realized on such sale or exchange; 
but so much of such expenditures as does not exceed the portion of 
gain deemed under paragraph (1) of this subsection to be gain 
^ from the sale of property held primarily for sale to customers in 
' the ordinary course of trade or business shall be so allowed as a 
" deduction, and the remainder, if any, shall be treated as reducing 
the amount realized on such sale or exchange. 
' 
(3) NECESSARY 
IMPROVEMENTS.—No improvement 
shall be 
deemed a substantial improvement for purposes of subsection (a) 
if the lot or parcel is held by the taxpayer for a period of 10 years 
and if— 
• 
(A) such improvement is the building or installation of water 
;
^ 
or sewer facilities or roads (if such improvement would except 
; 
for this paragraph constitute a substantial improvement); 
'• 
(B) it is shown to the satisfaction of the Secretary or his dele-
gate that the lot or parcel, the value of which was substantially 
'' 
enhanced by such improvement, would not have been marketable 
at the prevailing local price for similar building sites without 
, 
such improvement; and 
(C) the taxpayer elects, in accordance with regulations pre-
scribed by the Secretary or his delegate, to make no adjustment 
^ 
to basis of the lot or parcel, or of any other property owned by 
the taxpayer, on account of the expenditures for such improve-
ments. 
Such election shall not make any item deductible which 
^ 
would not otherwise be deductible. 
(c) TRACT DEFINED.—For purposes of this section, the term "tract 
of real property" means a single piece of real property, except that 2 
or more pieces of real property shall be considered a tract if at any 
§ 1237(e) 
332 
INTERNAL REVENUE CODE OF 1954 
' 
time they were contiguous in the hands of the taxpayer or if they 
would be contiguous except for the interposition of a road, street, 
raihoad, stream, or similar property. 
If, following the sale or ex-
change of any lot or parcel from a tract of real property, no further 
sales or exchanges of any other lots or parcels from the remainder of 
such tract are made for a period of 5 years, such remainder shall be 
deemed a tract. 
(d) EFFECTIVE DATE.—This section shall apply only with respect to 
sales of property occurring after December 31, 1953, except that, for 
purposes of subsection (c) (defining tract of real property) and for 
determining the number of sales under paragraph (1) of subsection (b), 
all sales of lots and parcels from any tract of real property during the 
period of 5 years before December 31,1953, shall be taken into account, 
except as provided in subsection (c). 
SEC. 1238. AMORTIZATION IN EXCESS OF DEPRECIATION. 
Gain from the sale or exchange of property, to the extent that the 
adjusted basis of such property is less than its adjusted basis deter-
mined without regard to section 168 (relating to amortization deduc-
tion of emergency facilities), shall be considered as gain from the sale 
or exchange of property which is neither a capital asset nor property 
described in section 1231. 
SEC. 1239. GAIN 
FROM 
SALE 
OF CERTAIN 
PROPERTY 
BETWEEN 
SPOUSES OR BETWEEN AN INDIVIDUAL AND A CON-
TROLLED 
CORPORATION. 
(a) TEEATMENT OF GAIN AS ORDINARY INCOME.—In the case of a 
sale or exchange, directly or indirectly, of property described in sub-
section (b)— 
(1) between a husband and wife; or 
(2) between an individual and a corporation more than 80 percent 
in value of the outstanding stock of which is owned by such indi-
vidual, his spouse, and his minor children and minor grandchildren; 
any gain recognized to the transferor from the sale or exchange of such 
property shall be considered as gain from the sale or exchange of prop-
erty which is neither a capital asset nor property described in section 
1231. 
(b) SECTION APPLICABLE ONLY TO SALES OR EXCHANGES OF DEPRE-
CIABLE PROPERTY.—This section shall apply only in the case of a sale 
or exchange by a transferor of property which in the hands of the 
transferee is property of a character which is subject to the allowance 
for depreciation provided in section 167. 
SEC. 1240. TAXABILITY TO EMPLOYEE OF TERMINATION PAYMENTS. 
Amounts received from the assignment or release by an employee, 
after more than 20 years' employment, of all his rights to receive, 
after termination of his employment and for a period of not less than 
5 years (or for a period ending with his death), a percentage of future 
profits or receipts of his employer shall be considered an amount 
received from the sale or exchange of a capital asset held for more 
than 6 months if— 
(1) such rights were included in the terms of the employment of 
such employee for not less than 12 years, 
(2) such rights were included in the terms of the employment of 
such employee before the date of enactment of this title, and 
§ 1237(c) 
CH. 1—NORMAL TAXES AND SURTAXES 
333 
(3) the total of the amounts received for such assignment or 
release is received in one taxable year and after the termination of 
such employment. 
SEC. 1241. CANCELLATION OF LEASE OR DISTRIBUTOR'S AGREEMENT. 
Amounts received by a lessee for the cancellation of a lease, or by a 
distributor of goods for the cancellation of a distributor's agreement 
(if the distributor has a substantial capital investment in the dis-
tributorship), shall be considered as amounts received in exchange 
for such lease or agreement. 
§1241 
334 
INTERNAL REVENUE CODE OF 1954 
Subchapter Q—Readjustment of Tax Between Years and 
Special Limitations 
Part 
I. Income attributable to several taxable years. 
Part II. Mitigation of effect of limitations and other provisions. 
Part III. Involuntary liquidation and replacement of LIFO inven-
tories. 
Part IV. War loss recoveries. 
Part 
V. Claim of right. 
Part VI. Other limitations. 
PART I—INCOME ATTRIBUTABLE TO SEVERAL TAXABLE 
YEARS 
Sec. 1301. Compensation from an employment. 
Sec. 1302. Income from an invention or artistic work. 
Sec. 1303. Income from back pay. 
Sec. 1304. Rules applicable to this part 
SEC. 1301. COMPENSATION FROM AN EMPLOYMENT. 
(a) LIMITATION ON TAX.—If an individual or partnership— 
(1) engages in an employment as defined in subsection (b); and 
(2) the employment covers a period of 36 months or more (from 
the beginning to the completion of such employment); and 
(3) the gross compensation from the employment received or 
accrued in the taxable year of the individual or partnership is not 
less than 80 percent of the total compensation from such employ-
ment, 
then the tax attributable to any part of the compensation which is 
included in the gross income of any individual shall not be greater 
than the aggregate of the taxes attributable to such part had it been 
included in the gross income of such individual ratably over that part 
of the period which precedes the date of such receipt or accrual. 
(b) DEFINITION or AN EMPLOYMENT.—For purposes of this section, 
the term "an employment" means an arrangement or series of arrange-
ments for the performance of personal services by an individual or 
partnership to effect a particular result, regardless of the number of 
sources from which compensation therefor is obtained. 
(c) RULE WITH RESPECT TO PARTNERS.—An individual who is a 
member of a partnership receiving or accruing compensation from an 
employment of the type described in subsection (a) shall be entitled 
to the benefits of that subsection only if the individual has been a 
member of the partnership continuously for a period of 36 months or 
the period of the employment immediately preceding the receipt or 
accrual. 
In such a case the tax attributable to the part of the com-
pensation which is includible in the gross income of the individual 
shall not be greater than the aggregate of the taxes which would have 
been attributable to that part had it been included in the gross income 
of the individual ratably over the period in which it was earned or 
the period during which the individual continuously was a member 
of the partnership, whichever period is the shorter. 
For purposes of 
§ 1301 
CH. 1 
NORMAL TAXES AND SURTAXES 
335 
this subsection, a member of a partnership shall be deemed to have 
been a member of the partnership for any period, ending immediately 
prior to becoming such a member, in which he was an employee of 
such partnership, if during the taxable year he received or accrued 
compensation attributable to employment by the partnership during 
such period. 
SEC. 1302. INCOME FROM AN INVENTION OR ARTISTIC WORK. 
(a) LIMITATION ON TAX.—If— 
(1) an individual includes in gross income amounts in respect of a 
particular invention or artistic work created by the individual; and 
(2) the work on the invention or the artistic work covered a 
period of 24 months or more (from the beginning to the completion 
thereof); and 
(3) the amounts in respect of the invention or the artistic work 
includible in gross income for the taxable year are not less than 80 
percent of the gross income in respect of such invention or artistic 
work in the taxable year plus the gross income therefrom in pre-
vious taxable years and the 12 months immediately succeeding the 
close of the taxable year, 
then the tax attributable to the part of such gross income of the 
taxable year which is not taxable as a gain from the sale or exchange 
of a capital asset held for more than 6 months shall not be greater 
than the aggregate of the taxes attributable to such part had it been 
received ratably over, in the case of an invention, that part of the 
period preceding the close of the taxable year or 60 months, whichever 
is shorter, or, in the case of an artistic work, that part of the period 
preceding the close of the taxable year but not more than 36 months. 
(b) DEFINITIONS.—For purposes of this section— 
(1) INVENTION.—The term "invention" means a patent covering 
an invention of the individual. 
(2) ARTISTIC WORK.—The term "artistic work" means a literary, 
musical, or artistic composition or a copyright covering a literary, 
musical, or artistic composition. 
SEC. 1303. INCOME FROM BACK PAY. 
(a) LIMITATION ON TAX.—If the amount of the back pay received 
or accrued by an individual during the taxable year exceeds 15 per-
cent of the gross income of the individual for such year, the part of the 
tax attributable to the inclusion of such back pay in gross income for 
the taxable year shall not be greater than the aggregate of the increases 
in the taxes which would have resulted from the inclusion of the re-
spective portions of such back pay in gross income for the taxable years 
to which such portions are respectively attributable, as determined 
under regulations prescribed by the Secretary or his delegate. 
(b) DEFINITION OF BACK PAY.—For purposes of this section, the 
term "back pay" means amounts includible in gross income under this 
subtitle which are one of the following— 
(1) Remuneration, including wages, salaries, retirement pay, and 
other similar compensation, which is received or accrued during the 
taxable year by an employee for services performed before the 
taxable year for his employer and which would have been paid 
before the taxable year except for the intervention of one of the 
following events: 
§ 1303(b)(1) 
336 
INTERNAL REVENUE CODE OF 195 4 
(A) bankruptcy or receivership of the employer; 
(B) dispute as to the habihty of the employer to pay such 
remuneration, which is determined after the commencement of 
court proceedings; 
(C) if the employer is the United States, a State, a Territory, 
or any political subdivision thereof, or the District of Columbia, 
or any agency or instrumentality of any of the foregoing, lack of 
funds appropriated to pay such remuneration; or 
(D) any other event determined to be similar in nature under 
regulations prescribed by the Secretary or his delegate. 
(2) Wages or salaries which are received or accrued during the 
taxable year by an employee for services performed before the 
taxable year for his employer and which constitute retroactive 
wage or salary increases ordered, recommended, or approved by any 
Federal or State agency, and made retroactive to any period before 
the taxable year. 
(3) Payments which are received or accrued during the taxable 
year as the result of an alleged violation by an employer of any State 
or Federal law relating to labor standards or practices, and which 
are determined under regulations prescribed by the Secretary or his 
delegate to be attributable to a prior taxable year. 
SEC. 1304. RULES APPLICABLE TO THIS PART. 
(a) FRACTIONAL PARTS OF A MONTH.—For purposes of this part, a 
fractional part of a month shall be disregarded unless it amounts to 
more than half a month, in which case it should be considered as a 
month. 
(b) TAX ON SELF-EMPLOYMENT INCOME.—This part shall be applied 
without regard to, and shall not affect, the tax imposed by chapter 2 
relating to self-employment income. 
(c) COMPUTATION OP TAX ATTRIBUTABLE TO INCOME ALLOCATED 
TO PRIOR PERIOD.—For the purpose of computing the tax attributable 
to the amount of an item of gross income allocable under this part 
to a particular taxable year, such amount shall be considered income 
only of the person who would be required to include the item of gross 
income in a separate return filed for the taxable year in which such 
item was received or accrued. 
(d) EFFECTIVE DATE OF CERTAIN SUBSECTIONS.—Subsection (c) of 
section 1301 and subsection (c) of this section shall apply only to 
amounts received or accrued after March 1, 1954. 
Notwithstanding 
any other provision of this title, section 107 of the Internal Revenue 
Code of 1939 shall apply to amounts received or accrued as a partner 
on or before March 1, 1954, under this section and to the computation 
of tax on amounts received or accrued on or before March 1, 1954. 
§ 1303(b)(1)(A) 
CH. 1—NORMAL TAXES AND SURTAXES 
337 
PART II—MITIGATION OF EFFECT OF LIMITATIONS AND 
OTHER PROVISIONS 
Sec. 1311. Correction of error. 
Sec. 1312. Circumstances of adjustment. 
Sec. 1313. Definitions. 
Sec. 1314. Amount and method of adjustment. 
Sec. 1315. Effective date. 
SEC. 1311. CORRECTION OF ERROR. 
(a) GENERAL RULE.—If a determination (as defined in section 
1313) is described in one or more of the paragraphs of section 1312 
and, on the date of the determination, correction of the effect of the 
error referred to in the appHcable paragraph of section 1312 is pre-
vented by the operation of any law or rule of law, other than this part 
and other than section 7122 (relating to compromises), then the effect 
of the error shall be corrected by an adjustment made in the amount 
and in the manner specified in section 1314. 
(b) CONDITIONS NECESSARY FOR ADJUSTMENT.— 
(1) MAINTENANCE OF AN INCONSISTENT POSITION.—Except 
in 
cases described in paragraphs (3) (B) and (4) of section 1312, an 
adjustment shall be made under this part only if— 
(A) in case the amount of the adjustment would be credited 
or refunded in the same manner as an overpayment under section 
1314, there is adopted in the determination a position maintained 
by the Secretary or his delegate, or 
(B) in case the amount of the adjustment would be assessed 
and collected in the same manner as a deficiency under section 
1314, there is adopted in the determination a position maintained 
by the taxpayer with respect to whom the determination is made, 
and the position maintained by the Secretary or his delegate in the 
case described in subparagraph (A) or maintained by the taxpayer 
in the case described in subparagraph (B) is inconsistent with the 
erroneous inclusion, exclusion, omission, allowance, disallowance, 
recognition, or nonrecognition, as the case may be. 
(2) CORRECTION NOT BARRED AT TIME OF ERRONEOUS ACTION.— 
(A) DETERMINATION DESCRIBED IN SECTION 1312 
(3) 
(B).— 
In the case of a determination described in section 1312 (3) (B) 
(relating to certain exclusions from income), adjustment shall be 
made under this part only if assessment of a deficiency for the 
taxable year in which the item is includible or against the related 
taxpayer was not barred, by any law or rule of law, at the time 
the Secretary or his delegate first maintained, in a notice of 
• 
deficiency "fent pursuant to section 6212 or before the Tax 
Court of the United States, that the item described in section 
1312 (3) (B) should be included in the gross income of the tax-
payer for the taxable year to which the determination relates. 
(B) DETERMINATION DESCRIBED IN SECTION 1312 (4).—In the 
case of a determination described in section 1312 (4) (relating 
to disallowance of certain deductions and credits), adjustment 
shall be made under this part only if credit or refund of the over-
payment attributable to the deduction or credit described in such 
section which should have been allowed to the taxpayer or related 
taxpayer was not barred, by any law or rule of law, at the time the 
taxpayer first maintained before the Secretary or his delegate or 
§ 1311(b)(2)(B) 
338 
INTERNAL REVENUE CODE OF 1954 
before the Tax Court of the United States, in writing, that he 
was entitled to such deduction or credit for the taxable year to 
which the determination relates. 
(3) EXISTENCE OF RELATIONSHIP.—In case the amount of the 
adjustment would be assessed and collected in the same manner as 
a deficiency (except for cases described in section 1312 (3) (B)), 
the adjustment shall not be made with respect to a related tax-
payer unless he stands in such relationship to the taxpayer at the 
time the latter first maintains the inconsistent position in a return, 
claim for refund, or petition (or amended petition) to the Tax 
Court of the United States for the taxable year with respect to 
which the determination is made, or if such position is not so 
maintained, then at the time of the determination. 
SEC. 1312. CIRCUMSTANCES OF ADJUSTMENT. 
The circumstances under which the adjustment provided in section 
1311 is authorized are as follows: 
(1) 
DOUBLE INCLUSION OF AN ITEM OF GROSS INCOME.—The 
determination requires the inclusion in gross income of an item 
which was erroneously included in the gross income of the taxpayer 
for another taxable year or in the gross income of a related taxpayer. 
(2) 
DOUBLE ALLOWANCE OF A DEDUCTION OR CREDIT,—The 
determination allows a deduction or credit which was erroneously 
allowed to the taxpayer for another taxable year or to a related 
taxpayer. 
(3) 
DOUBLE EXCLUSION OF AN ITEM OF GROSS INCOME.— 
(A) ITEMS INCLUDED IN INCOME.—The determination requires 
the exclusion from gross income of an item included in a return 
filed by the taxpayer or with respect to which tax was paid and 
which was erroneously excluded or omitted from the gross income 
of the taxpayer for another taxable year, or from the gross 
income of a related taxpayer; or 
(B) ITEMS NOT INCLUDED IN INCOME.—The determination re-
quires the exclusion from gross income of an item not included in 
a return filed by the taxpayer and with respect to which the tax 
was not paid but which is includible in the gross income of the 
taxpayer for another taxable year or in the gross income of a 
related taxpayer. 
(4) DOUBLE DISALLOWANCE OF A DEDUCTION OR CREDIT.—The 
determination disallows a deduction or credit which should have 
been allowed to, but was not allowed to, the taxpayer for another 
taxable year, or to a related taxpayer. 
(5) CORRELATIVE DEDUCTIONS AND INCLUSION* FOR TRUSTS OR 
ESTATES AND LEGATEES, BENEFICIARIES, OR HEIRS.—The determi-
nation allows or disallows any of the additional deductions allow-
able in computing the taxable income of estates or trusts, or re-
quires or denies any of the inclusions in the computation of taxable 
income of beneficiaries, heirs, or legatees, specified in subparts A 
to E, inclusive (sees. 641 and following, relating to estates, trusts, 
and beneficiaries) of part I of subchapter J of this chapter, or cor-
responding provisions of prior internal revenue laws, and the cor-
relative inclusion or deduction, as the case may be, has been 
erroneously excluded, omitted, or included, or disallowed, omitted, 
or allowed, as the case may be, in respect of the related taxpayer. 
§1311(b)(2)(B) 
CH. 1—NORMAL TAXES AND SURTAXES 
339 
(6) BASIS OF PROPERTY AFTER ERRONEOUS TREATMENT OF A 
PRIOR TRANSACTION. 
(A) GENERAL RULE.—The determination determines the basis 
of property, and in respect of any transaction on which such 
basis depends, or in respect of any transaction which was errone-
ously treated as affecting such basis, there occurred, with respect 
to a taxpayer described in subparagraph (B) of this paragraph, any 
of the errors described in subparagraph (C) of this paragraph, 
(B) 
TAXPAYERS WITH RESPECT TO WHOM THE ERRONEOUS 
TREATMENT OCCURRED.—The taxpayer with respect to whom the 
erroneous treatment occurred must be— 
(i) the taxpayer with respect to whom the determination is 
made, 
(ii) a taxpayer who acquired title to the property in the 
transaction and from whom, mediately or immediately, the 
taxpayer with respect to whom the determination is made 
derived title, or 
(iii) a taxpayer who had title to the property at the time of 
the transaction and from whom, mediately or immediately, 
the taxpayer with respect to whom the determination is made 
iii l
> 
derived title, if the basis of the property in the hands of the 
taxpayer with respect to whom the determination is made is 
determined under section 1015 (a) (relating to the basis of 
property acquired by gift). 
(C) PRIOR ERRONEOUS TREATMENT.—With respect to a tax-
payer described in subparagraph (B) of this paragraph— 
I 
(i) there was an erroneous inclusion in, or omission from, 
gross income, 
(ii) there was an erroneous recognition, or nonrecognition, 
^:.- 
of gain or loss, or 
(iii) there was an erroneous deduction of an item properly 
chargeable to capital account or an erroneous charge to capital 
account of an item properly deductible. 
SEC. 1313. DEFINITIONS. 
(a) DETERMINATION.—For purposes of this part, the term "deter-
mination" means— 
(1) a decision by the Tax Court or a judgment, decree, or other 
order by any court of competent jurisdiction, which has become 
final; 
(2) a closing agreement made under section 7121; 
(3) a final disposition by the Secretary or his delegate of a 
claim for refund. 
For purposes of this part, a claim for refund 
shall be deemed finally disposed of by the Secretary or his delegate— 
(A) as to items with respect to which the claim was allowed, 
on the date of allowance of refund or credit or on the date of 
mailing notice of disallowance (by reason of offsetting items) 
of the claim for refund, and 
(B) as to items with respect to which the claim was dis-
allowed, in whole or in part, or as to items applied by the Secre-
tary or his delegate in reduction of the refund or credit, on 
expiration of the time for instituting suit with respect thereto 
(unless suit is instituted before the expiration of such time); or 
§ 1313(a)(3)(B) 
340 
INTERNAL REVENUE CODE OF 1954 
; 
(4) under regulations prescribed by the Secretary or his delegate, 
an agreement for purposes of this part, signed by the Secretary or 
his delegate and by any person, relating to the liability of such 
person (or the person for whom he acts) in respect of a tax under 
this subtitle for any taxable period. 
(b) TAXPAYER.—Notwithstanding section 7701 (a) (14), the term 
"taxpayer" means any person subject to a tax under the applicable 
revenue law. 
(c) RELATED TAXPAYER.—For purposes of this part, the term 
"related taxpayer" means a taxpayer who, with the taxpayer with 
respect to whom a determination is made, stood, in the taxable year 
with respect to which the erroneous inclusion, exclusion, omission, 
allowance, or disallowance was made, in one of the following relation-
ships: 
(1) husband and wife, 
(2) grantor and fiduciary, 
•; 
; 
(3) grantor and beneficiary, 
. 
(4) fiduciary and beneficiary, legatee, or heir, 
(5) decedent and decedent's estate, 
(6) partner, or 
(7) member of an affiliated group of corporations (as defined in 
section 1504). 
SEC. 1314. AMOUNT AND METHOD OF ADJUSTMENT. 
(a) ASCERTAINMENT OF AMOUNT OF ADJUSTMENT.—In computing 
the amount of an adjustment under this part there shall first be as-
certained the tax previously determined for the taxable year with 
respect to which the error was made. 
The amount of the tax pre-
viously determined shall be the excess of— 
(1) the sum of— 
(A) the amount shown as the tax by the taxpayer on his 
return (determined as provided in section 6211 (b) (1) and (3), 
relating to the definition of deficiency), if a return was made by 
the taxpayer and an amount was shown as the tax by the tax-
payer thereon, plus 
(B) the amounts previously assessed (or collected without 
assessment) as a deficiency, over— 
(2) the amount of rebates, as defined in section 6211 (b) (2), made. 
There shall then be ascertained the increase or decrease in tax pre-
viously determined which results solely from the correct treatment of 
the item which was the subject of the error (with due regard given to 
the effect of the item in the computation of gross income, taxable 
income, and other matters under this subtitle). A similar computa-
tion shall be made for any other taxable year affected, or treated as 
aff'ected, by a net operating loss deduction (as defined in section 172) 
or by a capital loss carryover (as defined in section 1212), determined 
with reference to the taxable year with respect to which the error was 
made. 
The amount so ascertained (together with any amounts 
wrongfully collected as additions to the tax or interest, as a result 
of such error) for each taxable year shall be the amount of the adjust-
ment for that taxable year. 
(b) METHOD OF ADJUSTMENT.—The adjustment authorized in sec-
tion 1311 (a) shall be made by assessing and collecting, or refunding or 
crediting, the amount thereof in the same manner as if it were a 
§ 1313(a)(4) 
-
CH. 1—NORMAL TAXES AND SURTAXES 
341 
deficiency determined by the Secretary or his delegate with respect 
to the taxpayer as to whom the error was made or an overpayment 
claimed by such taxpayer, as the case may be, for the taxable year 
or years with respect to which an amount is ascertained under sub-
section (a), and as if on the date of the determination one year re-
mained before the expiration of the periods of limitation upon assess-
ment or filing claim for refund for such taxable year or years. 
If, as a 
result of a determination described in section 1313 (a) (4), an adjust-
ment has been made by the assessment and collection of a deficiency 
or the refund or credit of an overpayment, and subsequently such 
determination is altered or revoked, the amount of the adjustment 
ascertained under subsection (a) of this section shall be redetermined 
on the basis of such alteration or revocation and any overpayment or 
deficiency resulting from such redetermination shall be refunded or 
credited, or assessed and collected, as the case may be, as an adjust-
ment under this part. 
In the case of an adjustment resulting from 
an increase or decrease in a net operating loss which is carried back 
to the year of adjustment, interest shall not be collected or paid for 
any period prior to the close of the taxable year in which the net 
operating loss arises. 
(c) ADJUSTMENT UNAFFECTED BY OTHER ITEMS.—The amount to 
be assessed and collected in the same manner as a deficiency, or to be 
refunded or credited in the same manner as an overpayment, under 
this part, shall not be diminished by any credit or set-off based upon 
any item other than the one which was the subject of the adjustment. 
Other than in the case of an adjustment resulting from a determination 
under section 1313 (a) (4), the amount of the adjustment under this 
part, if paid, shall not be recovered by a claim or suit for refund or 
suit for erroneous refund based upon any item other than the one 
which was the subject of the adjustment. 
(d) PERIODS FOR WHICH ADJUSTMENTS MAY B E MADE.—No adjust-
ment shall be made under this part in respect of any taxable year 
beginning prior to January 1, 1932. 
(e) TAXES IMPOSED BY SUBTITLE C.—This part shall not apply to 
any tax imposed by subtitle C (sec. 3101 and following relating to 
employment taxes). 
SEC. 1315. EFFECTIVE DATE. 
(a) I N GENERAL.—This part shall apply only to determinations (as 
defined in section 1313 (a)) made after the 90th day after the date of 
enactment of this title. 
(b) TRANSITIONAL PROVISION.—Notwithstanding any other pro-
vision of this title, section 3801 of the Internal Revenue Code of 1939 
shall apply to determinations (as defined in subsection (a) of such 
section) made on or before such 90th day as if this title had not been 
enacted. 
§ 1315(b) 
342 
INTERNAL REVENUE CODE OF 
1954 
PART III—INVOLUNTARY LIQUIDATION AND REPLACEMENT 
OF LIFO INVENTORIES 
Sec. 1321. Involuntary liquidation of LIFO inventories. 
SEC. 1321. INVOLUNTARY LIQUIDATION X)F LIFO INVENTORIES. 
(a) ADJUSTMENT OF TAXABLE INCOME AND RESULTING TAX.—If, 
for any taxable year ending after June 30, 1950, and before January 
-1, 1955, the closing inventory of a taxpayer inventorying goods under 
the method provided in section 22 (d) of the Internal Revenue Code 
of 1939 reflects a decrease from the opening inventory of such goods 
for such year, and if the taxpayer elects, at such time and in such 
manner and subject to such regulations as the Secretary or his delegate 
may prescribe, to have this section apply, and if it is established to the 
satisfaction of the Secretary or his delegate, in accordance with such 
regulations, that such decrease is attributable to the involuntary liqui-
dation of such inventory as defined in section 22 (d) (6) (B) of the 
Internal Revenue Code of 1939 (as modified by subsection (b) of this 
section), and if the closing inventory of a subsequent taxable year, 
ending before January 1, 1956, reflects a replacement, in whole or in 
part, of the goods so previously liquidated, then the taxable income of 
the taxpayer otherwise determined for the year of such involuntary 
liquidation shall be increased by an amount equal to the excess, if any, 
of the aggregate cost of such goods reflected in the opening inventory 
of the year of involuntary liquidation over the aggregate replacement 
cost, or decreased by an amount equal to the excess, if any, of the aggre-
gate replacement cost of such goods over the aggregate cost thereof 
reflected in the opening inventory of the year of the involuntary liqui-
dation. 
The taxes imposed by this chapter (and by chapters 1 and 2 
of the Internal Revenue Code of 1939) for the year of such liquidation, 
for preceding taxable years, and for all taxable years intervening be-
tween the year of liquidation and the year of replacement shall be re-
determined, giving effect to such adjustments. 
Any increase in such 
taxes resulting from such adjustments shall be assessed and collected 
as a deficiency but without interest, and any overpayment so resulting 
shall be credited or refunded to the taxpayer without interest. 
(b) DEFINITIONS.—For purposes of this section, the term "in-
voluntary liquidation" shall have the meaning given to it in section 
22 (d) (6) (B) of the Internal Revenue Code of 1939 and, in addition, 
it shall mean a failure, as referred to in that section, on the part of the 
taxpayer due, directly and exclusively, to disruption of normal trade 
relations between countries. 
For purposes of this section, the words 
"enemy" and "war", as used in such section 22 (d) (6) (B), shall be 
interpreted, pursuant to regulations prescribed by the Secretary or 
his delegate, in such a way as to apply to circumstances, occurrences 
and conditions, lacking a state of war, which are similar, by reason of 
a state of national preparedness, to those which would exist under a 
state of war. 
(c) SPECIAL RULES.—Subparagraphs (C) and (E) of section 22 (d) 
(6) of the Internal Revenue Code of 1939, to the extent that they refer 
to any taxpayer subject to subparagraph (A) of such section or to 
the adjustments specified in or resulting from the effect of subpara-
graph (A) of such section, shall apply to a taxpayer subject to this 
section or to adjustments specified in or resulting from the effect of 
§ 1321 ? 
CH. 1—NORMAL TAXES AND SURTAXES 
343 
this section as though they specifically referred to this section. 
If, 
for any taxable year ending after June 30, 1950, and before January 1, 
1953, subparagraph (C) of such section 22 (d) (6) applies with respect 
to involuntary liquidations of goods of the same class subject to both 
subparagraph (A) of such section and to this section, the involun-
tary liquidations of such goods subject to this section shall be 
considered for the purpose of such subparagraph (C) as having 
occurred before the involuntary liquidations of such goods subject to 
subparagraph (A) of such section 22 (d) (6). For the purpose of 
this subsection, and with respect to the taxable years covered by this 
section, the reference in subparagraph (E) of such section 22 (d) (6) 
to section 734 (d) shall be taken as a reference to section 452 (d) of 
the Internal Revenue Code of 1939, and, with respect to any taxable 
year to which any provision of the Internal Revenue Code of 1939 
may not be applicable, references in such subparagraph to such pro-
vision shall, where applicable, be deemed a reference to the corre-
sponding provision of the Internal Revenue Code of 1954. 
PART IV—WAR LOSS RECOVERIES 
Sec. 1331. War loss recoveries. 
Sec. 1332. Inclusion in gross income of war loss recoveries. 
Sec. 1333. Tax adjustment measured by prior benefits. 
Sec. 1334. Restoration of value of investments referable to de-
stroyed or seized property. 
Sec. 1335. Election by taxpayer for application of section 1333. 
Sec. 1336. Basis of recovered property. 
Sec. 1337. Applicable rules. 
SEC. 1331. WAR LOSS RECOVERIES. 
On the recovery in the taxable year of any money or property in 
respect of property considered under section 127 (a) of the Internal 
Revenue Code of 1939, as destroyed or seized, the amount of such 
recovery shall be included in gross income to the extent provided in 
section 1332, unless section 1333 applies to the taxable year pursuant 
to an election made by the taxpayer under section 1335. 
SEC. 1332. INCLUSION IN GROSS INCOME OF WAR LOSS RECOVERIES. 
(a) AMOUNT OF RECOVERY.—The amount of the recovery of any 
money or property in respect of property considered under section 
127 (a) of the Internal Revenue Code of 1939, as destroyed or seized, 
shall be an amount equal to the aggregate of such money and the fair 
market value of such property, determined as of the date of the re-
covery. 
(b) AMOUNT OF GAIN INCLUDIBLE.— 
(1) PORTION EXCLUDED FROM GROSS INCOME.—To the extent 
that the amount of the recovery plus the aggregate of the amounts 
of previous such recoveries do not exceed that part of the aggregate 
of the allowable deductions in prior taxable years on account of 
the destruction or seizure of property described in such section 
127 (a) which did not result in a reduction of any tax of the tax-
payer under chapter 1 or 2 of the Internal Revenue Code of 1939, 
such amount shall not be includible in gross income and shall not 
be deemed gain on the involuntary conversion of property as a 
result of its destruction or seizure. 
§ 1332(b)(1) 
344 
INTERNAL REVENUE CODE OF 
1954 
(2) PORTION TREATED AS ORDINARY INCOME.—To the extent that 
such amount plus the aggregate of the amounts of previous such 
recoveries exceed that part of the aggregate of such deductions, 
which did not result in a reduction of any tax of the taxpayer under 
such chapters and do not exceed that part of the aggregate of such 
deductions which did result in a reduction of any tax of the tax-
payer under such chapters, such amount shall be included in gross 
income but shall not be deemed a gain on the involuntary conver-
sion of property as a result of its destruction or seizure. 
(3) PORTION TREATED AS GAIN ON INVOLUNTARY CONVERSION.— 
To the extent that such amount plus the aggregate of the amounts 
of previous such recoveries exceed the aggregate of the allowable 
deductions in prior taxable years on account of the destruction or 
seizure of property described in such section 127 (a), such amount 
shall be considered a gain on the involuntary conversion of property 
as a result of its destruction or seizure and shall be recognized or 
not recognized as provided in section 1033 (relating to involuntary 
conversions). 
(4) OBLIGATIONS NOT DISCHARGED.—If for any previous taxable 
year the taxpayer chose under section 127 (b) of the Internal Reve-
nue Code of 1939 to treat any obligations and liabilities as dis-
charged or satisfied out of the property or interest described in 
such section 127 (a), and if such obligations and liabilities were 
not so discharged or satisfied, the amount of such obligations and 
liabilities treated as discharged or satisfied under such section 
127 (b) shall be considered for purposes of this part as a deduction 
by reason of such section 127 (a) which did not result in a reduc-
tion of any tax of the taxpayer under such chapters 1 or 2. 
(5) ALLOWABLE DEDUCTION NOT ALLOWED.—For purposes of 
this subsection, an allowable deduction for any taxable year on 
account of the destruction or seizure of property described in such 
section 127 (a) shall, to the extent not allowed in computing the 
tax of the taxpayer for such taxable year, be considered an allowable 
deduction which did not result in a reduction of any tax of the 
taxpayer under such chapters 1 or 2. 
SEC. 1333. TAX ADJUSTMENT MEASURED BY PRIOR BENEFITS. 
If this section applies to the taxable year pursuant to an election 
made by the taxpayer under section 1335 or section 127 (c) (5) of 
the Internal Revenue Code of 1939— 
(1) AMOUNT OF RECOVERY.—The amount of the recovery in the 
taxable year of any money or property in respect of property con-
sidered under section 127 (a) of the Internal Revenue Code of 1939 
as destroyed or seized, shall be an amount equal to the aggregate 
of such money and the fair market value of such property, deter-
mined as of the date of the recovery. For purposes of this section, 
in the case of the recovery of the same property or interest con-
sidered under such section 127 (a) as destroyed or seized, the fair 
market value of such property or interest shall, at the option of the 
taxpayer, be considered an amount equal to the adjusted basis (for 
determining loss) of such property or interest in the hands of the 
taxpayer on the date such property or interest was considered under 
such section 127 (a) as destroyed or seized. The amount of the 
recovery determined under this paragraph shall be reduced for pur-
§ 1332(b)(2) 
\ 
CH. 1—NORMAL TAXES AND SURTAXES 
345 
poses of paragraphs (2) and (3) by the amount of the obligations or 
liabilities with respect to the property considered under such section 
127 (a) as destroyed or seized in respect of which the recovery was 
received, if the taxpayer for any previous taxable year chose under 
section 127 (b) (2) of such code to treat such obligations or liabilities 
as discharged or satisfied out of such property, and such obligations 
or liabilities were not so discharged or satisfied before the date of 
the recovery. 
(2) ADJUSTMENT FOR PRIOR TAX BENEFITS.—That part of the 
amount of the recovery, in respect of any property considered under 
such section 127 (a) as destroyed or seized, which is not in excess 
of the allowable deductions in prior taxable years on account of 
such destruction or seizure of the property (the amount of such 
allowable deductions being first reduced by the aggregate amount 
of any prior recoveries in respect of the same property) shall be 
excluded from gross income for the taxable year of the recovery for 
purposes of computing the tax under this subtitle; but there shall be 
added to, and assessed and collected as a part of, the tax under this 
subtitle for the taxable year of the recovery the total increase in the 
tax under chapters 1 and 2 of the Internal Revenue Code of 1939 
for all taxable years which would result by decreasing, in an amount 
equal to such part of the recovery so excluded, such deductions 
allowable in the prior taxable years with respect to the destruction 
or seizure of the property. 
Such increase in the tax for each 
such year so resulting shall be computed in accordance with regu-
lations prescribed by the Secretary or his delegate. 
Such regula-
tions shall give effect to previous recoveries of any kind (including 
recoveries described in section 111, relating to recovery of bad 
debts, etc.) with respect to any prior year, and shall provide for 
the case where there was no tax for the prior year, but shall other-
wise treat the tax previously determined for any year in accordance 
with the principles set forth in section 1314 (a) (relating to correc-
tions of errors). 
All credits allowable against the tax for any year 
and all carryovers and carrybacks affected by so decreasing the 
allowable deductions shall be taken into account in computing the 
increase in the tax, except that the computation of the excess 
profits credit under chapter 2 E of such code for any taxable year 
shall not be affected. 
(3) GAIN ON RECOVERY.—The amount of any recovery or part 
thereof, in respect of property considered under such section 127 (a) 
as destroyed or seized, which is not excluded from gross income 
under paragraph (2), shall be considered for the taxable year of the 
recovery as gain on the involuntary conversion of property as a 
result of its destruction or seizure and shall be recognized or not 
recognized as provided in section 1033. 
(4) RECOVERIES TREATED AS GROSS INCOME FOR CERTAIN PUR-
POSES.—For purposes of section 6012 (relating to persons required 
to make income tax returns) and section 1312 (relating to circum-
stances of adjustment), the recovery in the taxable year of any 
money or property in respect of property considered under such 
section 127 (a) as destroyed or seized in any prior taxable year 
shall be deemed to be an item includible in gross income for the 
taxable year in which the recovery is made. 
§ 1333(4) 
49012°—54 
25 
346 
INTERNAL REVENUE CODE OF 1954 
SEC. 1334. RESTORATION OF VALUE OF INVESTMENTS REFERABLE 
TO DESTROYED OR SEIZED PROPERTY. 
For purposes of this part, the restoration in whole or in part of 
the value of any interest described in section 127 (a) (3) of the In-
ternal Revenue Code of 1939 by reason of any recovery of money 
or property in respect of property to which such interest related 
and which was considered under subsection (a) (1) or (2) of such 
section 127 as destroyed or seized shall be deemed a recovery of 
property in respect of property considered under such section 127 (a) 
as destroyed or seized. 
In applying section 1333, such restoration 
shall be treated as the recovery of the same interest considered under 
such section 127 (a) as destroyed or seized. 
SEC. 1335. ELECTION BY TAXPAYER FOR APPLICATION OF SECTION 
1333. 
If the taxpayer elects to have section 1333 apply to any taxable 
year in which he recovered any money or property in respect of 
property considered under section 127 (a) of the Internal Revenue 
Code of 1939, as destroyed or seized, section 1333 shall apply to all 
taxable years of the taxpayer beginning after December 31, 1941, 
and such election, once made, shall be irrevocable. 
The election 
shall be made in such manner and at such time as the Secretary or 
his delegate may by regulations prescribe, except that no election 
under this section may be made unless the taxpayer recovers money 
or property (in respect of property considered under such section 
127 (a) as destroyed or seized) during the taxable year for which the 
election is made. 
If pursuant to such election section 1333 applies 
to any taxable year— 
(1) the period of limitations provided in chapter 66 on the 
making of assessments and the beginning of distraint or a proceed-
ing in court for collection shall not, with respect to— 
(A) the amount to be added to the tax for such taxable year 
under section 1333, and 
(B) any deficiency for such taxable year or for any other 
taxable year, to the extent attributable to the basis of the re-
covered property being determined under section 1336 (b), 
expire before the expiration of 2 years following the date of the 
making of such election, and such amount and such deficiency may 
be assessed at any time before the expiration of such period not-
withstanding any law or rule of law which would otherwise prevent 
such assessment and collection, and 
(2) in case refund or credit of any overpayment resulting from 
the application of section 1333 to such taxable year is prevented 
on the date of the making of such election, or within one year from 
such date, by the operation of any law or rule of law (other than 
section 7122, relating to compromises), refund or credit of such 
overpayment may, nevertheless, be made or allowed if claim 
therefor is filed within one year from such date. 
In the case of any taxable year ending before the date of the making 
by the taxpayer of an election under this section, no interest shall 
be paid on any overpayment resulting from the application of section 
1333 to such taxable year, and no interest shall be assessed or col-
lected with respect to any amount or any deficiency specified in 
§ 1334 
CH. 1—NORMAL TAXES AND SURTAXES 
347 
paragraph (1) for any period before the expiration of 6 months 
following the date of the making of such election by the taxpayer. 
SEC. 1336. BASIS OF RECOVERED PROPERTY. 
(a) I N GENERAL.—The unadjusted basis of property recovered in 
respect of property considered as destroyed or seized under section 
127 (a) of the Internal Revenue Code of 1939 shall be determined 
under this section. 
Such basis shall be an amount equal to the fair 
market value of such property, determined as of the date of the 
recovery, reduced by an amount equal to the excess of the aggregate 
of such fair market value and the amounts of previous recoveries 
of money or property in respect of property considered under such 
section 127 (a) as destroyed or seized over the aggregate of the allow-
able deductions in prior taxable years on account of the destruction 
or seizure of property described in such section 127 (a), and increased 
by that portion of the amount of the recovery which under section 
1332 is treated as a recognized gain from the involuntary conversion 
of property. On application of the taxpayer, the aggregate of the 
bases (determined under the preceding sentence) of any properties 
recovered in respect of properties considered under such section 
127 (a) as destroyed or seized may be allocated among the properties 
so recovered in such manner as the Secretary or his delegate may 
determine under regulations prescribed by the Secretary or his dele-
gate, and the amounts so allocated to any such property so recovered 
shall be the unadjusted basis of such property in lieu of the unadjusted 
basis of such property determined under the preceding sentence. 
(b) PROPERTY RECOVERED IN TAXABLE YEAR TO WHICH SECTION 
1333 APPLIES.—In the case of a taxpayer who has made an election 
under section 1335, the basis of property recovered shall be an amount 
equal to the value at which such property is included in the amount 
of the recovery under section 1333 (1) (determined without regard to 
the last sentence thereof), reduced by such part of the gain under 
section 1333 (3) which is not recognized as provided in section 1033. 
SEC. 1337. APPLICABLE RULES. 
(a) DETERMINATION OF TAX BENEFITS.—The determination as to 
whether and to what extent an allowable deduction on account of 
the destruction or seizure of property described in section 127 (a) of 
the Internal Revenue Code of 1939 did or did not result in a reduction 
of any tax of the taxpayer under chapter 1 or 2 of such code shall be 
made in accordance with regulations prescribed by the Secretary or his 
delegate. 
(b) PARTIAL WORTHLESSNESS OF CERTAIN INVESTMENTS TREATED 
AS WAR LOSSES UNDER 1939 CODE.—The part of the stock or other 
interest of the taxpayer treated under subsection (e) of such section 
127 as property described in subsection (a) (3) of such section shall be 
treated in the same manner for purposes of this part. 
§ 1337(b) 
348 
INTERNAL REVENUE CODE OF 1954 
PART V—CLAIM OF RIGHT 
Sec. 1341. Computation of tax where taxpayer restores substantial 
amount held under claim of right. 
SEC. 1341. COMPUTATION OF TAX WHERE TAXPAYER RESTORES SUB-
STANTIAL AMOUNT HELD UNDER CLAIM OF RIGHT. 
(a) GENERAL RULE.—If— 
(1) an item was included in gross income for a prior taxable year 
(or years) because it appeared that the taxpayer had an unrestricted 
right to such item; 
(2) a deduction is allowable for the taxable year because it was 
established after the close of such prior taxable year (or years) that 
the taxpayer did not have an unrestricted right to such item or to 
a portion of such item; and 
(3) the amount of such deduction exceeds $3,000, 
then the tax imposed by this chapter for the taxable year shall be the 
lesser of the following: 
(4) the tax for the taxable year computed with such deduction; or 
(5) an amount equal to— 
(A) the tax for the taxable year computed without such de-
duction, minus 
(B) the decrease in tax under this chapter (or the correspond-
ing provisions of prior revenue laws) for the prior taxable year (or 
years) which would result solely from the exclusion of such item 
(or portion thereof) from gross income for such prior taxable year 
(or years). 
For purposes of paragraph (5) (B), the corresponding provisions of 
the Internal Revenue Code of 1939 shall be chapter 1 of such code 
(other than subchapter E, relating to self-employment income). 
(b) SPECIAL RULES.— 
(1) If the decrease in tax ascertained under subsection (a) (5) (B) 
exceeds the tax imposed by this chapter for the taxable year (com-
puted without the deduction) such excess shall be considered to be 
a payment of tax on the last day prescribed by law for the payment 
of tax for the taxable year, and shall be refunded or credited in the 
same manner as if it were an overpayment for such taxable year. 
(2) Subsection (a) does not apply to any deduction allowable 
with respect to an item which was included in gross income by 
reason of the sale or other disposition of stock in trade of the tax-
payer (or other property of a kind which would properly have been 
included in the inventory of the taxpayer if on hand at the close of 
the prior taxable year) or property held by the taxpayer primarily 
for sale to customers in the ordinary course of his trade or business. 
This paragraph shall not apply if the deduction arises out of refunds 
or repayments made by a regulated public utility (as defined in 
section 1503 (c) without regard to paragraph (2) thereof) if such 
refunds or repayments are required to be made by the government, 
political subdivision, agency, or instrumentality referred to in such 
section. 
§1341 
CH. 1—NORMAL TAXES AND SURTAXES 
349 
PART VI—OTHER LIMITATIONS 
Sec. 1346. Recovery of unconstitutional Federal taxes. 
Sec. 1347. Claims against United States involving acquisition of 
property. 
SEC. 1346. RECOVERY OF UNCONSTITUTIONAL FEDERAL TAXES. 
Income (excluding interest) attributable to the recovery during the 
taxable year of a tax imposed by the United States which has been 
held unconstitutional, and in respect of which a deduction was allowed 
in a prior taxable year, may be excluded from gross income for the 
taxable year, and the deduction allowed in respect thereof in such 
prior taxable year treated as not having been allowable, if— 
(1) the taxpayer elects in writing (at such time and in such 
manner as may be prescribed by regulations prescribed by the 
Secretary or his delegate) to treat such deduction as not having been 
allowable for such prior taxable year, and 
(2) the taxpayer consents in writing to the assessment, within 
such period as may be agreed on, of any deficiency resulting from 
such treatment, even though the statutory period for the assessment 
of any such deficiency had expired before the filing of such consent. 
SEC. 1347. CLAIMS AGAINST UNITED STATES INVOLVING ACQUISI-
TION OF PROPERTY. 
In the case of amounts (other than interest) received by a taxpayer 
from the United States with respect to a claim against the United 
States involving the acquisition of property and remaining unpaid 
for more than 15 years, the tax imposed by section 1 attributable to 
such receipt shall not exceed 30 percent of the amount (other than 
interest) so received. 
1347 
350 
INTERNAL REVENUE CODE OF 1954 
Subchapter R—Election of Certain Partnerships and 
Proprietorships as to Taxable Status 
Sec. 1361. Unincorporated business enterprises electing to be taxed 
as domestic corporations. 
SEC. 1361. UNINCORPORATED BUSINESS ENTERPRISES ELECTING TO 
BE TAXED AS DOMESTIC CORPORATIONS. 
(a) GENERAL RULE.—Subject to the qualifications in subsection (b), 
an election may be made, in accordance with regulations prescribed 
by the Secretary or his delegate, not later than 60 days after the close 
of any taxable year of a proprietorship or partnership owning an 
unincorporated business enterprise, by the proprietor or all the part-
ners, owning an interest in such enterprise at any time on or after the 
first day of the first taxable year to which the election applies or of the 
year described in subsection (f), to be subject to the taxes described 
in subsection (h) as a domestic corporation for such year and sub-
sequent years. 
(b) QUALIFICATIONS.—The election described in subsection (a) may 
not be made with respect to an unincorporated business enterprise 
unless at all times during the period on or after the first day of the 
first taxable year to which the election applies or of the year described 
in subsection (f), as the case may be, and on or before the date of 
election— 
(1) such enterprise is owned by an individual, or by a partnership 
consisting of not more than 50 individual members; 
(2) no proprietor or partner having more than a 10 percent 
interest in profits or capital of such enterprise is a proprietor or a 
partner having more than a 10 percent interest in profits or capital 
of any other unincorporated business enterprise taxable as a domes-
tic corporation; 
(3) no proprietor or partner of such enterprise is a nonresident 
alien or a foreign partnership; and 
(4) such enterprise is one in which capital is a material income 
producing factor, or 50 percent or more of the gross income of such 
enterprise consists of gains, profits, or income derived from trading 
as a principal or from buying and selling real property, stock, 
secm-ities, or commodities for the account of others. 
(c) CORPORATE PROVISIONS APPLICABLE.—Under regulations pre-
scribed by the Secretary or his delegate, an unincorporated business 
enterprise as to which an election has been made under subsection 
(a), shall, except as provided in subsection (m), be considered a 
corporation for purposes of this subtitle, except chapter 2 thereof, 
with respect to operation, distributions, sale of an interest, and any 
other purpose; and each owner of an interest in such enterprise shall 
be considered a shareholder thereof in proportion to his interest. 
(d) LIMITATION.—A partner or proprietor of an unincorporated 
business enterprise as to which an election has been made under 
subsection (a) shall not be considered an employee for purposes of 
section 401 (a) (relating to employees' pension trusts, etc.). 
§ 1361 
CH. 1 
NORMAL TAXES AND SURTAXES 
351 
(e) ELECTION IRREVOCABLE.—Except as provided in subsection (f), 
the election described in subsection (a) shall be irrevocable— 
(1) with respect to an enterprise as to which such election has 
been made and the proprietor or partners of such enterprise; and 
(2) any unincorporated successor to the business of such enter-
prise and the proprietor or partners of such successor. 
(f) CHANGE OF OWNERSHIP.—In any year in which the electing 
proprietor or partners have an interest of 80 percent or less in profits 
and capital of an enterprise described in subsection (e), such enter-
prise shall not be considered a domestic corporation for such year or 
for subsequent years unless the proprietor or partners of such enter-
prise make a new election in accordance with subsection (a). 
(g) CONSTRUCTIVE OWNERSHIP.—For purposes of subsection (f), 
the ownership of an interest shall be determined in accordance with 
the rules for constructive ownership of stock provided in section 267 
(c) other than paragraph (3) thereof. 
(h) IMPOSITION OF TAXES.—The unincorporated business enterprise 
as to which an election has been made under subsection (a) shall be 
subject to— 
,., (1) the normal tax and surtax imposed by section 11, 
(2) the accumulated earnings tax imposed by section 531, and 
(3) the alternative tax for capital gains imposed by section 1201. 
(i) PERSONAL HOLDING COMPANY INCOME.— 
(1) EXCLUDED PROM INCOME OF ENTERPRISE.—There shall not 
be included in the gross income of the enterprise as to which an 
election has been made under subsection (a) any personal holding 
company income (as defined in section 543), except income earned 
by such enterprise from buying and selling real property, stock, 
securities, or commodities for the account of others. 
(2) INCOME AND DEDUCTIONS OF OWNERS.—Any personal hold-
ing company income not included in the gross income of the enter-
prise under paragraph (1), and the expenses attributable thereto, 
shall be treated as the income and deductions of the proprietor or 
partners (in accordance with their distributive shares of partner-
ship income) of such enterprise. 
(3) DISTRIBUTIONS.^—If the amount of personal holding company 
income includible under paragraph (2) in the income of the proprietor 
or partner is distributed to him during the year earned, such amount 
shall not be taxed as a corporate distribution. 
The amount of such 
income not distributed during such year shall be considered as 
paid-in surplus or as a contribution to capital as of the close of 
such year. 
(4) RENTS AND ROYALTIES.'—For the purpose of determining 
whether rents, and mineral, oil, or gas royalties constitute personal 
holding company income under paragraph (1), all income earned 
by the enterprise in any taxable year shall enter into the determina-
tion of its gross income for such year. 
(j) COMPUTATION OF TAXABLE INCOME.—In computing the taxable 
income of an unincorporated business enterprise as to which an 
election has been made under subsection (a)— 
(1) a reasonable deduction shall be allowed for salary or com-
pensation to a proprietor or partner for services actually rendered; 
and 
§1361(j)(l) 
352 
INTERNAL REVENUE CODE OF 
1954 
(2) there shall be allowed as deductions only such items properly 
allocable to the operation of the business of such enterprise, except 
deductions allocable to the proprietor or partners under subsection 
• 
( i ) ( 2 ) . 
(k) DISTRIBUTIONS OTHER 
THAN IN LIQUIDATION.—Except 
as 
provided in subsection (1), a distribution with respect to a proprietor-
ship or partnership interest by an enterprise as to which an election 
has been made under subsection (a), other than a distribution of 
personal holding company income under subsection (i) (3), shall be 
treated as a corporate distribution in accordance with part I of sub-
chapter C of this chapter. 
(1) DISTRIBUTIONS IN LIQUIDATION.—A distribution in partial or 
complete liquidation with respect to a proprietorship or partnership 
interest by an enterprise as to which an election has been made under 
subsection (a), shall be treated as a corporate liquidation in accord-
ance with part II of subchapter C of this chapter. 
(m) ORGANIZATIONS AND REORGANIZATIONS.—An enterprise as to 
which an election has been made under subsection (a) shall not be 
considered a corporation, nor shall the proprietor or partners of such 
enterprise be considered shareholders, for purposes of parts III and 
IV of subchapter C of this chapter (relating to corporate organizations, 
and reorganizations, and insolvency reorganizations) except in the 
case of— 
(1) a contribution of property, constituting either paid-in surplus 
or a contribution to capital, on which gain or loss is recognized; and 
(2) the organization of an enterprise as to which the election 
described in subsection (a) is made for its first taxable year. 
§ 1361(j)(2) 
CH. 2—TAX ON SELF-EMPLOYMENT INCOME 
353 
CHAPTER 2—TAX ON SELF-EMPLOYMENT INCOME 
Sec. 1401. Rate of tax.-
Sec. 1402. Definitions. 
Sec. 1403. Miscellaneous provisions. 
SEC. 1401. RATE OF TAX. 
In addition to other taxes, there shall be imposed for each taxable 
year, on the self-employment income of every individual, a tax as 
follows: 
(1) in the case of any taxable year beginning before January 1, 
1960, the tax shall be equal to 3 percent of the amount of the self-
employment income for such taxable year; 
(2) in the case of any taxable year beginning after December 31, 
1959, and before January 1, 1965, the tax shall be equal to 3% per-
cent of the amount of the self-employment income for such taxable 
year; 
(3) in the case of any taxable year beginning after December 31, 
1964, and before January 1, 1970, the tax shall be equal to 4)^ per-
cent of the amount of the self-employment income for such taxable 
year; 
(4) in the case of any taxable year beginning after December 31, 
1969, the tax shall be equal to 4% percent of the amount of the 
self-employment income for such taxable year. 
SEC. 1402. DEFINITIONS. 
(a) N E T EAENINGS FROM SELF-EMPLOYMENT.—The term 
"net 
earnings from self-employment" means the gross income derived by 
an individual from any trade or business carried on by such indi-
vidual, less the deductions allowed by this subtitle which are attribut-
able to such trade or business, plus his distributive share (whether or 
not distributed) of income or loss described in section 702 (a) (9) from 
any trade or business carried OQ by a partnership of which he is a 
member; except that in computing such gross income and deductions 
and such distributive share of partnership ordinary income or loss— 
(1) there shall be excluded rentals from real estate (including 
personal property leased with the real estate) and deductions 
attributable thereto, unless such rentals are received in the course 
of a trade or business as a real estate dealer; 
(2) there shall be excluded income derived from any trade or 
business in which, if the trade or business were carried on exclusively 
by employees, the major portion of the services would constitute 
agricultural labor as defined in section 3121 (g); and there shall be 
excluded all deductions attributable to such income; 
(3) there shall be excluded dividends on any share of stock, and 
interest on any bond, debenture, note, or certificate, or other 
evidence of indebtedness, issued with interest coupons or in regis-
tered form by any corporation (including one issued by a govern-
ment or political subdivision thereof), unless such dividends and 
§ 1402(a)(3) 
354 
INTERNAL REVENUE CODE OF 
1954 
interest (other than interest described in section 35) are received 
in the course of a trade or business as a dealer in stocks or securities; 
(4) there shall be excluded any gain or loss— 
(A) which is considered as gain or loss from the sale or exchange 
of a capital asset, 
(B) from the cutting of timber, or the disposal of timber or 
coal, if section 631 applies to such gain or loss, or 
(C) from the sale, exchange, involuntary conversion, or other 
disposition of property if such property is neither— 
(i) stock in trade or other property of a kind which would 
properly be includible in inventory if on hand at the close of 
the taxable year, nor 
(ii) property held primarily for sale to customers in the 
ordinary course of the trade or business; 
(5) the deduction for net operating losses provided in section 
172 shall not be allowed; 
(6) i f -
(A) any of the income derived from a trade or business (other 
than a trade or business carried on by a partnership) is com-
munity income under community property laws applicable to 
such income, all of the gross income and deductions attributable 
to such trade or business shall be treated as the gross income and 
deductions of the husband unless the wife exercises substantially 
all of the management and control of such trade or business, in 
which case all of such gross income and deductions shall be 
treated as the gross income and deductions of the wife; and 
(B) any portion of a partner's distributive share of the ordi-
nary income or loss from a trade or business carried on by a 
partnership is community income or loss under the community 
property laws applicable to such share, all of such distributive 
share shall be included in computing the net earnings from 
self-employment of such partner, and no part of such share shall 
be taken into account in computing the net earnings from self-
employment of the spouse of such partner; 
(7) a resident of Puerto Rico shall compute his net earnings from 
self-employment in the same manner as a citizen of the United 
States but without regard to section 933; 
(8) the deduction for personal exemptions provided in section 151 
shall not be allowed. 
If the taxable year of a partner is different from that of the partnership, 
the distributive share which he is required to include in computing his 
net earnings from self-employment shall be based on the ordinary 
income or loss of the partnership for any taxable year of the partner-
ship ending within or with his taxable year. 
(b) SELF-EMPLOYMENT INCOME.—The term "self-employment in-
come" means the net earnings from self-employment derived by an 
individual (other than a nonresident alien individual) during any 
taxable year; except that such term shall not include— 
(1) that part of the net earnings from self-employment which 
is in excess of— 
(A) $3,600, minus 
(B) the amount of the wages paid to such individual during the 
taxable year; or 
§ 1402(a)(3) 
CH. 2—TAX ON SELF-EMPLOYMENT 
INCOME 
355 
(2) the net earnings from self-employment, if such net earnings 
for the taxable year are less than $400. 
For purposes of clause (1), the term "wa^es" includes such remu-
neration paid to an employee for services included under an agree-
ment entered into pursuant to the provisions of section 218 of the 
Social Security Act (relating to coverage of State employees) as would 
be wages under section 3121 (a) if such services constituted employ-
ment under section 3121 (b). An individual who is not a citizen of the 
United States but who is a resident of the Virgin Islands or a resident 
of Puerto Rico shall not, for purposes of this chapter be considered to 
be a nonresident alien individual. 
(c) TRADE OR BUSINESS.—The term "trade or business", when used 
with reference to self-employment income or net earnings from self-
employment, shall have the same meaning as when used in section 
162 (relating to trade or business expenses), except that such term 
shall not include— 
(1) the performance of the functions of a public office; 
(2) the performance of service by an individual as an employee 
(other than service described in section 3121 (b) (16) (B) performed 
by an individual who has attained the age of 18); 
(3) the performance of service by an individual as an employee 
or employee representative as defined in section 3231; 
(4) the performance of service by a duly ordained, commissioned, 
or licensed minister of a church in the exercise of his ministry or 
by a member of a religious order in the exercise of duties required 
by such order; or 
(5) the performance of service by an individual in the exercise 
of his profession as a physician, lawyer, dentist, osteopath, veter-
inarian, chiropractor, naturopath, optometrist, Christian Science 
practitioner, architect, certified public accountant, accountant reg-
istered or licensed as an accountant under State or municipal law, 
full-time practicing public accountant, funeral director, or profes-
sional engineer; or the performance of such service by a partnership. 
(d) EMPLOYEE AND WAGES.—The term "employee" and the term 
"wages" shall have the same meaning as when used in chapter 21 
(sec. 3101 and following, relating to Federal Insurance Contributions 
Act). 
SEC. 1403. MISCELLANEOUS 
PROVISIONS. 
(a) TITLE OF CHAPTER.—This chapter may be cited as the "Self-
Employment Contributions Act of 1954". 
(b) CROSS REFERENCES.— 
(1) For provisions relating to returns, see section 6017. 
(2) For provisions relating to collection of taxes in Virgin Islands and 
Puerto Rico, see section 7651. 
§ 1403(b) 
CH. 3—WITHHOLDING OF TAX 
357 
CHAPTER 3—WITHHOLDING OF TAX ON NONRESI-
DENT ALIENS AND FOREIGN CORPORATIONS AND 
TAX-FREE COVENANT BONDS 
SUBCHAPTER A. Nonresident aliens and foreign corporations. 
SUBCHAPTER B . Tax-free covenant bonds. 
SUBCHAPTER C. Application of withholding provisions. 
Subchapter A—Nonresident Aliens and Foreign Corporations 
Sec. 1441. Withholding of tax on nonresident aliens. 
Sec. 1442. Withholding of tax on foreign corporations. 
Sec. 1443. Foreign tax-exempt organizations. 
SEC. 1441. WITHHOLDING OF TAX ON NONRESIDENT ALIENS. 
(a) GENERAL RULE.—Except as otherwise provided in subsection 
(c), all persons, in whatever capacity acting (including lessees or 
mortgagors of real or personal property, fiduciaries, employers, and 
all officers and employees of the United States) having the control, 
receipt, custody, disposal, or payment of any of the items of income 
specified in subsection (b) (to the extent that any of such items con-
stitutes gross income from sources within the United States), of any 
nonresident alien individual, or of any partnership not engaged in 
trade or business within the United States and composed in whole or 
in part of nonresident aliens, shall (except in the cases provided for 
in section 1451 and except as otherwise provided in regulations pre-
scribed by the Secretary or his delegate under section 874) deduct 
and withhold from such items a tax equal to 30 percent thereof. 
(b) INCOME ITEMS.—The items of income referred to in subsection 
(a) are interest (except interest on deposits with persons carrying on 
the banking business paid to persons not engaged in business in the 
United States), dividends, rent, salaries, wages, premiums, annuities, 
compensations, remunerations, emoluments, or other fixed or deter-
minable annual or periodical gains, profits, and income, and amounts 
described in section 402 (a) (2), section 631 (b) and (c), and section 
1235, which are considered to be gains from the sale or exchange of 
capital assets. 
(c) 
EXCEPTIONS.— 
(1) DIVIDENDS OF FOREIGN CORPORATIONS.—No deduction or 
withholding under subsection (a) shall be required in the case of 
dividends paid by a foreign corporation unless (A) such corpora-
tion is engaged in trade or business within the United States, and 
(B) more than 85 percent of the gross income of such corporation for 
the 3-year period ending with the close of its taxable year pre-
ceding the declaration of such dividends (or for such part of such 
period as the corporation has been in existence) was derived from 
sources within the United States as determined under part I of 
subchapter N of chapter 1. 
§ 1441(c)(1) 
358 
INTERNAL REVENUE CODE OF 1954 
(2) OWNER 
UNKNOWN.—The Secretary or his delegate may 
authorize the tax under subsection (a) to be deducted and withheld 
from the interest upon any securities the owners of which are not 
known to the withholding agent. 
(3) BONDS WITH EXTENDED MATURITY DATES.—The deduction 
and withholding in the case of interest on bonds, mortgages, or 
deeds of trust or other similar obligations of a corporation, within 
subsections (a), (b), and (c) of section 1451 were it not for the fact 
that the maturity date of such obligations has been extended on or 
after January 1, 1934, and the liability assumed by the debtor 
exceeds 27}^ percent of the interest, shall not exceed the rate of 27K 
percent per annum. 
(4) COMPENSATION OF CERTAIN ALIENS.—Under regulations pre-
scribed by the Secretary or his delegate, there may be exempted 
from deduction and withholding under subsection (a) the compen-
sation for personal services of nonresident alien individuals who 
enter and leave the United States at frequent intervals. 
(5) SPECIAL ITEMS.—In the case of amounts described in section 
402 (a) (2), section 631 (b) and (c), and section 1235, which are 
considered to be gains from the sale or exchange of capital assets, 
the amount required to be deducted and withheld shall, if the 
amount of such gain is not known to the withholding agent, be 
such amount, not exceeding 30 percent of the proceeds from such, 
sale or exchange, as may be necessary to assure that the tax 
deducted and withheld shall not be less than 30 percent of such 
gain. 
(d) ALIEN RESIDENT OF PUERTO RICO.—For purposes of this sec-
tion, the term "nonresident alien individual" includes an alien resident 
of Puerto Rico. 
SEC. 1442. WITHHOLDING OF TAX ON FOREIGN 
CORPORATIONS. 
In the case of foreign corporations subject to taxation under this 
subtitle not engaged in trade or business within the United States, 
there shall be deducted and withheld at the source in the same manner 
and on the same items of income as is provided in section 1441 or 
section 1451 a tax equal to 30 percent thereof; except that, in the case 
of interest described in section 1451 (relating to tax-free covenant 
bonds), the deduction and withholding shall be at the rate specified 
therein, 
SEC. 1443. FOREIGN TAX-EXEMPT 
ORGANIZATIONS. 
In the case of income of a foreign organization subject to the tax 
imposed by section 511, this chapter shall apply to rents includible 
under section 512 in computing its unrelated business taxable income, 
but only to the extent and subject to such conditions as may be pro-
vided under regulations prescribed by the Secretary or his delegate. 
§ 1441(c)(2) 
CH. 3—WITHHOLDING OF TAX 
359 
Subchapter B—Tax-Free Covenant Bonds 
Sec. 1451. Tax-free covenant bonds. 
SEC. 1451. TAX-FREE COVENANT BONDS. 
(a) REQUIREMENT OF WITHHOLDING.—In any case where bonds, 
mortgages, or deeds of trust, or other similar obhgations of a corpora-
tion, issued before January 1, 1934, contain a contract or provision 
by which the obhgor agrees to pay any portion of the tax imposed 
by this subtitle on the obligee, or to reimburse the obligee for any 
portion of the tax, or to pay the interest without deduction for any 
tax which the obligor may be required or permitted to pay thereon, 
or to retain therefrom under any law of the United States, the obligor 
shall deduct and withhold a tax equal to 2 percent (regardless of 
whether the liability assumed by the obligor is less than, equal to, or 
greater than 2 percent) of the interest on such bonds, mortgages, 
deeds of trust, or other obligations, whether such interest is payable 
annually or at shorter or longer periods, if payable to— 
(1) an individual, 
(2) a partnership, or 
(3) a foreign corporation not engaged in trade or business within 
the United States. 
(b) PAYMENTS TO FOREIGNERS.—Notwithstanding subsection (a), 
if the liability assumed by the obligor does not exceed 2 percent of the 
interest, then the deduction and withholding shall be at the rate of 
30 percent in the case of— 
(1) a nonresident alien individual, 
(2) any partnership not engaged in trade or business within the 
United States and composed in whole or in part of nonresident 
aliens, and 
(3) a foreign corporation not engaged in trade or business within 
the United States. 
(c) OWNER UNKNOWN.—If the owners of such obligations are not 
known to the withholding agent, the Secretary or his delegate may 
authorize such deduction and withholding to be at the rate of 2 per-
cent, or, if the liability assumed by the obligor does not exceed 2 per-
cent of the interest, then at the rate of 30 percent. 
(d) BENEFIT OF PERSONAL EXEMPTIONS.—Deduction and with-
holding under this section shall not be required in the case of a citizen 
or resident entitled to receive such interest, if he files with the with-
holding agent on or before February 1 a signed notice in writing claim-
ing the benefit of the deduction for personal exemptions provided in 
section 151; nor in the case of a nonresident alien individual if so pro-
vided for in regulations prescribed by the Secretary or his delegate 
under section 874. 
(e) ALIEN RESIDENTS OF PUERTO RICO.—For purposes of this 
section, the term "nonresident alien individual" includes an alien 
resident of Puerto Rico. 
(f) INCOME OF OBLIGOR AND OBLIGEE.—The obligor shall not be 
allowed a deduction for the payment of the tax imposed by this sub-
title, or any other tax paid pursuant to the tax-free covenant clause, 
nor shall such tax be included in the gross income of the obligee. 
§ 1451(f) 
360 
INTERNAL REVENUE CODE OF 1954 
Subchapter C—^Application of Withholding Provisions 
Sec. 1461. Return and payment of withheld tax. 
Sec. 1462. Withheld tax as credit to recipient of income. 
Sec. 1463. Tax paid by recipient of income. 
Sec. 1464. Refunds and credits with respect to withheld tax. 
Sec. 1465. Definition of withholding agent. 
SEC. 1461. RETURN AND PAYMENT OF WITHHELD TAX. 
Every person required to deduct and withhold any tax under this 
chapter shall, on or before March 15 of each year, make return thereof 
and pay the tax to the officer designated in section 6151. Every such 
person is hereby made liable for such tax and is hereby indemnified 
against the claims and demands of any person for the amount of any 
payments made in accordance with the provisions of this chapter. 
SEC. 1462. WITHHELD TAX AS CREDIT TO RECIPIENT OF INCOME. 
Income on which any tax is required to be withheld at the source 
under this chapter shall be included in the return of the recipient of 
such income, but any amount of tax so withheld shall be credited 
against the amount of income tax as computed in such return. 
SEC. 1463. TAX PAID BY RECIPIENT OF INCOME. 
If any tax required under this chapter to be deducted and withheld 
is paid by the recipient of the income, it shall not be re-collected from 
the withholding agent; nor in cases in which the tax is so paid shall 
any penalty be imposed on or collected from the recipient of the 
income or the withholding agent for failure to return or pay the same, 
unless such failure was fraudulent and for the purpose of evading 
payment. 
SEC. 1464. REFUNDS AND CREDITS WITH RESPECT TO WITHHELD 
TAX. 
Where there has been an overpayment of tax under this chapter, 
any refund or credit made under chapter 65 shall be made to the 
withholding agent unless the amount of such tax was actually withheld 
by the withholding agent. 
SEC. 1465. DEFINITION OF WITHHOLDING AGENT. 
The term "withholding agent" means any person required to deduct 
and withhold any tax under this chapter. 
§ 1461 
CH. 4—PROFITS ON GOVERNMENT CONTRACTS 
361 
CHAPTER 4—RULES APPLICABLE TO RECOVERY OF 
EXCESSIVE PROFITS ON GOVERNMENT CON-
TRACTS 
SUBCHAPTER A. Recovery 
of excessive 
profits 
on government 
contracts. 
SUBCHAPTER B . Mitigation of effect of renegotiation of government 
contracts. 
Subchapter A—Recovery of Excessive Profits on Govern-
ment Contracts 
Sec. 1471. Recovery of excessive profits on Government contracts. 
SEG. 1471. RECOVERY OF EXCESSIVE 
PROFITS ON 
GOVERNMENT 
CONTRACTS. 
(a) METHOD OF COLLECTION.—If the amount of profit required to 
be paid into the Treasury under section 3 of the Act of March 27,1934, 
as amended (34 U. S. C. 496), with respect to contracts completed 
within taxable years subject to this code is not voluntarily paid, 
the Secretary or his delegate shall collect the same under the methods 
employed to collect taxes under this subtitle. 
(b) LAWS APPLICABLE.—All provisions of law (including penalties) 
applicable with respect to the taxes imposed by this subtitle and not 
inconsistent with section 3 of the Act of March 27, 1934, as amended, 
shall apply with respect to the assessment, collection, or payment of 
excess profits to the Treasury as provided by subsection (a), and to 
refunds by the Treasury of overpayments of excess profits into the 
Treasury. 
§ 1471(b) 
490120—54 
26 
362 
INTERNAL REVENUE CODE OF 1954 
Subchapter B—Mitigation of Effect of Renegotiation of 
Government Contracts 
Sec. 1481. Mitigation of effect of renegotiation of government 
contracts. 
SEC. 1481. MITIGATION OF EFFECT OF RENEGOTIATION OF GOVERN-
MENT CONTRACTS. 
(a) REDUCTION FOR PRIOR TAXABLE YEAR.— 
(1) E X C E S S I V E PROFITS ELIMINATED FOR PRIOR TAXABLE Y E A R . — 
In the case of a contract with the United States or any agency 
thereof, or any subcontract thereunder, which is made by the tax-
payer, if a renegotiation is made in respect of such contract or 
subcontract and an amount of excessive profits received or accrued 
under such contract or subcontract for a taxable year (referred to 
in this section as "prior taxable year") is eliminated and, the tax-
payer is required to pay or repay to the United States or any agency 
thereof the amount of excessive profits eliminated or the amount 
of excessive profits eliminated is applied as an offset against other 
amounts due the taxpayer, the part of the contract or subcontract 
price which was received or was accrued for the prior taxable year 
shall be reduced by the amount of excessive profits eliminated. 
For purposes of this section— 
(A) The term "renegotiation" includes any transaction which 
is a renegotiation within the meaning of the Federal renegotiation 
act applicable to such transaction, any modification of one or 
more contracts with the United States or any agency thereof, and 
any agreement with the United States or any agency thereof in 
respect of one or more such contracts or subcontracts thereunder. 
(B) The term "excessive profits" includes any amount which 
constitutes excessive profits within the meaning assigned to such 
term by the applicable Federal renegotiation act, any part of the 
contract price of a contract with the United States or any agency 
thereof, any part of the subcontract price of a subcontract under 
such a contract, and any profits derived from one or more such 
contracts or subcontracts. 
(C) The term "subcontract" includes any purchase order or 
agreement which is a subcontract within the meaning assigned 
to such term by the applicable Federal renegotiation act. 
(D) The term "Federal renegotiation act" includes section 403 
of the Sixth Supplemental National Defense Appropriation Act 
(Public Law 528, 77th Cong., 2d Sess.), as amended or supple-
mented, the Renegotiation Act of 1948, as amended or supple-
mented, and the Renegotiation Act of 1951, as amended or sup-
plemented. 
(2) REDUCTION OF REIMBURSEMENT FOR PRIOR TAXABLE YEAR.— 
In the case of a cost-plus-a-fixed-fee contract between the United 
States or any agency thereof and the taxpayer, if an item for 
which the taxpayer has been reimbursed is disallowed as an item 
§ 1481 
CH. 4—PROFITS ON GOVERNMENT CONTRACTS 
363 
of cost chargeable to such contract and the taxpayer is required to 
repay the United States or any agency thereof the amount disallowed 
or the amount disallowed is applied as an offset against other 
amounts due the taxpayer, the amount of the reimbursement of 
the taxpayer under the contract for the taxable year in which 
the reimbursement for such item was received or was accrued 
shall be reduced by the amount disallowed. 
(3) DEDUCTION DISALLOWED.—The amount of the payment, 
repayment, or offset described in paragraph (1) or paragraph (2) 
shall not constitute a deduction for the year in which paid or 
incurred. 
(4) EXCEPTION.—The foregoing provisions of this subsection shall 
not apply in respect of any contract if the taxpayer shows to the 
satisfaction of the Secretary or his delegate that a different method 
of accounting for the amount of the payment, repayment, or disal-
lowance clearly reflects income, and in such case the payment, 
repayment, or disallowance shall be accounted for with respect to 
the taxable year provided for under such method, which for the 
purposes of subsections (b) and (c) shall be considered a prior 
taxable year. 
(b) CREDIT AGAINST REPAYMENT ON ACCOUNT OP RENEGOTIATION 
O
R ALLOWANCE.— 
(1) GENERAL RULE.—There shall be credited against the amount 
of excessive profits eliminated the amount by which the tax for the 
prior taxable year under this subtitle is decreased by reason of the 
application of paragraph (1) of subsection (a); and there shall be 
credited against the amount disallowed the amount by which the 
tax for the prior taxable year under this subtitle is decreased by 
reason of the application of paragraph (2) of subsection (a). 
(2) CREDIT FOR BARRED YEAR.—If at the time of the payment, 
repayment, or offset described in paragraph (1) or paragraph (2) 
of subsection (a), refund or credit of tax under this subtitle for 
the prior taxable year is prevented (except for the provisions of 
section 1311) by any provision of the internal revenue laws other than 
section 7122, or by rule of law, the amount by which the tax for such 
year under this subtitle is decreased by the application of paragraph 
(1) or paragraph (2) of subsection (a) shall be computed under this 
paragraph. 
There shall first be ascertained the tax previously de-
termined for the prior taxable year. 
The amount of the tax pre-
viously determined shall be the excess of— 
(A) the sum of— 
(i) the amount shown as the tax by the taxpayer on his 
return (determined as provided in section 6211 (b) (1) and (3)), 
if a return was made by the taxpayer and an amount was shown 
as the tax by the taxpayer thereon, plus 
(ii) the amounts previously assessed (or collected without 
assessment) as a deficiency, over— 
(B) the amount of rebates, as defined in section 6211 (b) (2), 
made. 
There shall then be ascertained the decrease in tax previously 
determined which results solely from the application of paragraph 
(1) or paragraph (2) of subsection (a) to the prior taxable year. 
The amount so ascertained, together with any amounts collected 
§ 1481(b)(2) 
364 
INTERNAL REVENUE CODE OF 1954 
as additions to the tax or interest, as a result of paragraph (1) or 
paragraph (2) of subsection (a) not having been applied to the 
prior taxable year, shall be the amount by which such tax is 
decreased. 
(3) INTEREST.—In determining the amount of the credit under 
this subsection no interest shall be allowed with respect to the 
amount ascertained under paragraph (1); except that if interest is 
charged by the United States or the agency thereof on account of 
the disallowance for any period before the date of the payment, 
repayment, or offset, the credit shall be increased by an amount 
equal to interest on the amount ascertained under such paragraph 
at the same rate and for the period (prior to the date of the payment, 
repayment, or offset) as interest is so charged. 
(c) CREDIT IN LIEXJ OF OTHER CREDIT OR REFUND.—If a credit is 
allowed under subsection (b) with respect to a prior taxable year no 
other credit or refund under the internal-revenue laws founded on the 
application of subsection (a) shall be made on account of the amount 
allowed with respect to such taxable year. If the amount allowable 
as a credit under subsection (b) exceeds the amount allowed under 
such subsection, the excess shall, for purposes of the internal revenue 
laws relating to credit or refund of tax, be treated as an overpayment 
for the prior taxable year which was made at the time the payment, 
repayment, or offset was made. 
(d) RENEGOTIATION 
OF GOVERNMENT 
CONTRACTS 
AFFECTING 
TAXABLE YEARS PRIOR TO 1954.—If a recovery of excessive profits 
through renegotiation as described in this section relates to profits of 
a taxable year subject to the Internal Revenue Code of 1939, the 
adjustments in respect of such renegotiation shall be made under 
section 3806 of such code. 
§ 1481(b)(2) 
CH. 5—TAX ON TRANSFERS TO AVOID INCOME TAX 
365 
CHAPTER 5—TAX ON TRANSFERS TO AVOID INCOME 
TAX 
Sec. 1491. Imposition of tax. 
Sec. 1492. Nontaxable transfers. 
Sec. 1493. Definition of foreign trust. 
Sec. 1494. Payment and collection. 
SEC. 1491. IMPOSITION OP TAX. 
There is hereby imposed on the transfer of stock or securities by a 
citizen or resident of the United States, or by a domestic corporation 
or partnership, or by a trust which is not a foreign trust, to a foreign 
corporation as paid-in surplus or as a contribution to capital, or to a 
foreign trust, or to a foreign partnership, an excise tax equal to 27K 
percent of the excess of— 
(1) the value of the stock or securities so transferred, over 
(2) its adjusted basis (for determining gain) in the hands of the 
transferor. 
SEC. 1492. NONTAXABLE TRANSFERS. 
The tax imposed by section 1491 shall not apply— 
(1) If the transferee is an organization exempt from income tax 
under part I of subchapter F of chapter 1 (other than an organi-
zation described in section 401 (a)); or 
(2) If before the transfer it has been established to the satisfac-
tion of the Secretary or his delegate that such transfer is not in 
pursuance of a plan having as one of its principal purposes the 
avoidance of Federal income taxes. 
SEC. 1493. DEFINITION OF FOREIGN TRUST. 
A trust shall be considered a foreign trust within the meaning of 
this chapter if, assuming a subsequent sale by the trustee, outside the 
United States and for cash, of the property so transferred, the profit, 
if any, from such sale would not be included in the gross income of 
the trust under this subtitle. 
SEC. 1494. PAYMENT AND COLLECTION. 
(a) TIME FOR PAYMENT.—The tax imposed by section 1491 shall, 
without assessment or notice and demand, be due and payable by the 
transferor at the time of the transfer, and shall be assessed, collected, 
and paid under regulations prescribed by the Secretary or his delegate. 
(b) ABATEMENT OR REFUND.—Under regulations prescribed by the 
Secretary or his delegate, the tax may be abated, remitted, or refunded 
if after the transfer it has been established to the satisfaction of the 
Secretary or his delegate that such transfer was not in pursuance of a 
plan having as one of its principal purposes the avoidance of Federal 
income taxes. 
§ 1494(b) 
CH. 6—CONSOLIDATED RETURNS 
367 
CHAPTER 6—CONSOLIDATED RETURNS 
SUBCHAPTER A. Returns and payment of tax. 
SUBCHAPTER B . Related rules. 
Subchapter A—Returns and Payment of Tax 
Sec. 1501. Privilege to file consolidated returns. 
Sec. 1502. Regulations. 
Sec. 1503. Computation and payment of tax. 
Sec. 1504. Definitions. 
Sec. 1505. Cross references. 
SEC. 1501. PRIVILEGE TO FILE CONSOLIDATED RETURNS. 
An affiliated group of corporations shall, subject to the provisions 
of this chapter, have the privilege of making a consolidated return 
with respect to the income tax imposed by chapter 1 for the taxable 
year in lieu of separate returns. 
The making of a consolidated return 
shall be upon the condition that all corporations which at any time 
during the taxable year have been members of the affiliated group 
consent to all the consolidated return regulations prescribed under 
section 1502 prior to the last day prescribed by law for the filing of 
such return. 
The making of a consolidated return shall be considered 
as such consent. 
In the case of a corporation which is a member of 
the affiliated group for a fractional part of the year, the consolidated 
return shall include the income of such corporation for such part of 
the year as it is a member of the affiliated group. 
SEC. 1502. REGULATIONS. 
The Secretary or his delegate shall prescribe such regulations as he 
may deem necessary in order that the tax liability of any affiliated 
group of corporations making a consolidated return and of each cor-
poration in the group, both during and after the period of affiliation, 
may be returned, determined, computed, assessed, collected, and ad-
justed, in such manner as clearly to reflect the income-tax liability 
and the various factors necessary for the determination of such liability, 
and in order to prevent avoidance of such tax liability. 
SEC. 1503. COMPUTATION AND PAYMENT OF TAX. 
(a) GENERAL RULE.—In any case in which a consolidated return 
is made or is required to be made, the tax shall be determined, com-
puted, assessed, collected, and adjusted in accordance with the regu-
lations under section 1502 prescribed prior to the last day prescribed 
by law for the filing of such return; except that the tax imposed under 
section 11 (c) or section 831 shall be increased for any taxable year 
by 2 percent of the consolidated taxable income of the affiliated 
group of includible corporations. 
For purposes of this section, the 
term "consolidated taxable income" means the consolidated taxable 
income computed without regard to the deduction provided by 
section 242 for partially tax-exempt interest. 
§ 1503(a) 
368 
INTERNAL REVENUE CODE OF 1954 
(b) LIMITATION.—If the affiliated group includes one or more 
Western Hemisphere trade corporations (as defined in section 921) 
or one or more regulated public utilities (as defined in subsection 
(c)), the increase of 2 percent provided in subsection (a) shall be 
applied only on the amount by which the consolidated taxable income 
of the affiliated group exceeds the portion (if any) of the consolidated 
taxable income attributable to the Western Hemisphere trade cor-
porations and regulated public utilities included in such group. 
(c) REGULATED PUBLIC UTILITY DEFINED.— 
(1) I N GENERAL.—For purposes of subsection (b), the 
term 
"regulated public utility" means— 
(A) A corporation engaged in the furnishing or sale of— 
(i) electric energy, gas, water, or sewerage disposal services, 
or 
(ii) transportation (not included in subparagraph (C)) on 
an intrastate, suburban, municipal, or interurban 
electric 
railroad, on an intrastate, municipal, or suburban trackless 
trolley system, or on a municipal or suburban bus system, or 
(iii) transportation (not included in clause (ii)) by motor 
vehicle— 
if the rates for such furnishing or sale, as the case may be, have 
been established or approved by a State or political subdivision 
thereof, by an agency or instrumentality of the United States, 
by a public service or public utility commission or other similar 
body of the District of Columbia or of any State or political 
subdivision thereof, or by a foreign country or an agency or 
instrumentality or political subdivision thereof. 
(B) A corporation engaged as a common carrier in the furnish-
ing or sale of transportation of gas by pipeline, if subject to the 
jurisdiction of the Federal Power Commission. 
(C) A corporation engaged as a common carrier (i) in the 
furnishing or sale of transportation by railroad, if subject to the 
jurisdiction of the Interstate Commerce Commission, or (ii) in 
the furnishing or sale of transportation of oil or other petroleum 
products (including shale oil) by pipe line, if subject to the juris-
diction of the Interstate Commerce Commission or if the rates 
for such furnishing or sale are subject to the jurisdiction of a 
public service or public utility commission or other similar body 
of the District of Columbia or of any State. 
(D) A corporation engaged in the furnishing or sale of telephone 
or telegraph service, if the rates for such furnishing or sale meet 
the requirements of subparagraph (A). 
(E) A corporation engaged in the furnishing or sale of trans-
portation as a common carrier by air, subject to the jurisdiction 
of the Civil Aeronautics Board. 
(F) A corporation engaged in the furnishing or sale of trans-
portation by common carrier by water, subject to the jurisdiction 
of the Interstate Commerce Commission under part III of the 
Interstate Commerce Act, or subject to the jurisdiction of the 
Federal Maritime Board under the Intercoastal Shipping Act, 
1933. 
(2) LIMITATION.—For purposes of subsection (b), the term "reg-
ulated public utility" does not (except as provided in paragraph (3)) 
§ 1503(b) 
CH. 6—CONSOLIDATED RETURNS 
369 
include a corporation described in paragraph (1) unless 80 percent 
or more of its gross income (computed without regard to dividends 
and capital gains and losses) for the taxable year is derived from 
sources described in paragraph (1). If the taxpayer establishes to 
the satisfaction of the Secretary or his delegate that— 
(A) its revenue from regulated rates described in paragraph 
(1) (A) or (D) and its revenue derived from unregulated rates are 
derived from its operation of a single interconnected and coordi-
nated system or from the operation of more than one such system, 
and 
(B) the unregulated rates have been and are substantially as 
favorable to users and consumers as are the regulated rates, 
such revenue from such unregulated rates shall be considered, for 
purposes of this paragraph, as income derived from sources de-
scribed in paragraph (1) (A) or (D). 
w 
(3) CERTAIN RAILROAD CORPORATIONS.— 
(A) LESSOR CORPORATION.—For purposes of subsection (b), 
the term "regulated public utility" shall also include a railroad 
corporation subject to part I of the Interstate Commerce Act, if 
(i) substantially all of its railroad properties have been leased to 
another such railroad corporation or corporations by an agree-
ment or agreements entered into prior to January 1, 1954, (ii) 
each lease is for a term of more than 20 years, and (iii) at least 
80 percent or more of its gross income (computed without regard 
to dividends and capital gains and losses) for the taxable year is 
derived from such leases and from sources described in paragraph 
(1). For purposes of the preceding sentence, an agreement for 
lease of railroad properties entered into prior to January 1, 
1954, shall be considered to be a lease including such term as 
the total number of years of such agreement may, unless sooner 
terminated, be renewed or continued under the terms of the 
agreement, and any such renewal or continuance under such 
agreement shall be considered part of the lease entered into prior 
to January 1, 1954. 
(B) COMMON PARENT CORPORATION.—For purposes of sub-
section (b), the term "regulated public utility" also includes a 
common parent corporation which is a common carrier by rail-
road subject to part I of the Interstate Commerce Act if at least 
80 percent of its gross income (computed without regard to 
capital gains or losses) is derived directly or indirectly from 
sources described in paragraph (1). For purposes of the pre-
ceding sentence, dividends and interest, and income from leases 
described in subparagraph (A), received from a regulated public 
f 
utility shall be considered as derived from sources described in 
paragraph (1) if the regulated public utility is a member of an 
' 
affiliated group (as defined in section 1504) which includes the 
common parent corporation. 
SEC. 1504. DEFINITIONS. 
(a) DEFINITION OF "AFFILIATED GROUP".—As used in this chapter, 
the term "affiliated group" means one or more chains of includible 
corporations connected through stock ownership with a common 
parent corporation which is an includible corporation if— 
§ 1504(a) 
370 
INTERNAL REVENUE CODE OF 1954 
(1) Stock possessing at least 80 percent of the voting power of 
all classes of stock and at least 80 percent of each class of the non-
voting stock of each of the includible corporations (except the 
common parent corporation) is owned directly by one or more of 
the other includible corporations; and 
(2) The common parent corporation owns directly stock possess-
ing at least 80 percent of the voting power of all classes of stock 
and at least 80 percent of each class of the nonvoting stock of at 
least one of the other includible corporations. 
As used in this subsection, the term "stock" does not include nonvoting 
stock which is limited and preferred as to dividends. 
(b) DEFINITION OF "INCLUDIBLE CORPORATION".—As used in this 
chapter, the term "includible corporation" means any corporation 
except— 
(1) Corporations exempt from taxation under section 501. 
(2) Insurance companies subject to taxation under section 802 
or 821. 
(3) Foreign corporations. 
(4) Corporations entitled to the benefits of section 931, by 
reason of receiving a large percentage of their income from sources 
within possessions of the United States. 
(5) Corporations organized under the China Trade Act, 1922. 
(6) Regulated investment companies subject to tax under sub-
chapter M of chapter 1. 
(7) Unincorporated business enterprises subject to tax as cor-
porations under section 1361. 
(c) INCLUDIBLE INSURANCE COMPANIES.—Despite the provisions 
of paragraph (2) of subsection (b), two or more domestic insurance 
companies each of which is subject to taxation under the same section 
of this subtitle shall be considered as includible corporations for the 
purpose of the application of subsection (a) to such insurance com-
panies alone. 
(d) SUBSIDIARY FORMED TO COMPLY W I T H FOREIGN LAW,—In the 
case of a domestic corporation owning or controlling, directly or in-
directly, 100 percent of the capital stock (exclusive of directors' 
qualifying shares) of a corporation organized under the laws of a 
contiguous foreign country and maintained solely for the purpose of 
complying with the laws of such country as to title and operation of 
property, such foreign corporation may, at the option of the domestic 
corporation, be treated for the purpose of this subtitle as a domestic 
corporation. 
SEC. 1505. CROSS REFERENCES. 
(1) For suspension of running of statute of limitations when notice 
in respect of a deficiency is mailed to one corporation, see section 
6503 (a) (1). 
(2) For allocation of income and deductions of related trades or 
businesses, see section 482. 
§ 1504(a)(1) 
CH. 6—CONSOLIDATED RETURNS 
371 
Subchapter B—Related Rules 
See. 1551. Disallowance of surtax exemption and accumulated 
earnings credit. 
Sec. 1552. Earnings and profits. 
SEC. 1551. DISALLOWANCE OF SURTAX EXEMPTION AND ACCUMU-
LATED EARNINGS CREDIT. 
If any corporation transfers, on or after January 1, 1951, all or part 
of its property (other than money) to another corporation which was 
created for the purpose of acquiring such property or which was not 
actively engaged in business at the time of such acquisition, and if 
after such transfer the transferor corporation or its stockholders, or 
both, are in control of such transferee corporation during any part 
of the taxable year of such transferee corporation, then such transferee 
corporation shall not for such taxable year (except as may be otherwise 
determined under section 269 (b)) be allowed either the $25,000 
exemption from surtax provided in section 11 (c) or the $60,000 
accumulated earnings credit provided in paragraph (2) or (3) of section 
535 (c), unless such transferee corporation shall establish by the clear 
preponderance of the evidence that the securing of such exemption or 
credit was not a major purpose of such transfer. 
For purposes of this 
section, control means the ownership of stock possessing at least 80 
percent of the total combined voting power of all classes of stock en-
titled to vote or at least 80 percent of the total value of shares of all 
classes of stock of the corporation. 
In determining the ownership of 
stock for the purpose of this section, the ownership of stock shall be 
determined in accordance with the provisions of section 544, except 
that constructive ownership under section 544 (a) (2) shall be de-
termined only with respect to the individual's spouse and minor 
children. 
The provisions of section 269 (b), and the authority of the 
Secretary under such section, shall, to the extent not inconsistent with 
the provisions of this section, be applicable to this section. 
SEC. 1552. EARNINGS AND PROFITS. 
(a) GENERAL RULE.—Pursuant to regulations prescribed by the 
Secretary or his delegate the earnings and profits of each member of an 
affiliated group required to be included in a consolidated return for 
such group filed for a taxable year beginning after December 31, 1953, 
and ending after the date of enactment of this title, shall be deter-
mined by allocating the tax liability of the group for such year among 
the members of the group in accord with whichever of the following 
methods the group shall elect in its first consolidated return filed for 
such a taxable year: 
(1) The tax liability shall be apportioned among the members of 
the group in accordance with the ratio which that portion of the 
consolidated taxable income attributable to each member of the 
group having taxable income bears to the consolidated taxable 
income. 
§ 1552(a)(1) 
372 
INTERNAL REVENUE CODE OF 1954 
(2) The tax liability of the group shall be allocated to the several 
members of the group on the basis of the percentage of the total tax 
which the tax of such member if computed on a separate return 
would bear to the total amount of the taxes for all members of the 
group so computed. 
(3) The tax liability of the group (excluding the tax increases 
arising from the consolidation) shall be allocated on the basis of 
the contribution of each member of the group to the consolidated 
taxable income of the group. 
Any tax increases arising from the 
consolidation shall be distributed to the several members in direct 
proportion to the reduction in tax liability resulting to such members 
from the filing of the consolidated return as measured by the differ-
ence between their tax liabilities determined on a separate return 
basis and their tax liabilities (determined without regard to the 2 
percent increase provided by section 1503 (a)) based on their con-
tributions to the consolidated taxable income. 
(4) The tax liability of the group shall be allocated in accord with 
any other method selected by the group with the approval of the 
Secretary or his delegate, 
(b) FAILURE TO ELECT.—If no election is made in such first return, 
the tax liability shall be allocated among the several members of the 
group pursuant to the method prescribed in subsection (a) (1). 
§ 1552(a)(2) 
CH. 11—ESTATE TAX 
373 
Subtitle B—Estate and Gift Taxes 
CHAPTER 11. Estate tax. 
CHAPTER 12. Gift tax. 
CHAPTER 11—ESTATE TAX 
SUBCHAPTER A. Estates of citizens or residents. 
SUBCHAPTER B . Estates of nonresidents not citizens. 
SUBCHAPTER C . Miscellaneous. 
Subchapter A—Estates of Citizens or Residents 
Part 
I. Tax imposed. 
Part II. Credits against tax. 
Part III. Gross estate. 
Part IV. Taxable estate. 
PART I—TAX IMPOSED 
Sec. 2001. Rate of tax. 
Sec. 2002. Liability for payment. 
SEC. 2001. RATE OF TAX. 
A tax computed in accordance with the following table is hereby 
imposed on the transfer of the taxable estate, determined as provided 
in section 2051, of every decedent, citizen or resident of the United 
States dying after the date of enactment of this title: 
If the taxable estate is: 
The tax shall be: 
Not over $5,000 
3 % of the taxable estate. 
Over $5,000 but not over $10,000 
$150, plus 7% of excess over 
$5,000. 
Over $10,000 but not over $20,000 
$500, plus 11% of excess over 
$10,000. 
Over $20,000 but not over $30,000 
$1,600, plus 14% of excess over 
$20,000. 
Over $30,000 but not over $40,000 
$3,000, plus 18% of excess over 
$30,000. 
Over $40,000 but not over $50,000 
$4,800, plus 22% of excess over 
$40,000. 
Over $50,000 but not over $60,000 
$7,000, plus 25% of excess over 
$50,000. 
Over $60,000 but not over $100,000 
$9,500, plus 28% of excess over 
$60,000. 
Over $100,000 but not over $250,000 
$20,700, plus 30% of excess over 
$100,000. 
Over $250,000 but not over $500,000 
$65,700, plus 32% of excess over 
$250,000. 
Over $500,000 but not over $750,000 
$145,700, plus 35% of excess over 
$500,000. 
Over $750,000 but not over $1,000,000- _ . 
$233,200, plus 37% of excess over 
$750,000. 
Over $1,000,000 but not over $1,250,000— 
$325,700, plus 39% of excess over 
$1,000,000. 
Over $1,250,000 but not over $1,500,000-. 
$423,200, plus 42% of excess over 
$1,250,000. 
§ 2001 
374 
INTERNAL REVENUE CODE OF 1954 
If the taxable estate is: 
The tax shall be: 
Over $1,500,000 but not over $2,000,000__ 
$528,200, plus 45% of excess over 
$1,500,000. 
Over $2,000,000 but not over $2,500,000.. 
$753,200, plus 49 % of excess over 
$2,000,000. 
Over $2,500,000 but not over $3,000,000.. 
$998,200, plus 53 % of excess over 
$2,500,000. 
Over $3,000,000 but not over $3,500,000._ 
$1,263,200, plus 56% of excess 
over $3,000,000. 
Over $3,500,000 but not over $4,000,000.. 
$1,543,200, plus 59% of excess 
over $3,500,000. 
Over $4,000,000 but not over $5,000,000.. 
$1,838,200, plus 63% of excess 
over $4,000,000. 
Over $5,000,000 but not over $6,000,000.. 
$2,468,200, plus 67% of excess 
over $5,000,000. 
Over $6,000,000 but not over $7,000,000.- 
$3,138,200, plus 70% of excess 
over $6,000,000. 
Over $7,000,000 but not over $8,000,000.. 
$3,838,200, plus 73% of excess 
over $7,000,000. 
Over $8,000,000 but not over $10,000,000.. 
$4,568,200, plus 76% of excess 
over $8,000,000. 
Over $10,000,000 
$6,088,200, plus 77% of excess 
over $10,000,000. 
SEC. 2002. LIABILITY FOR PAYMENT. 
The tax imposed by this chapter shall be paid by the executor. 
PART II—CREDITS AGAINST TAX 
Sec. 2011. Credit for State death taxes. 
Sec. 2012. Credit for gift tax. 
Sec. 2013. Credit for tax on prior transfers. 
Sec. 2014. Credit for foreign death taxes. 
Sec. 2015. Credit for death taxes on remainders. 
Sec. 2016. Recovery of taxes claimed as credit. 
SEC. 2011. CREDIT FOR STATE DEATH TAXES. 
(a) I N GENERAL.—The tax imposed by section 2001 shall be 
credited with the amount of any estate, inheritance, legacy, or suc-
cession taxes actually paid to any State or Territory or the District 
of Columbia, or any possession of the United States, in respect of any 
property included in the gross estate (not including any such taxes 
paid with respect to the estate of a person other than the decedent). 
(b) AMOUNT OF CREDIT.—The credit allowed by this section shall 
not exceed the appropriate amount stated in the following table: 
If the taxable estate is: 
The maximum tax credit shall be: 
Not over $90,000 
8/lOths of 1 % of the amount by 
which the taxable estate ex-
ceeds $40,000. 
Over $90,000 but not over $140,000 
$400 plus 1.6 % of the excess over 
$90,000. 
Over $140,000 but not over $240,000 
$1,200 plus 2.4% of the excess 
over $140,000. 
Over $240,000 but not over $440,000...-. 
$3,600 plus 3.2% of the excess 
over $240,000. 
Over $440,000 but not over $640,000 
$10,000 plus 4% of the excess 
over $440,000. 
Over $640,000 but not over $840,000 
$18,000 plus 4.8% of the excess 
over $640,000. 
Over $840,000 but not over $1,040,000... 
$27,600 plus 5.6% of the excess 
over $840,000. 
Over $1,040,000 but not over $1,540,000.. 
$38,800 plus 6.4% of the excess 
over $1,040,000. 
5 2001 
CH. 11 
ESTATE TAX 
375 
If the taxable estate is: 
The maximum tax credit shall be: 
Over $1,540,000 but not over $2,040,000.- 
$70,800 plus 7.2% of the excess 
over $1,540,000. 
Over$2,040,000but not over $2,540,000-- 
$106,800 plus 8% of the excess 
over $2,040,000. 
Over $2,540,000 but not over $3,040,000-- 
$146,800 plus 8.8% of the excess 
over $2,540,000. 
Over $3,040,000 but not over $3,540,000-- 
$190,800 plus 9.6% of the excess 
over $3,040,000. 
Over $3,540,000 but not over $4,040,000-_ 
$238,800 plus 10.4% of the excess 
over $3,540,000. 
Over $4,040,000 but not over $5,040,000- _ 
$290,800 plus 11.2% of the excess 
over $4,040,000. 
Over $5,040,000 but not over $6,040,000-- 
$402,800 plus 12% of the excess 
over $5,040,000. 
Over $6,040,000 but not over $7,040,000- - 
$522,800 plus 12.8% of the excess 
over $6,040,000. 
Over $7,040,000 but not over $8,040,000- - 
$650,800 plus 13.6% of the excess 
over $7,040,000. 
Over $8,040,000 but not over $9,040,000. - 
$786,800 plus 14.4% of the excess 
over $8,040,000, 
Over $9,040,000 but not over $10,040,000. 
$930,800 plus 15.2% of the excess 
over $9,040,000. 
Over $10,040,000 
$1,082,800 plus 16% of the excess 
over $10,040,000. 
(c) PERIOD OF LIMITATIONS ON CREDIT.—The credit allowed by 
this section shall include only such taxes as were actually paid and 
credit therefor claimed within 4 years after the filing of the return 
required by section 6018, except that— 
(1) If a petition for redetermination of a deficiency has been filed 
with the Tax Court within the time prescribed in section 6213 (a), 
then within such 4-year period or before the expiration of 60 days 
after the decision of the Tax Court becomes final. 
(2) If, under section 6161, an extension of time has been granted 
for payment of the tax shown on the return, or of a deficiency, then 
within such 4-year period or before the date of the expiration of the 
period of the extension. 
Refund based on the credit may (despite the provisions of sections 
6511 and 6512) be made if claim therefor is filed within the period 
above provided. 
Any such refund shall be made without interest. 
(d) BASIC ESTATE TAX.—The basic estate tax and the estate tax 
imposed by the Revenue Act of 1926 shall be 125 percent of the 
amount determined to be the maximum credit provided by subsection 
(b). 
The additional estate tax shall be the difference between the 
tax imposed by section 2001 or 2101 and the basic estate tax. 
SEC. 2012. CREDIT FOR GIFT TAX. 
(a) I N GENERAL.—If a tax on a gift has been paid under chapter 12 
(sec. 2501 and following), or under corresponding provisions of prior 
laws, and thereafter on the death of the donor any amount in respect 
of such gift is required to be included in the value of the gross estate 
of the decedent for purposes of this chapter, then there shall be credited 
against the tax imposed by section 2001 the amount of the tax paid 
on a gift under chapter 12, or under corresponding provisions of prior 
laws, with respect to so much of the property which constituted the 
gift as is included in the gross estate, except that the amount of such 
credit shall not exceed an amount which bears the same ratio to the 
tax imposed by section 2001 (after deducting from such tax the credit 
§ 2012(a) 
376 
INTERNAL REVENUE CODE OF 1954 
for State death taxes provided by section 2011) as the value (at the 
time of the gift or at the time of the death, whichever is lower) of so 
much of the property which constituted the gift as is included in the 
gross estate bears to the value of the entire gross estate reduced by 
the aggregate amount of the charitable and marital deductions allowed 
under sections 2055, 2056, and 2106 (a) (2). 
(b) In applying, with respect to any gift, the ratio stated in sub-
section (a), the value at the time of the gift or at the time of the 
death, referred to in such ratio, shall be reduced— 
(1) by such amount as will properly reflect the amount of such 
gift which was excluded in determining (for purposes of section 
2503 (a)), or of corresponding provisions of prior laws, the total 
amount of gifts made during the year in which the gift was made; 
(2) if a deduction with respect to such gift is allowed under sec-
tion 2056 (a) (relating to marital deduction)—then by an amount 
which bears the same ratio to such value (reduced as provided in 
paragraph (1) of this subsection) as the aggregate amount of the 
marital deductions allowed under section 2056 (a) bears to the 
aggregate amount of such marital deductions computed without 
regard to subsection (c) thereof; and 
(3) if a deduction with respect to such gift is allowed under sec-
tions 2055 or 2106 (a) (2) (relating to charitable deduction)—then 
by the amount of such value, reduced as provided in paragraph (1) 
of this subsection. 
(c) Where the decedent was the donor of the gift but, under the 
provisions of section 2513, or corresponding provisions of prior laws, 
the gift was considered as made one-half by his spouse— 
(1) the term "the amount of the tax paid on a gift under chapter 
12", as used in subsection (a), includes the amounts paid with 
respect to each half of such gift, the amount paid with respect to 
each being computed in the manner provided in subsection (d); and 
(2) in applying, with respect to such gift, the ratio stated in 
subsection (a), the value at the time of the gift or at the time of 
the death, referred to in such ratio, includes such value with re-
spect to each half of such gift, each such value being reduced as 
provided in paragraph (1) of subsection (b). 
(d) (1) For purposes of subsection (a), the amount of tax paid on 
a gift under chapter 12, or under corresponding provisions of prior 
laws, with respect to any gift shall be an amount which bears the 
same ratio to the total tax paid for the year in which the gift was 
made as the amount of such gift bears to the total amount of 
taxable gifts (computed without deduction of the specific exemption) 
for such year. 
(2) For purposes of paragraph (1), the "amount of such gift" 
shall be the amount included with respect to such gift in deter-
mining (for the purposes of section 2503 (a), or of corresponding 
provisions of prior laws) the total amount of gifts made during 
such year, reduced by the amount of any deduction allowed with 
respect to such gift under section 2522, or under corresponding 
provisions of prior laws (relating to charitable deduction), or under 
section 2523 (relating to marital deduction). 
§ 2012(a) 
CH. 11—^ESTATE TAX 
§77 
SEC. 2013. CREDIT FOR TAX ON PRIOR TRANSFERS. 
(a) GENERAL RULE.—The tax imposed by section 2001 shall be 
credited with all or a part of the amount of the Federal estate tax paid 
with respect to the transfer of property (including property passing 
as a result of the exercise or non-exercise of a power of appointment) 
to the decedent by or from a person (herein designated as a "trans-
feror") who died within 10 years before, or within 2 years after, 
the decedent's death. 
If the transferor died within 2 years of the 
death of the decedent, the credit shall be the amount determined 
under subsections (b) and (c). If the transferor predeceased the 
decedent by more than 2 years, the credit shall be the following 
percentage of the amount so determined— 
(1) 80 percent, if within the third or fourth years preceding the 
decedent's death; 
(2) 60 percent, if within the fifth or sixth years preceding the 
decedent's death; 
(3) 40 percent, if within the seventh or eighth years preceding 
the decedent's death; and 
(4) 20 percent, if within the ninth or tenth years preceding the 
decedent's death. 
(b) COMPUTATION OF CREDIT.—Subject to the limitation prescribed 
in subsection (c), the credit provided by this section shall be an amount 
which bears the same ratio to the estate tax paid (adjusted as indicated 
hereinafter) with respect to the estate of the transferor as the value of 
the property transferred bears to the taxable estate of the transferor 
(determined for purposes of the estate tax) decreased by any death 
taxes paid with respect to such estate and increased by the exemptiou 
provided for by section 2052 or section 2106 (a) (3), or the correspond-
ing provisions of prior laws, in determining the taxable estate of the 
transferor for purposes of the estate tax. 
For purposes of the pre-
ceding sentence, the estate tax paid shall be the Federal estate tax 
paid increased by any credits allowed against such estate tax under 
section 2012, or corresponding provisions of prior laws, on account of 
gift tax, and for any credits allowed against such estate tax under this 
section on account of prior transfers where the transferor acquired 
property from a person who died within 10 years before the death of 
the decedent. 
(c) LIMITATION ON CREDIT.— 
(1) IN GENERAL.—The credit provided in this section shall not 
exceed the amount by which— 
(A) the estate tax imposed by section 2001 or section 2101 
(after deducting the credits for State death taxes, gift tax, and 
foreign death taxes provided for in sections 2011, 2012, and 2014) 
computed without regard to this section, exceeds 
(B) such tax computed by excluding from the decedent's gross 
estate the value of such property transferred and, if applicable, 
by making the adjustment hereinafter indicated. 
If any deduction is otherwise allowable under section 2055 or section 
2106 (a) (2) (relating to charitable deduction) then, for the purpose 
of the computation indicated in subparagraph (B), the amount of 
such deduction shall be reduced by that part of such deduction 
which the value of such property transferred bears to the decedent's 
entire gross estate reduced by the deductions allowed under sections 
§ 2013(c)(1) 
49012°—54 
27 
378 
INTERNAL REVENUE CODE OF 1954 
2053 and 2054, or section 2106 (a) (1) (relating to deduction for 
expenses, losses, etc.). 
For purposes of this section, the value of 
such property transferred shall be the value as provided for in 
subsection (d) of this section. 
(2) Two O
R MORE TRANSFERORS.—If the Credit provided in this 
section relates to property received from 2 or more transferors, 
the limitation provided in paragraph (1) of this subsection shall 
be computed by aggregating the value of the property so trans-
ferred to the decedent. 
The aggregate limitation so determined 
shall be apportioned in accordance with the value of the property 
transferred to the decedent by each transferor. 
(d) VALUATION OF PROPERTY TRANSFERRED.—The value of prop-
erty transferred to the decedent shall be the value used for the purpose 
of determining the Federal estate tax liability of the estate of the 
transferor but— 
(1) there shall be taken into account the effect of the tax imposed 
by section 2001 or 2101, or any estate, succession, legacy, or inheri-
tance tax, on the net value to the decedent of such property; 
(2) where such property is encumbered in any manner, or where 
the decedent incurs any obligation imposed by the transferor with 
respect to such property, such encumbrance or obligation shall be 
taken into account in the same manner as if the amount of a gift 
to the decedent of such property was being determined; and 
(3) if the decedent was the spouse of the transferor at the time 
of the transferor's death, the net value of the property transferred 
to the decedent shall be reduced by the amount allowed under 
section 2056 (relating to marital deductions), or the corresponding 
provision of prior law, as a deduction from the gross estate of the 
transferor. 
(e) PROPERTY DEFINED.—For purposes of this section, the term 
"property" includes any beneficial interest in property, including a 
general power of appointment (as defined in section 2041). 
SEC. 2014. CREDIT FOR FOREIGN DEATH TAXES. 
(a) IN GENERAL.—The tax imposed by section 2001 shall be 
credited with the amount of any estate, inheritance, legacy, or suc-
cession taxes actually paid to any foreign country in respect of any 
property situated within such foreign country and included in the 
gross estate (not including any such taxes paid with respect to the 
estate of a person other than the decedent). 
If the decedent at the 
time of his death was not a citizen of the United States, credit shall not 
be allowed under this section unless the foreign country of which 
such decedent was a citizen or subject, in imposing such taxes, allows 
a similar credit in the case of a citizen of the United States resident 
in such country. 
The determination of the country within which 
property is situated shall be made in accordance with the rules appli-
cable under subchapter B (sec. 2101 and following) in determining 
whether property is situated within or without the United States. 
(b) LIMITATIONS ON CREDIT.—The credit provided in this section 
with respect to such taxes paid to any foreign country— 
(1) shall not, with respect to any such tax, exceed an amount 
which bears the same ratio to the amount of such tax actually 
paid to such foreign country as the value of property which is—• 
(A) situated within such foreign country, 
§2013(cKl) 
CH. 11—ESTATE TAX 
379 
(B) subjected to such tax, and 
(C) included in the gross estate 
bears to the value of all property subjected to such tax; and 
(2) shall not, with respect to all such taxes, exceed an amount 
which bears the same ratio to the tax imposed by section 2001 
(after deducting from such tax the credits provided by sections 
2011 and 2012) as the value of property which is— 
(A) situated within such foreign country, 
(B) subjected to the taxes of such foreign country, and 
(C) included in the gross estate 
bears to the value of the entire gross estate reduced by the aggre-
gate amount of the deductions allowed under sections 2055 and 
2056. 
(c) VALUATION OF PROPERTY,— 
(1) The values referred to in the ratio stated in subsection (b) (1) 
are the values determined for purposes of the tax imposed by such 
foreign country. 
(2) The values referred to in the ratio stated in subsection (b) (2) 
are the values determined under this chapter; but, in applying 
such ratio, the value of any property described in subparagraphs (A), 
(B), and (C) thereof shall be reduced by such amount as will prop-
erly reflect, in accordance with regulations prescribed by the Secre-
tary or his delegate, the deductions allowed in respect of such 
property under sections 2055 and 2056 (relating to charitable and 
marital deductions). 
(d) PROOF OF CREDIT.—The credit provided in this section shall 
be allowed only if the taxpayer establishes to the satisfaction of the 
Secretary or his delegate — 
(1) the amount of taxes actually paid to the foreign country, 
(2) the amount and date of each payment thereof, 
(3) the description and value of the property in respect of which 
such taxes are imposed, and 
(4) all other information necessary for the verification and com-
putation of the credit. 
(e) PERIOD OF LIMITATION.—The credit provided in this section 
shall be allowed only for such taxes as were actually paid and credit 
therefor claimed within 4 years after the filing of the return required 
by section 6018, except that— 
(1) If a petition for redetermination of a deficiency has been filed 
with the Tax Court within the time prescribed in section 6213 (a), 
then within such 4-year period or before the expiration of 60 days 
after the decision of the Tax Court becomes final. 
(2) If, under section 6161, an extension of time has been granted 
for payment of the tax shown on the return, or of a deficiency, then 
within such 4-year period or before the date of the expiration of 
the period of the extension. 
Refund based on such credit may (despite the provisions of sections 
6511 and 6512) be made if claim therefor is filed within the period 
above provided. 
Any such refund shall be made without interest. 
SEC. 2015. CREDIT FOR DEATH TAXES ON REMAINDERS. 
Where an election is made under section 6163 (a) to postpone pay-
ment of the tax imposed by section 2001 or 2101, such part of any 
estate, inheritance, legacy, or succession taxes allowable as a credit 
§2015 
380 
INTERNAL REVENUE CODE OF 1954 
under section 2011 or 2014, as is attributable to a reversionary or 
remainder interest may be allowed as a credit against the tax attribut-
able to such interest, subject to the limitations on the amount of the 
credit contained in such sections, if such part is paid, and credit 
therefor claimed, at any time before the expiration of 60 days after 
the termination of the precedent interest or interests in the property, 
SEC. 2016. RECOVERY OF TAXES CLAIMED AS CREDIT. 
If any tax claimed as a credit under section 2011 or 2014 is recovered 
from any foreign country, any State, any Territory or possession 
of the United States, or the District of Columbia, the executor, 
or any other person or persons recovering such amount, shall give 
notice of such recovery to the Secretary or his delegate at such 
time and in such manner as may be required by regulations pre-
scribed by him, and the Secretary or his delegate shall (despite the pro-
visions of section 6501) redetermine the amount of the tax under this 
chapter and the amount, if any, of the tax due on such redetermina-
tion, shall be paid by the executor or such person or persons, as the 
case may be, on notice and demand. 
No interest shall be assessed or 
collected on any amount of tax due on any redetermination by the 
Secretary or his delegate, resulting from a refund to the executor of 
tax claimed as a credit under section 2014, for any period before the 
receipt of such refund, except to the extent interest was paid by the 
foreign country on such refund. 
PART III—GROSS ESTATE 
Sec. 2031. Definition of gross estate. 
Sec. 2032. Alternate valuation. 
Sec. 2033. Property in which the decedent had an interest. 
Sec. 2034. Dower or curtesy interests. 
Sec. 2035. Transactions in contemplation of death. 
Sec. 2036. Transfers with retained life estate. 
Sec. 2037. Transfers taking effect at death. 
Sec. 2038. Revocable transfers. 
Sec. 2039. Annuities. 
. 
Sec. 2040. Joint interests. 
Sec. 2041. Powers of appointment. 
Sec. 2042. Proceeds of life insurance. 
Sec. 2043. Transfers for insufficient consideration. 
' 
Sec. 2044. Prior interests. 
SEC. 2031. DEFINITION OF GROSS ESTATE. 
(a) GENERAL.—The value of the gross estate of the decedent shall 
be determined by including to the extent provided for in this part, the 
value at the time of his death of all property, real or personal, tangible 
or intangible, wherever situated, except real property situated outside 
of the United States. 
(b) VALUATION OF UNLISTED STOCK AND SECURITIES.—In the case 
of stock and securities of a corporation the value of which, by reason 
of their not being listed on an exchange and by reason of the absence 
of sales thereof, cannot be determined with reference to bid and asked 
prices or with reference to sales prices, the value thereof shall be 
determined by taking into consideration, in addition to all other 
factors, the value of stock or securities of corporations engaged in the 
same or a similar line of business which are listed on an exchange. 
§2015 
CH. 11—^ESTATE TAX 
381 
SEC. 2032. ALTERNATE VALUATION. 
(a) GENERAL.—The value of the gross estate may be determined, 
if the executor so elects, by valuing all the property included in the 
gross estate as follows: 
(1) In the case of property distributed, sold, exchanged, or other-
wise disposed of, within 1 year after the decedent's death such 
property shall be valued as of the date of distribution, sale, exchange, 
or other disposition. 
(2) In the case of property not distributed, sold, exchanged, or 
otherwise disposed of, within 1 year after the decedent's death such 
property shall be valued as of the date 1 year after the decedent's 
death. 
(3) Any interest or estate which is affected by mere lapse of time 
shall be included at its value as of the time of death (instead of the 
later date) with adjustment for any difference in its value as of the 
later date not due to mere lapse of time. 
(b) SPECIAL RULES.—No deduction under this chapter of any item 
shall be allowed if allowance for such item is in effect given by'the 
alternate valuation provided by this section. 
Wherever in any other 
subsection or section of this chapter reference is made to the value of 
property at the time of the decedent's death, such reference shall be 
deemed to refer to the value of such property used in determining the 
value of the gross estate. 
In case of an election made by the executor 
under this section, then— 
(1) for purposes of the charitable deduction under section 2055 or 
2106 (a) (2), any bequest, legacy, devise, or transfer enumerated 
therein, and 
(2) for the purpose of the marital deduction under section 
2056, any interest in property passing to the surviving spouse, 
shall be valued as of the date of the decedent's death with adjustment 
for any difference in value (not due to mere lapse of time or the occur-
rence or nonoccurrence of a contingency) of the property as of the 
date 1 year after the decedent's death (substituting, in the case of 
property distributed by the executor or trustee, or sold, exchanged, 
or otherwise disposed of, during such 1-year period, the date thereof). 
(c) TIME OF ELECTION.—The election provided for in this section 
shall be exercised by the executor on his return if filed within the time 
prescribed by law or before the expiration of any extension of time 
granted pursuant to law for the filing of the return, 
SEC. 2033. PROPERTY IN WHICH THE DECEDENT HAD AN INTEREST. 
The value of the gross estate shall include the value of all property 
(except real property situated outside of the United States) to the 
extent of the interest therein of the decedent at the time of his death. 
SEC. 2034. DOWER OR CURTESY INTERESTS. 
The value of the gross estate shall include the value of all property 
(except real property situated outside of the United States) to the 
extent of any interest therein of the surviving spouse, existing at the 
time of the decedent's death as dower or curtesy, or by virtue of a 
statute creating an estate in lieu of dower or curtesy. 
SEC. 2035. TRANSACTIONS IN CONTEMPLATION OF DEATH. 
(a) GENERAL RULE.—The value of the gross estate shall include 
the value of all property (except real property situated outside of the 
§ 2035(a) 
382 
INTERNAL REVENUE CODE OF 1954 
United States) to the extent of any interest therein of which the 
decedent has at any time made a transfer (except in case of a bona 
fide sale for an adequate and full consideration in money or money's 
worth), by trust or otherwise, in contemplation of his death. 
(b) APPLICATION OF GENERAL RULE.—If the decedent within a 
period of 3 years ending with the date of his death (except in case 
of a bona fide sale for an adequate and full consideration in money or 
money's worth) transferred an interest in property, relinquished a 
power, or exercised or released a general power of appointment, such 
transfer, relinquishment, exercise, or release shall, unless shown to the 
contrary, be deemed to have been made in contemplation of death 
within the meaning of this section and sections 2038 and 2041 (relating 
to revocable transfers and powers of appointment); but no such trans-
fer, relinquishment, exercise, or release made before such 3-year period 
shall be treated as having been made in contemplation of death. 
SEC. 2036. TRANSFERS WITH RETAINED LIFE ESTATE. 
(a) GENERAL RULE.—The value of the gross estate shall include the 
value of all property (except real property situated outside of the 
United States) to the extent of any interest therein of which the 
decedent has at any time made a transfer (except in case of a bona fide 
sale for an adequate and full consideration in money or money's 
worth), by trust or otherwise, under which he has retained for his life 
or for any period not ascertainable without reference to his death or 
for any period which does not in fact end before his death— 
(1) the possession or enjoyment of, or the right to the income 
from, the property, or 
(2) the right, either alone or in conjunction with any person, to 
designate the persons who shall possess or enjoy the property or the 
income therefrom. 
(b) LIMITATION ON APPLICATION or GENERAL RULE.—This section 
shall not apply to a transfer made before March 4, 1931; nor to a 
transfer made after March 3, 1931, and before June 7, 1932, unless the 
property transferred would have been includible in the decedent's 
gross estate by reason of the amendatory language of the joint resolu-
tion of March 3, 1931 (46 Stat. 1516). 
SEC. 2037. TRANSFERS TAKING EFFECT AT DEATH. 
(a) GENERAL RULE.—The value of the gross estate shall include 
the value of all property (except real property situated outside of the 
United States) to the extent of any interest therein of which the dece-
dent has at any time after September 7,1916, made a transfer (except 
in case of a bona fide sale for an adequate and full consideration in 
money or money's worth), by trust or otherwise, if— 
(1) possession or enjoyment of the property can, through owner-
ship of such interest, be obtained only by surviving the decedent, 
and 
(2) the decedent has retained a reversionary interest in the prop-
erty (but in the case of a transfer made before October 8, 1949, only 
if such reversionary interest arose by the express terms of the instru-
ment of transfer), and the value of such reversionary interest im-
mediately before the death of the decedent exceeds 5 percent of the 
value of such property. 
§ 2035(a) 
CH. 11 
ESTATE TAX 
383 
(b) SPECIAL RULES.—For purposes of this section, the 
term 
"reversionary interest" includes a possibiUty that property trans-
ferred by the decedent— 
(1) may return to him or his estate, or 
(2) may be subject to a power of disposition by him, 
but such term does not include a possibility that the income alone 
from such property may return to him or become subject to a power 
of disposition by him. 
The value of a reversionary interest imme-
diately before the death of the decedent shall be determined (without 
regard to the fact of the decedent's death) by usual methods of valua-
tion, including the use of tables of mortality and actuarial principles, 
under regulations prescribed by the Secretary or his delegate. 
In 
determining the value of a possibility that property may be subject 
to a power of disposition by the decedent, such possibility shall be 
valued as if it were a possibility that such property may return to the 
decedent or his estate. 
Notwithstanding the foregoing, an interest 
so transferred shall not be included in the decedent's gross estate 
under this section if possession or enjoyment of the property could 
have been obtained by any beneficiary during the decedent's life 
through the exercise of a general power of appointment (as defined in 
section 2041) which in fact was exercisable immediately before the 
decedent's death. 
SEC. 2038. REVOCABLE TRANSFERS. 
(a) I N GENERAL.—The value of the gross estate shall include the 
value of all property (except real property situated outside of the 
United States)— 
(1) TRANSFERS AFTER JUNE 22, 1936.—To the extent of any in-
terest therein of which the decedent has at any time made a trans-
fer (except in case of a bona fide sale for an adequate and full con-
sideration in money or money's worth), by trust or otherwise, 
where the enjoyment thereof was subject at the date of his death 
to any change through the exercise of a power (in whatever ca-
pacity exercisable) by the decedent alone or by the decedent in 
conjunction with any other person (without regard to when or 
from what source the decedent acquired such power), to alter, 
amend, revoke, or terminate, or where any such power is relin-
quished in contemplation of decedent's death. 
(2) TRANSFERS ON OR BEFORE JUNE 22, 1936.—To the extent of 
any interest therein of which the decedent has at any time made a 
transfer (except in case of a bona fide sale for an adequate and full 
consideration in money or money's worth), by trust or otherwise, 
where the enjoyment thereof was subject at the date of his death 
to any change through the exercise of a power, either by the decedent 
alone or in conjunction with any person, to alter, amend, or revoke, 
or where the decedent relinquished any such power in contemplation 
of his death. 
Except in the case of transfers made after June 22, 
1936, no interest of the decedent of which he has made a transfer 
shall be included in the gross estate under paragraph (1) unless it 
is includible under this paragraph. 
(b) DATE OF EXISTENCE OF POWER.—For purposes of this section, 
the power to alter, amend, revoke, or terminate shall be considered to 
exist on the date of the decedent's death even though the exercise of 
the power is subject to a precedent giving of notice or even though 
§ 2038(b) 
384 
INTERNAL REVENUE CODE OF 1954 
the alteration, amendment, revocation, or termination takes effect 
only on the expiration of a stated period after the exercise of the power, 
whether or not on or before the date of the decedent's death notice 
has been given or the power has been exercised. 
In such cases proper 
adjustment shall be made representing the interests which would have 
been excluded from the power if the decedent had lived, and for such 
purpose, if the notice has not been given or the power has not been 
exercised on or before the date of his death, such notice shall be 
considered to have been given, or the power exercised, on the date 
of his death. 
SEC. 2039. ANNUITIES. 
(a) GENERAL.—The gross estate shall include the value of an annu-
ity or other payment receivable by any beneficiary by reason of 
surviving the decedent under any form of contract or agreement 
entered into after March 3, 1931 (other than as insurance under 
policies on the life of the decedent), if, under such contract or agree-
ment, an annuity or other payment was payable to the decedent, 
or the decedent possessed the right to receive such annuity or pay-
ment, either alone or in conjunction with another for his life or for 
any period not ascertainable without reference to his death or for any 
period which does not in fact end before his death. 
(b) AMOUNT INCLUDIBLE.—Subsection (a) shall apply to only such 
part of the value of the annuity or other payment receivable under 
such contract or agreement as is proportionate to that part of the 
purchase price therefor contributed by the decedent. 
For purposes 
of this section, any contribution by the decedent's employer or 
former employer to the purchase price of such contract or agree-
ment (whether or not to an employee's trust or fund forming part of 
a pension, annuity, retirement, bonus or profit sharing plan) shall be 
considered to be contributed by the decedent if made by reason of 
his employment. 
(c) EXEMPTION 
OF ANNUITIES 
UNDER 
CERTAIN 
TRUSTS 
AND 
PLANS.—Notwithstanding the provisions of this section or of any 
provision of law, there shall be excluded from the gross estate the 
value of an annuity or other payment receivable by any beneficiary 
(other than the executor) under— 
(1) an employees' trust (or under a contract purchased by an 
employees' trust) forming part of a pension, stock bonus, or profit-
sharing plan which, at the time of the decedent's separation from 
employment (whether by death or otherwise), or at the time of 
termination of the plan if earlier, met the requirements of section 
401 (a); or 
(2) a retirement annuity contract purchased by an employer 
(and not by an employees' trust) pursuant to a plan which, at the 
time of decedent's separation from employment (by death or other-
wise), or at the time of termination of the plan if earlier, met the 
requirements of section 401 (a) (3). 
If such amounts payable after the death of the decedent under a plan 
described in paragraph (1) or (2) are attributable to any extent to 
payments or contributions made by the decedent, no exclusion shall 
be allowed for that part of the value of such amounts in the propor-
tion that the total payments or contributions made by the decedent 
bears to the total payments or contributions made. 
For purposes of 
§ 2038(b) 
CH. 11—ESTATE TAX 
^iS 
this subsection, contributions or payments made by the decedent's 
employer or former employer under a trust or plan described in this 
subsection shall not be considered to be contributed by the decedent. 
This subsection shall apply to all decedents dying after December 31, 
1953. 
SEC. 2040. JOINT INTERESTS. 
The value of the gross estate shall include the value of all property 
(except real property situated outside of the United States) to the 
extent of the interest therein held as joint tenants by the decedent 
and any other person, or as tenants by the entirety by the decedent 
and spouse, or deposited, with any person carrying on the banking 
business, in their joint names and payable to either or the survivor, 
except such part thereof as may be shown to have originally belonged 
to such other person and never to have been received or acquired by 
the latter from the decedent for less than an adequate and full con-
sideration in money or money's worth: Provided, That where such 
property or any part thereof, or part of the consideration with which 
such property was acquired, is shown to have been at any time 
acquired by such other person from the decedent for less than an 
adequate and full consideration in money or money's worth, there 
shall be excepted only such part of the value of such property as is 
proportionate to the consideration furnished by such other person: 
Provided further, That where any property has been acquired by gift, 
bequest, devise, or inheritance, as a tenancy by the entirety by the 
decedent and spouse, then to the extent of one-half of the value 
thereof, or, where so acquired by the decedent and any other person 
as joint tenants and their interests are not otherwise specified or fixed 
by law, then to the extent of the value of a fractional part to be 
determined by dividing the value of the property by the number of 
joint tenants. 
SEC. 2041. POWERS OF APPOINTMENT. 
(a) I N GENERAL,—The value of the gross estate shall include the 
value of all property (except real property situated outside of the 
United States)— 
(1) POWERS OF APPOINTMENT CREATED ON OR BEFORE OCTOBER 
21, 1942.—To the extent of any property with respect to which a 
general power of appointment created on or before October 21, 
. 
1942, is exercised by the decedent— 
(A) by will, or 
(B) by a disposition which is of such nature that if it were a 
•
= 
transfer of property owned by the decedent, such property 
would be includible in the decedent's gross estate under sections 
2035 to 2038, inclusive; 
but the failure to exercise such a power or the complete release of 
such a power shall not be deemed an exercise thereof. 
If a general 
power of appointment created on or before October 21, 1942, has 
been partially released so that it is no longer a general power of 
, 
appointment, the exercise of such power shall not be deemed to be 
the exercise of a general power of appointment if— 
, 
(i) such partial release occurred before November 1, 1951, or 
j | , „ 
(ii) the donee of such power was under a legal disability to 
release such power on October 21, 1942, and such partial 
§ 2041(a)(1) 
386 
INTERNAL REVENUE CODE OF 1954 
release occurred not later than 6 months after the termination 
of such legal disability. 
(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, 
1942, or with respect to which the decedent has at any time exercised 
or released such a power of appointment by a disposition which is 
of such nature that if it were a transfer of property owned by the 
decedent, such property would be includible in the decedent's gross 
estate under sections 2035 to 2038, inclusive. 
A disclaimer or 
renunciation of such a power of appointment shall not be deemed a 
release of such power. 
For purposes of this paragraph (2), the 
power of appointment shall be considered to exist on the date of 
the decedent's death even though the exercise of the power is sub-
ject to a precedent giving of notice or even though the exercise of 
the power takes effect only on the expiration of a stated period 
after its exercise, whether or not on or before the date of the 
decedent's death notice has been given or the power has been 
exercised. 
(3) CREATION OF ANOTHER POWER IN CERTAIN CASES.—^To 
the 
extent of any property with respect to which the decedent— 
(A) by will, or 
(B) by a disposition which is of such nature that if it were a 
transfer of property owned by the decedent such property would 
be includible in the decedent's gross estate under section 2035, 
2036, or 2037, 
exercises a power of appointment created after October 21, 1942, 
by creating another power of appointment which under the appli-
cable local law can be validly exercised so as to postpone the vesting 
of any estate or interest in such property, or suspend the absolute 
ownership or power of alienation of such property, for a period 
ascertainable without regard to the date of the creation of the first 
power, 
(b) DEFINITIONS.—For purposes of subsection (a)— 
(1) GENERAL 
POWER 
OF APPOINTMENT.—The term 
"general 
power of appointment" means a power which is exercisable in 
favor of the decedent, his estate, his creditors, or the creditors of 
his estate; except that— 
(A) A power to consume, invade, or appropriate property for 
the benefit of the decedent which is limited by an ascertainable 
standard relating to the health, education, support, or main-
tenance of the decedent shall not be deemed a general power of 
appointment. 
(B) A power of appointment created on or before October 21, 
1942, which is exercisable by the decedent only in conjunction 
with another person shall not be deemed a general power of 
appointment. 
(C) In the case of a power of appointment created after Octo-
ber 21, 1942, which is exercisable by the decedent only in con-
junction with another person— 
(i) If the power is not exercisable by the decedent except in 
conjunction with the creator of the power—such power shall 
not be deemed a general power of appointment. 
§ 2041(a)(1) 
CH. 11—ESTATE TAX 
387 
iv 
(ii) If the power is not exercisable by the decedent except in 
conjunction with a person having a substantial interest in the 
property, subject to the power, which is adverse to exercise of 
the power in favor of the decedent—such power shall not be 
deemed a general power of appointment. 
For the purposes of 
this clause a person who, after the death of the decedent, may 
be possessed of a power of appointment (with respect to 
the property subject to the decedent's power) which he may 
exercise in his own favor shall be deemed as having an interest in 
'( 
the property and such interest shall be deemed adverse to such 
exercise of the decedent's power. 
j 
(iii) If (after the application of clauses (i) and (ii)) the 
i 
power is a general power of appointment and is exercisable 
in favor of such other person—such power shall be deemed a 
general power of appointment only in respect of a fractional 
part of the property subject to such power, such part to be 
determined by dividing the value of such property by the 
• 
number of such persons (including the decedent) in favor of 
whom such power is exercisable. 
For purposes of clauses (ii) and (iii), a power shall be deemed 
' 
to be exercisable in favor of a person if it is exercisable in favor 
of such person, his estate, his creditors, or the creditors of his 
estate. 
(2) LAPSE OF POWER.—The lapse of a power of appointment 
created after October 21, 1942, during the life of the individual 
possessing the power shall be considered a release of such power. 
The preceding sentence shall apply with respect to the lapse of 
powers during any calendar year only to the extent that the prop-
erty, which could have been appointed by exercise of such lapsed 
powers, exceeded in value, at the time of such lapse, the greater of 
the following amounts: 
(A) $5,000, or 
(B) 5 percent of the aggregate value, at the time of such lapse, 
of the assets out of which, or the proceeds of which, the exercise 
of the lapsed powers could have been satisfied. 
(3) DATE OF CREATION OF POWER.—For purposes of this section, 
a power of appointment created by a will executed on or before 
October 21, 1942, shall be considered a power created on or before 
such date if the person executing such will dies before July 1, 1949, 
without having republished such will, by codicil or otherwise, after 
October 21, 1942. 
SEC. 2042. PROCEEDS OF LIFE INSURANCE. 
The value of the gross estate shall include the value of all property—-
(1) RECEIVABLE BY THE EXECUTOR.—To the extent of the amount 
receivable by the executor as insurance under policies on the life 
of the decedent. 
(2) RECEIVABLE BY OTHER BENEFICIARIES.—To the extent of the 
amount receivable by all other beneficiaries as insurance under 
policies on the life of the decedent with respect to which the de-
cedent possessed at his death any of the incidents of ownership, 
exercisable either alone or in conjunction with any other person. 
For purposes of the preceding sentence, the term "incident of 
ownership" includes a reversionary interest (whether arising by the 
§ 2042(2) 
388 
INTERNAL REVENUE CODE OF 1954 
express terms of the policy or other instrument or by operation of 
law) only if the value of such reversionary interest exceeded 5 
percent of the value of the policy immediately before the death of 
the decedent. 
As used in this paragraph, the term "reversionary 
interest" includes a possibility that the policy, or the proceeds of the 
policy, may return to the decedent or his estate, or may be subject 
to a power of disposition by him. 
The value of a reversionary 
interest at any time shall be determined (without regard to the fact 
of the decedent's death) by usual methods of valuation, including 
the use of tables of mortality and actuarial principles, pursuant to 
regulations prescribed by the Secretary or his delegate. 
In deter-
mining the value of a possibility that the policy or proceeds thereof 
may be subject to a power of disposition by the decedent, such 
possibility shall be valued as if it were a possibility that such policy 
or proceeds may return to the decedent or his estate. 
SEC. 2043. TRANSFERS FOR INSUFFICIENT 
CONSIDERATION. 
(a) I N GENERAL.—If any one of the transfers, trusts, interests, 
rights, or powers enumerated and described in sections 2035 to 2038, 
inclusive, and section 2041 is made, created, exercised, or relinquished 
for a consideration in money or money's worth, but is not a bona fide 
sale for an adequate and full consideration in money or money's worth, 
there shall be included in the gross estate only the excess of the fair 
market value at the time of death of the property otherwise to be 
included on account of such transaction, over the value of the con-
sideration received therefor by the decedent. 
(b) MARITAL RIGHTS N O T TREATED AS CONSIDERATION.—For pur-
poses of this chapter, a relinquishment or promised relinquishment 
of dower or curtesy, or of a statutory estate created in lieu of dower or 
curtesy, or of other marital rights in the decedent's property or estate, 
shall not be considered to any extent a consideration "in money or 
money's worth." 
SEC. 2044. PRIOR INTERESTS. 
Except as otherwise specifically provided therein, sections 2034 to 
2042, inclusive, shall apply to the transfers, trusts, estates, interests, 
rights, powers, and relinquishment of powers, as severally enumerated 
and described therein, whenever made, created, arising, existing, 
exercised, or relinquished. 
PART IV—TAXABLE ESTATE 
Sec. 2051. Definition of taxable estate. 
Sec. 2052. Exemption. 
Sec. 2053. Expenses, indebtedness, and taxes. 
Sec. 2054. Losses. 
Sec. 2055. Transfers for public, charitable, and religious uses. 
Sec. 2056. Bequests, etc., to surviving spouse. 
SEC. 2051. DEFINITION OF TAXABLE ESTATE. 
For purposes of the tax imposed by section 2001, the value of the 
taxable estate shall be determined by deducting from the value of 
the gross estate the exemption and deductions provided for in this 
part. 
§2042(2) 
CH. 11—ESTATE TAX 
SEC. 2052. EXEMPTION. 
For purposes of the tax imposed by section 2001, the value of the 
taxable estate shall be determined by deducting from the value of the 
gross estate an exemption of $60,000. 
SEC. 2053. 
EXPENSES, INDEBTEDNESS, AND TAXES. 
(a) GENERAL RULE.—For purposes of the tax imposed by section 
2001, the value of the taxable estate shall be determined by deducting 
from the value of the gross estate such amounts— 
(1) for funeral expenses, 
(2) for administration expenses, 
(3) for claims against the estate, and 
(4) for unpaid mortgages on, or any indebtedness in respect of, 
property where the value of the decedent's interest therein, un-
diminished by such mortgage or indebtedness, is included in the 
value of the gross estate, 
as are allowable by the laws of the jurisdiction, whether within or 
without the United States, under which the estate is being administered. 
(b) OTHER ADMINISTRATION EXPENSES.—Subject to the limitations 
in paragraph (1) of subsection (c), there shall be deducted in deter 
muling the taxable estate amounts representing expenses incurred 
in administering property not subject to claims which is included 
in the gross estate to the same extent such amounts would be allowable 
as a deduction under subsection (a) if such property were subject to 
claims, and such amounts are paid before the expiration of the period 
of limitation for assessment provided in section 6501. 
(c) LIMITATIONS.— 
(1) LIMITATIONS APPLICABLE TO SUBSECTIONS (a) AND (b).— 
(A) CONSIDERATION FOR CLAIMS.—The deduction allowed by 
this section in the case of claims against the estate, unpaid 
mortgages, or any indebtedness shall, when founded on a promise 
or agreement, be limited to the extent that they were contracted 
bona fide and for an adequate and full consideration in money 
or money's worth; except that in any case in which any such 
claim is founded on a promise or agreement of the decedent to 
make a contribution or gift to or for the use of any donee de-
scribed in section 2055 for the purposes specified therein, the 
; 
deduction for such claims shall not be so limited, but shall be 
limited to the extent that it would be allowable as a deduction 
under section 2055 if such promise or agreement constituted a 
j 
bequest. 
(B) CERTAIN TAXES.—Any income taxes on income received 
after the death of the decedent, or property taxes not accrued 
before his death, or any estate, succession, legacy, or inheritance 
taxes, shall not be deductible under this section. 
(2) LIMITATIONS APPLICABLE ONLY TO SUBSECTION (a),—In the 
case of the amounts described in subsection (a), there shall be dis-
allowed the amount by which the deductions specified therein exceed 
the value, at the time of the decedent's death, of property subject 
to claims, except to the extent that such deductions represent 
amounts paid before the date prescribed for the filing of the estate 
tax return. For purposes of this section, the term "property subject 
to claims" means property includible in the gross estate of the 
decedent which, or the avails of which, would under the applicable 
§ 2053(c)(2) 
390 
INTERNAL REVENUE CODE OF 1954 
law, bear the burden of the payment of such deductions in the final 
adjustment and settlement of the estate, except that the value of 
the property shall be reduced by the amount of the deduction under 
section 2054 attributable to such property, 
(d) MARITAL RIGHTS.— 
For provisions that relinquishment of marital rights shall not be 
deemed a consideration "in money or money's worth," see section 
2043 (b). 
SEC. 2054. LOSSES. 
For purposes of the tax imposed by section 2001, the value of the 
taxable estate shall be determined by deducting from the value of the 
gross estate losses incurred during the settlement of estates arising 
from fires, storms, shipwrecks, or other casualties, or from theft, when 
such losses are not compensated for by insurance or otherwise. 
SEC. 2055. TRANSFERS FOR PUBLIC, CHARITABLE, AND RELIGIOUS 
USES. 
(a) IN GENERAL.—For purposes of the tax imposed by section 2001, 
the value of the taxable estate shall be determined by deducting from 
the value of the gross estate the amount of all bequests, legacies, 
devises, or transfers (including the interest which falls into any such 
bequest, legacy, devise, or transfer as a result of an irrevocable dis-
claimer of a bequest, legacy, devise, transfer, or power, if the dis-
claimer is made before the date prescribed for the filing of the estate 
tax return)— 
(1) to or for the use of the United States, any State, Territory, 
any political subdivision thereof, or the District of Columbia, for 
exclusively public purposes; 
(2) to or for the use of any corporation organized and operated 
exclusively for religious, charitable, scientific, literary, or educa-
tional purposes, including the encouragement of art and the pre-
vention of cruelty to children or animals, no part of the net earnings 
of which inures to the benefit of any private stockholder or indi-
vidual, and no substantial part of the activities of which is carrying 
on propaganda, or otherwise attempting, to influence legislation; 
(3) to a trustee or trustees, or a fraternal society, order, or asso-
ciation operating under the lodge system, but only if such contribu-
tions or gifts are to be used by such trustee or trustees, or by such 
fraternal society, order, or association, exclusively for religious, 
charitable, scientific, literary, or educational purposes, or for the 
prevention of cruelty to children or animals, and no substantial 
part of the activities of such trustee or trustees, or of such fraternal 
society, order, or association, is carrying on propaganda, or other-
wise attempting, to influence legislation; or 
(4) to or for the use of any veterans' organization incorporated 
by Act of Congress, or of its departments or local chapters or posts, 
no part of the net earnings of which inures to the benefit of any 
private shareholder or individual. 
For purposes of this subsection, the complete termination before the 
date prescribed for the filing of the estate tax return of a power to 
consume, invade, or appropriate property for the benefit of an indi-
vidual before such power has been exercised by reason of the death 
of such individual or for any other reason shall be considered and 
§2053(0(2) 
CH. 11—^ESTATE TAX 
gOl 
deemed to be an irrevocable disclaimer with the same full force and 
effect as though he had filed such irrevocable disclaimer. 
(b) POWERS OF APPOINTMENT.—Property includible in the de-
cedent's gross estate under section 2041 (relating to powers of appoint-
ment) received by a donee described in this section shall, for purposes 
of this section, be considered a bequest of such decedent. 
(c) DEATH TAXES PAYABLE OUT OF BEQUESTS.—If the tax imposed 
by section 2001, or any estate, succession, legacy, or inheritance taxes, 
are, either by the terms of the will, by the law of the jurisdiction under 
which the estate is administered, or by the law of the jurisdiction 
imposing the particular tax, payable in whole or. in part out of the 
bequests, legacies, or devises otherwise deductible under this section, 
then the amount deductible under this section shall be the amount of 
such bequests, legacies, or devises reduced by the amount of such 
taxes. 
(d) LIMITATION ON DEDUCTION.^—The amount of the deduction 
under this section for any transfer shall not exceed the value of the 
transferred property required to be included in the gross estate. 
(e) DISALLOWANCE OF DEDUCTIONS IN CERTAIN CASES.— 
For disallowance of certain charitable, etc., deductions otherwise 
allowable under this section, see sections 504 and 681. 
(f) OTHER CROSS KEFERENCES.— 
(1) For option as to time for valuation for purpose of deduction under 
1 ; 
this section, see section 2032. 
(2) For exemption of bequests to or for benefit of Library of Congress, 
see section 5 of the Act of March 3, 1925, as amended (56 Stat. 765; 2 
U. S. C. 161). 
(3) For construction of bequests for benefit of the library of the Post 
Office Department as bequests to or for the use of the United States, see 
section 2 of the Act of August 8, 1946 (60 Stat. 924; 5 U. S. C. 393). 
(4) For exemption of bequests for benefit of Office of Naval Records 
and Library, Navy Department, see section 2 of the Act of March 4, 1937 
(50 Stat. 25; 5 U. S. C. 419b). 
(5) For exemption of bequests to or for benefit of National Park 
Service, see section 5 of the Act of July 10,1935 (49 Stat. 478; 16 U. S. C. 
19c). 
(6) For construction of devises or bequests accepted by the Secretary 
of State under the Foreign Service Act of 1946 as devises or bequests to 
or for the use of the United States, see section 1021 (e) of that Act (60 
Stat. 1032; 22 U. S. C. 809). 
(7) For construction of gifts or bequests of money accepted by the 
Attorney General for credit to "Commissary Funds, Federal Prisons" 
as gifts or bequests to or for the use of the United States, see section 2 
of the Act of May 15, 1952, 66 Stat. 73, as amended by the Act of July 
9, 1952, 66 Stat. 479 (31 U. S. C. 725s-4). 
(8) For payment of tax on bequests of United States obligations to the 
United States, see section 24 of the Second Liberty Bond Act, as amend-
ed (59 Stat. 48, § 4; 31 U. S. C. 757e). 
(9) For construction of bequests for benefit of or use in connection 
with the Naval Academy as bequests to or for the use of the United 
States, see section 3 of the Act of March 31,1944 (58 Stat. 135; 34 U. S. C. 
1115b). 
(10) For exemption of bequests for benefit of Naval Academy Muse-
um, see section 4 of the Act of March 26, 1938 (52 Stat. 119; 34 U. S. C. 
1119). 
(11) For exemption of bequests received by National Archives Trust 
Fund IBoard, see section 7 of the National Archives Trust Fund Board 
Act (55 Stat, 582; 44 U. S. C. 300gg). 
§ 2055(f) 
392 
INTERNAL REVENUE CODE OF 1954 
SEC. 2056. BEQUESTS, ETC., TO SURVIVING SPOUSE. 
(a) ALLOWANCE OF MABITAL DEDUCTION.—For purposes of the 
tax imposed by section 2001, the value of the taxable estate shall, 
except as limited by subsections (b), (c), and (d), be determined by 
deducting from the value of the gross estate an amount equal to the 
value of any interest in property which passes or has passed from the 
decedent to his surviving spouse, but only to the extent that such 
interest is included in determining the value of the gross estate. 
(b) LIMITATION IN THE CASE OF L I F E ESTATE OR OTHER TERMI-
NABLE INTEREST.— 
(1) GENERAL RULE,—Where, on the lapse of time, on the occur-
rence of an event or contingency, or on the failure of an event or 
contingency to occur, an interest passing to the surviving spouse wiU 
terminate or fail, no deduction shall be allowed under this section 
with respect to such interest— 
(A) if an interest in such property passes or has passed (for 
less than an adequate and full consideration in money or money's 
worth) from the decedent to any person other than such surviving 
spouse (or the estate of such spouse); and 
(B) if by reason of such passing such person (or his heirs or 
assigns) may possess or enjoy any part of such property after 
such termination or failure of the interest so passing to the 
surviving spouse; 
and no deduction shall be allowed with respect to such interest 
(even if such deduction is not disallowed under subparagraphs (A) 
and (B))— 
(C) if such interest is to be acquired for the surviving spouse, 
pursuant to directions of the decedent, by his executor or by the 
trustee of a trust. 
For purposes of this paragraph, an interest shall not be con-
sidered as an interest which will terminate or fail merely because 
it is the ownership of a bond, note, or similar contractual obligation, 
the discharge of which would not have the effect of an annuity for 
life or for a term. 
(2) INTEREST IN UNIDENTIFIED ASSETS.—Where the assets (in-
cluded in the decedent's gross estate) out of which, or the proceeds 
of which, an interest passing to the surviving spouse may be satisfied 
include a particular asset or assets with respect to which no deduc-
tion would be allowed if such asset or assets passed from the decedent 
to such spouse, then the value of such interest passing to such 
spouse shall, for purposes of subsection (a), be reduced by the 
aggregate value of such particular assets. 
(3) INTEREST OF SPOUSE CONDITIONAL ON SURVIVAL FOR LIMITED 
PERIOD.—For purposes of this subsection, an interest passing to 
the surviving spouse shall not be considered as an interest which 
will terminate or fail on the death of such spouse if— 
(A) such death will cause a termination or failure of such 
interest only if it occurs within a period not exceeding 6 months 
after the decedent's death, or only if it occurs as a result of a 
common disaster resulting in the death of the decedent and the 
surviving spouse, or only if it occurs in the case of either such 
event; and 
(B) such termination or failure does not in fact occur. 
§2056 
C H . 11—^ESTATE TAX 
3 9 3 
(4) VALUATION OF INTEREST PASSING TO SURVIVING SPOUSE.— 
In determining for purposes of subsection (a) the value of any 
interest in property passing to the surviving spouse for which a 
deduction is allowed by this section— 
(A) there shall be taken into account the effect which the tax 
imposed by section 2001, or any estate, succession, legacy, or 
inheritance tax, has on the net value to the surviving spouse 
of such interest; and 
(B) where such interest or property is encumbered in any 
manner, or where the surviving spouse incurs any obligation 
imposed by the decedent with respect to the passing of such 
interest, such encumbrance or obligation shall be taken into 
account in the same manner as if the amount of a gift to such 
spouse of such interest were being determined. 
(5) L I F E ESTATE WITH POWER OF APPOINTMENT IN SURVIVING 
SPOUSE.—In the case of an interest in property passing from the 
decedent, if his surviving spouse is entitled for life to all the income 
from the entire interest, or all the income from a specific portion 
thereof, payable annually or at more frequent intervals, with power 
in the surviving spouse to appoint the entire interest, or such 
specific portion (exercisable in favor of such surviving spouse, or 
of the estate of such surviving spouse, or in favor of either, whether 
or not in each case the power is exercisable in favor of others), 
and with no power in any other person to appoint any part of the 
interest, or such specific portion, to any person other than the 
surviving spouse— 
(A) the interest or such portion thereof so passing shall, for 
purposes of subsection (a), be considered as passing to the sur-
viving spouse, and 
(B) no part of the interest so passing shall, for purposes of 
paragraph (1) (A), be considered as passing to any person other 
than the surviving spouse. 
This paragraph shall apply only if such power in the surviving 
spouse to appoint the entire interest, or such specific portion 
thereof, whether exercisable by will or during life, is exercisable by 
such spouse alone and in all events. 
(6) L I F E INSURANCE OR ANNUITY PAYMENTS WITH POWER OF 
APPOINTMENT IN SURVIVING SPOUSE.—In the case of an interest in 
property passing from the decedent consisting of proceeds under 
a life insurance, endowment, or annuity contract, if under the 
terms of the contract such proceeds are payable in installments 
or are held by the insurer subject to an agreement to pay interest 
thereon (whether the proceeds, on the termination of any interest 
payments, are payable in a lump sum or in annual or more fre-
quent installments), and such installment or interest payments are 
payable annually or at more frequent intervals, commencing not 
later than 13 months after the decedent's death, and all amounts, 
or a specific portion of all such amounts, payable during the life 
of the surviving spouse are payable only to such spouse, and such 
spouse has the power to appoint all amounts, or such specific 
portion, payable under such contract (exercisable in favor of such 
surviving spouse, or of the estate of such surviving spouse, or in 
favor of either, whether or not in each case the power is exercisable 
§ 2056(b)(6) 
49012°—54 
28 
394 
INTERNAL REVENUE CODE OF 1954 
in favor of others), with no power in any other person to appoint 
such amounts to any person other than the surviving spouse— 
.: 
(A) such amounts shall, for purposes of subsection (a), be 
considered as passing to the surviving spouse, and 
(B) no part of such amounts shall, for purposes of paragraph 
(1) (A), be considered as passing to any person other than the 
surviving spouse. 
This paragraph shall apply only if, under the terms of the con-
tract, such power in the surviving spouse to appoint such amounts, 
whether exercisable by will or during life, is exercisable by such 
spouse alone and in all events, 
(c) LIMITATION ON AGGKEGATE OF DEDUCTIONS.— 
(1) GENERAL RULE.—The aggregate amount of the deductions 
allowed under this section (computed without regard to this sub-
section) shall not exceed 50 percent of the value of the adjusted 
gross estate, as defined in paragraph (2). 
(2) COMPUTATION OF ADJUSTED GROSS ESTATE.— 
(A) GENERAL RULE.—Except as provided in subparagraph (B) 
of this paragraph, the adjusted gross estate shall, for purposes 
of subsection (c) (1), be computed by subtracting from the entire 
value of the gross estate the aggregate amount of the deductions 
allowed by sections 2053 and 2054. 
(B) 
SPECIAL 
RULE IN CASES INVOLVING COMMUNITY 
PROP-
ERTY.—If the decedent and his surviving spouse at any time, held 
property as community property under the law of any State, Ter-
ritory, or possession of the United States, or of any foreign coun-
try, then the adjusted gross estate shall, for purposes of subsec-
tion (c) (1), be determined by subtracting from the entire value 
of the gross estate the sum of— 
(i) the value of property which is at the time of the death 
of the decedent held as such community property; and 
(ii) the value of property transferred by the decedent during 
his life, if at the time of such transfer the property was held as 
such community property; and 
(iii) the amount receivable as insurance under policies on 
the life of the decedent, to the extent purchased with premiums 
or other consideration paid out of property held as such com-
munity property; and 
(iv) an amount which bears the same ratio to the aggregate 
of the deductions allowed under sections 2053 and 2054 which 
the value of the property included in the gross estate, di-
minished by the amount subtracted under clauses (i), (ii), 
and (iii) of this subparagraph, bears to the entire value of the 
gross estate. 
For purposes of clauses (i), (ii), and (iii), community property 
(except property which is considered as community property 
solely by reason of the provisions of subparagraph (C) of this 
paragraph) shall be considered as not "held as such com-
munity property" as of any moment of time, if, in case of the 
death of the decedent at such moment, such property (and not 
merely one-half thereof) would be or would have been includible 
in determining the value of his gross estate without regard to 
the provisions of section 402 (b) of the Revenue Act of 1942. 
§ 2056(b)(6) 
; t • i ' : ^ 
CH. 11—ESTATE TAX 
395 
The amount to be subtracted under clauses (i), (ii), or (iii) shall 
not exceed the value of the interest m the property described 
therein which is included in determining the value of the gross 
estate. 
(C) 
COMMUNITY 
PROPERTY—CONVERSION 
INTO 
SEPARATE 
PROPERTY.— 
(i) AFTER DECEMBER 31, 1941.—If after December 31, 1941, 
property held as such community property (unless considered 
by reason of subparagraph (B) of this paragraph as not so held) 
r 
was by the decedent and the surviving spouse converted, by 
one transaction or a series of transactions, into separate prop-
•' 
erty of the decedent and his spouse (including any form of 
coownership by them), the separate property so acquired by 
the decedent and any property acquired at any time by the 
decedent in exchange therefor (by one exchange or a series of 
exchanges) shall, for the purposes of clauses (i), (ii), and (iii) 
of subparagraph (B), be considered as "held as such community 
property." 
(ii) LIMITATION.—Where the value (at the time of such con-
version) of the separate property so acquired by the decedent 
exceeded the value (at such time) of the separate property so 
acquired by the decedent's spouse, the rule in clause (i) shall be 
applied only with respect to the same portion of such separate 
property of the decedent as the portion which the value (as of 
such time) of such separate property so acquired by the dece-
dent's spouse is of the value (as of such time) of the separate 
property so acquired by the decedent. 
(d) DISCLAIMERS.— 
(1) B Y SURVIVING SPOUSE.—If under this section an interest 
would, in the absence of a disclaimer by the surviving spouse, be 
considered as passing from the decedent to such spouse, and if a 
disclaimer of such interest is made by such spouse, then such 
interest shall, for the purposes of this section, be considered as 
passing to the person or persons entitled to receive such interest as 
a result of the disclaimer. 
(2) B Y ANY OTHER PERSON.—If under this section an interest 
would, in the absence of a disclaimer by any person other than the 
surviving spouse, be considered as passing from the decedent to 
such person, and if a disclaimer of such interest is made by such 
person and as a result of such disclaimer the surviving spouse is 
entitled to receive such interest, then such interest shall, for pur-
poses of this section, be considered as passing, not to the surviving 
spouse, but to the person who made the disclaimer, in the same 
manner as if the disclaimer had not been made. 
(e) DEFINITION.—For purposes of this section, an interest in 
property shall be considered as passing from the decedent to any per-
son if and only if— 
(1) such interest is bequeathed or devised to such person by the 
decedent; 
(2) such interest is inherited by such person from the decedent; 
(3) such interest is the dower or curtesy interest (or statutory 
interest in lieu thereof) of such person as surviving spouse of the 
decedent; 
§ 2056(e)(3) 
396 
INTERNAL REVENUE CODE OF 1954 
(4) such interest has been transferred to such person by the de-
cedent at any time; 
(5) such interest was, at the time of the decedent's death, held 
by such person and the decedent (or by them and any other per-
son) in joint ownership with right of survivorship; 
(6) the decedent had a power (either alone or in conjunction with 
any person) to appoint such interest and if he appoints or has 
appointed such interest to such person, or if such person takes such 
interest in default on the release or nonexercise of such power; or 
(7) such interest consists of proceeds of insurance on the life of 
the decedent receivable by such person. 
Except as provided in paragraph (5) or (6) of subsection (b), where 
at the time of the decedent's death it is not possible to ascertain the 
particular person or persons to whom an interest in property may 
pass from the decedent, such interest shall, for purposes of sub-
paragraphs (A) and (B) of subsection (b) (1), be considered as passing 
from the decedent to a person other than the surviving spouse. 
liiOliVKnj 
;jilvJ '^U i.''.-. 
l ; 
f i S ; ^ 
^i\ 
<:::.. i . : ;r. 
§ 2056(e)(4) 
CH. 11 
ESTATE TAX 
397 
Subchapter B—Estates of Nonresidents Not Citizens 
Sec. 2101. Tax imposed. 
Sec. 2102. Credits against tax. 
'' 
Sec. 2103. Definition of gross estate. 
Sec. 2104. Property within the United States. 
-
p: 
Sec. 2105. Property without the United States. 
Sec. 2106. Taxable estate, 
SEC. 2101. TAX IMPOSED. 
(a) I N GENERAL.—A tax computed in accordance with the table 
contained in section 2001 is hereby imposed on the transfer of the 
taxable estate, determined as provided in section 2106, of every deced-
ent nonresident not a citizen of the United States dying after the date 
of enactment of this title. 
(b) PROPERTY HELD BY ALIEN PROPERTY CUSTODIAN.— 
For taxes in connection with property or interests transferred to 
or vested in the Alien Property Custodian, see section 36 of the Trad-
ing with the Enemy Act, as added by the act of August 8,1946 (60 Stat. 
929; 50 U. S. C. App. 36.) 
SEC. 2102. CREDITS AGAINST TAX. 
The tax imposed by section 2101 shall be credited with the amounts 
determined in accordance with sections 2011 to 2013, inclusive (relat-
ing to State death taxes, gift tax, and tax on prior transfers). 
SEC. 2103. DEFINITION OF GROSS ESTATE. 
For the purpose of the tax imposed by section 2101, the value of the 
gross estate of every decedent nonresident not a citizen of the United 
States shall be that part of his gross estate (determined as provided 
in section 2031) which at the time of his death is situated in the 
United States. 
SEC. 2104. PROPERTY WITHIN THE UNITED STATES. 
(a) STOCK IN CORPORATION.—For purposes of this subchapter 
shares of stock owned and held by a nonresident not a citizen of 
the United States shall be deemed property within the United States 
only if issued by a domestic corporation. 
(b) REVOCABLE TRANSFERS AND TRANSFERS IN CONTEMPLATION OF 
DEATH.—For purposes of this subchapter, any property of which 
the decedent has made a transfer, by trust or otherwise, within the 
meaning of sections 2035 to 2038, inclusive, shall be deemed to be 
situated in the United States, if so situated either at the time of the 
transfer or at the time of the decedent's death. 
SEC. 2105. PROPERTY WITHOUT THE UNITED STATES. 
(a) PROCEEDS OF LIFE INSURANCE.—For purposes of this sub-
chapter, the amount receivable as insurance on the life of a nonresi-
dent not a citizen of the United States shall not be deemed property 
within the United States. 
(b) BANK DEPOSITS.—For purposes of this subchapter, any moneys 
deposited with any person carrying on the banking business, by or 
for a nonresident not a citizen of the United States who was not 
§ 2105(b) 
398 
INTERNAL REVENUE CODE OF 1954 
engaged in business in the United States at the time of his death 
shall not be deemed property within the United States. 
(c) WORKS OF ART ON LOAN FOR EXHIBITION.—For purposes of 
this subchapter, works of art owned by a nonresident not a citizen of 
the United States shall not be deemed property within the United 
States if such works of art are— 
(1) imported into the United States solely for exhibition purposes, 
(2) loaned for such purposes, to a public gallery or museum, no 
part of the net earnings of which inures to the benefit of any private 
stockholder or individual, and 
(3) at the time of the death of the owner, on exhibition, or en 
route to or from exhibition, in such a public gallery or museum. 
SEC. 2106. TAXABLE ESTATE. 
'' 
(a) DEFINITION OF TAXABLE ESTATE,—For purposes of the tax 
imposed by section 2101, the value of the taxable estate of every 
decedent nonresident not a citizen of the United States shall be 
determined by deducting from the value of that part of his gross 
estate which at the time of his death is situated in the United States— 
(1) EXPENSES, LOSSES, INDEBTEDNESS, AND TAXES.—That pro-
portion of the deductions specified in sections 2053 and 2054 (other 
than the deductions described in the following sentence) which the 
value of such part bears to the value of his entire gross estate, 
wherever situated. Any deduction allowable under section 2053 in 
the case of a claim against the estate which was founded on a 
promise or agreement but was not contracted for an adequate and 
full consideration in money or money's worth shall be allowable 
under this paragraph to the extent that it would be allowable as a 
deduction under paragraph (2) if such promise or agreement con-
stituted a bequest. 
(2) TRANSFERS FOR PUBLIC, CHARITABLE, AND RELIGIOUS USES.— 
(A) I N GENERAL.—The amount of all bequests, legacies, de-
vises, or transfers (including the interest which falls into any 
such bequest, legacy, devise, or transfer as a result of an irrev-
ocable disclaimer of a bequest, legacy, devise, transfer, or 
power, if the disclaimer is made before the date prescribed for 
the filing of the estate tax return)— 
(i) to or for the use of the United States, any State, Territory, 
any political subdivision thereof, or the District of Columbia, 
for exclusively public purposes; 
(ii) to or for the use of any domestic corporation organized 
and operated exclusively for religious, charitable, scientific, 
literary, or educational purposes, including the encouragement 
of art and the prevention of cruelty to children or animals, 
no part of the net earnings of which inures to the benefit of 
any private stockholder or individual, and no substantial part 
of the activities of which is carrying on propaganda, or other-
wise attempting, to influence legislation; or 
(iii) to a trustee or trustees, or a fraternal society, order, 
or association operating under the lodge system, but only if 
such contributions or gifts are to be used within the United 
States by such trustee or trustees, or by such fraternal society, 
order, or association, exclusively for religious, charitable, scien-
tific, literary, or educational purposes, or for the prevention 
§ 2106(b) 
CH. 11—^ESTATE TAX 
of cruelty to children or animals, and no substantial part of 
the activities of such trustee or trustees, or of such fraternal 
society, order, or association, is carrying on propaganda, or 
otherwise attempting, to influence legislation. 
(B) POWERS OF APPOINTMENT.—Property includible in the 
decedent's gross estate under section 2041 (relating to powers of 
appointment) received by a donee described in this paragraph 
shall, for purposes of this paragraph, be considered a bequest of 
such decedent. 
(C) DEATH TAXES PAYABLE OUT OF BEQUESTS.—If the 
tax 
imposed by section 2101, or any estate, succession, legacy, or 
inheritance taxes, are, either by the terms of the will, by the 
law of the jurisdiction under which the estate is administered, or 
by the law of the jurisdiction imposing the particular tax, payable 
in whole or in part out of the bequests, legacies, or devises 
otherwise deductible under this paragraph, then the amount de-
ductible under this paragraph shall be th^ amount of such be-
quests, legacies, or devises reduced by the amount of such taxes. 
(D) LIMITATION ON DEDUCTION.—The amount of the deduc-
tion under this paragraph for any transfer shall not exceed the 
value of the transferred property required to be included in the 
gross estate. 
(E) 
D I S A L L O W A N C E O F DEDUCTIONS I N CERTAIN CASES.—• 
For disallowance of certain charitable, etc., deductions otherwise 
allowable under this paragraph, see sections 504 and 681. 
(F) 
O T H E R CROSS R E F E R E N C E S . — 
(1) For option as to time for valuation for purpose of deduction under 
this paragraph, see section 2032. 
(2) For exemption of bequests to or for benefit of Library of Congress, 
see section 5 of the Act of March 3, 1925, as amended (56 Stat. 765; 
2 U. S. C. 161). 
(3) For construction of bequests for benefit of the library of the Post 
Office Department as bequests to or for the use of the United States, see 
section 2 of the Act of August 8, 1946 (60 Stat. 924; 5 U. S. C. 393). 
(4) For exemption of bequests for benefit of Office of Naval Records 
and Library, Navy Department, see section 2 of the Act of March 4, 1937 
(50 Stat. 25; 5 U. S. C. 419b). 
(5) For exemption of bequests to or for benefit of National Park 
Service, see section 5 of the Act of July 10,1935 (49 Stat. 478; 16 U. S. C. 
19c). 
(6) For construction of devises or bequests accepted by the Secretary 
of State under the Foreign Service Act of 1946 as devises or bequests 
to or for the use of the United States, see section 1021 (e) of that Act 
(60 Stat. 1032; 22 U. S. C. 809). 
(7) For construction of gifts or bequests of money accepted by the 
Attorney General for credit to "Commissary Funds, Federal Prisons" 
as gifts or bequests to or for the use of the United States, see section 2 
of the Act of May 15, 1952, 66 Stat. 73, as amended by the Act of July 9, 
1952, 66 Stat. 479 (31 U. S. C. 725s-4). 
(8) For payment of tax on bequests of United States obligations to the 
United States, see section 24 of the Second Liberty Bond Act, as 
amended (59 Stat. 48, § 4; 31 U. S. C. 757e). 
(9) For construction of bequests for benefit of or use in connection 
with the Naval Academy as bequests to or for the use of the United 
States, see section 3 of the Act of March 31, 1944 (58 Stat. 135; 34 
U. S. C. 1115b). 
(10) For exemption of bequests for benefit of Naval Academy Mu-
seum, see section 4 of the Act of March 26, 1938 (52 Stat. 119; 34 
U. S. C. 1119). 
§ 2106(a)(2)(F) 
400 
INTERNAL REVENUE CODE OF 1954 
(11) For exemption of bequests received by National Archives Trust 
Fund Board, see section 7 of the National Archives Trust Fund Board 
Act (55 Stat. 582; 44 U. S. C. 300gg). 
(3) EXEMPTION.—An exemption of $2,000. 
(b) CONDITION OF ALLOWANCE OF DEDUCTIONS.—No deduction 
shall be allowed under paragraphs (1) and (2) of subsection (a) in 
the case of a nonresident not a citizen of the tJnited States unless the 
executor includes in the return required to be filed under section 6018 
the value at the time of his death of that part of the gross estate of 
such nonresident not situated in the United States. 
(c) UNITED STATES BONDS.'—For purposes of section 2103, the 
value of the gross estate (determined as provided in section 2031) 
of a decedent who was not engaged in business in the United States 
at the time of his death— 
(1) shall not include obligations issued by the United States 
before March 1, 1941; and 
(2) shall include obligations issued by the United States on or 
after March 1, 1941. 
(13 
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§ 2106(a)(2)(F) 
CH. 11—ESTATE TAX 
401 
Subchapter C—Miscellaneous 
Sec. 2201. Members of the Armed Forces dying during an induction 
period. 
Sec. 2202. Missionaries in foreign service. 
Sec. 2203. Definition of executor. 
Sec. 2204. Discharge of executor from personal liability. 
Sec. 2205. Reimbursement out of estate. 
Sec. 2206. Liability of life insurance beneficiaries. 
Sec. 2207. Liability of recipient of property over which decedent 
had power of appointment. 
SEC. 2201. MEMBERS OF THE ARMED FORCES DYING DURING AN 
INDUCTION PERIOD. 
The additional estate tax as defined in section 2011 (d) shall not 
apply to the transfer of the taxable estate of a citizen or resident of the 
United States dying during an induction period (as defined in sec. 112 
(c) (5)), while in active service as a member of the Armed Forces of 
the United States, if such decedent— 
(1) was killed in action while serving in a combat zone, as deter-
mined under section 112 (c); or 
(2) died as a result of wounds, disease, or injury suffered, while 
serving in a combat zone (as determined under section 112 (c), and 
while in line of duty, by reason of a hazard to which he was subjected 
as an incident of such service. 
SEC. 2202. MISSIONARIES IN FOREIGN SERVICE. 
Missionaries duly commissioned and serving under boards of for-
eign missions of the various religious denominations in the United 
States, dying while in the foreign missionary service of such boards, 
shall not, by reason merely of their intention to permanently remain 
in such foreign service, be deemed nonresidents of the United States, 
but shall be presumed to be residents of the State, the District of 
Columbia, Alaska, or Hawaii wherein they respectively resided at the 
time of their commission and their departure for such foreign service. 
SEC. 2203. DEFINITION OF EXECUTOR. 
The term "executor" wherever it is used in this title in connection 
with the estate tax imposed by this chapter means the executor or 
administrator of the decedent, or, if there is no executor or administra-
tor appointed, qualified, and acting within the United States, then any 
person in actual or constructive possession of any property of the 
decedent. 
SEC. 2204. DISCHARGE OF EXECUTOR FROM PERSONAL LIABILITY. 
If the executor makes written application to the Secretary or his 
delegate for determination of the amount of the tax and discharge 
from personal liability therefor, the Secretary or his delegate (as soon 
as possible, and in any event within 1 year after the making of 
such application, or, if the application is made before the return is 
filed, then within 1 year after the return is filed, but not after the 
expiration of the period prescribed for the assessment of the tax in 
section 6501) shall notify the executor of the amount of the tax. The 
executor, on payment of the amount of which he is notified, shall 
§2204 
402 
INTERNAL REVENUE CODE OF 1954 
be discharged from personal liability for any deficiency in tax there-
after found to be due and shall be entitled to a receipt or writing 
showing such discharge. 
SEC. 2205. REIMBURSEMENT OUT OF ESTATE. - ; 
If the tax or any part thereof is paid by, or collected out of, that 
part of the estate passing to or in the possession of any person other 
than the executor in his capacity as such, such person shall be entitled 
to reimbursement out of any part of the estate still undistributed or 
by a just and equitable contribution by the persons whose interest 
in the estate of the decedent would have been reduced if the tax had 
been paid before the distribution of the estate or whose interest is 
subject to equal or prior liability for the payment of taxes, debts, or 
other charges against the estate, it being the purpose and intent of this 
chapter that so far as is practicable and unless otherwise directed by 
the will of the decedent the tax shall be paid out of the estate before 
its distribution. 
SEC. 2206. LIABILITY OF LIFE INSURANCE BENEFICIARIES. 
Unless the decedent directs otherwise in his will, if any part of the 
gross estate on which tax has been paid consists of proceeds of policies 
of insurance on the life of the decedent receivable by a beneficiary 
other than the executor, the executor shall be entitled to recover 
from such beneficiary such portion of the total tax paid as the pro-
ceeds of such policies bear to the sum of the taxable estate and the 
amount of the exemption allowed in computing the taxable estate, 
determined under section 2051. If there is more than one such bene-
ficiary, the executor shall be entitled to recover from such beneficiaries 
in the same ratio. 
In the case of such proceeds receivable by the 
surviving spouse of the decedent for which a deduction is allowed 
under section 2056 (relating to marital deduction), this section shall 
not apply to such proceeds except as to the amount thereof in excess 
of the aggregate amount of the marital deductions allowed under 
such section. 
SEC. 2207. LIABILITY OF RECIPIENT OF PROPERTY OVER WHICH 
DECEDENT HAD POWER OF APPOINTMENT. 
Unless the decedent directs otherwise in his will, if any part of the 
gross estate on which the tax has been paid consists of the value of 
property included in the gross estate under section 2041, the exec-
utor shall be entitled to recover from the person receiving such 
property by reason of the exercise, nonexercise, or release of a power 
of appointment such portion of the total tax paid as the value of such 
property bears to the sum of the taxable estate and the amount of the 
exemption allowed in computing the taxable estate, determined under 
section 2052, or section 2106 (a), as the case may be. If there is more 
than one such person, the executor shall be entitled to recover from 
such persons in the same ratio. 
In the case of such property received 
by the surviving spouse of the decedent for which a deduction is 
allowed under section 2056 (relating to marital deduction), this sec-
tion shall not apply to such property except as to the value thereof 
reduced by an amount equal to the excess of the aggregate amount 
of the marital deductions allowed under section 2056 over the amount 
of proceeds of insurance upon the life of the decedent receivable by 
the surviving spouse for which proceeds a marital deduction is 
allowed under such section. 
> 
§ 2204 
CH. 12—GIFT TAX 
403 
tOV<; 
CHAPTER 12—GIFT TAX 
SUBCHAPTER A. Determination of tax liability. 
•!•'/-f, f 
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SUBCHAPTER B . Transfers. 
: 
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• "SKC' 
SUBCHAPTER C. Deductions. 
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1 
Subchapter A—Determination of Tax Liability 
*' '^ 
Sec. 2501. Imposition of tax. 
'••' 
Sec. 2502. Rate of tax. 
• • 
Sec. 2503. Taxable gifts. 
- • • 
Sec. 2504. Taxable gifts for preceding years. 
SEC. 2501. IMPOSITION OF TAX. 
(a) GENERAL RULE.—For the calendar year 1955 and each calendar 
year thereafter a tax, computed as provided in section 2502, is hereby 
imposed on the transfer of property by gift during such calendar year 
by any individual, resident or nonresident, except transfers of in-
tangible property by a nonresident who is not a citizen of the United 
States and who was not engaged in business in the United States 
during such calendar year. 
(b) CROSS REFERENCE.— 
For exclusion of transfers of property outside the United States by a 
i> 
nonresident who is not a citizen of the United States, see section 2511 
SEC. 2502. RATE OF TAX. 
* 
(a) COMPUTATION OP TAX.—The tax imposed by section 2501 for 
each calendar year shall be an amount equal to the excess of— 
(1) a tax, computed in accordance with the rate schedule set 
forth in this subsection, on the aggregate sum of the taxable gifts 
for such calendar year and for each of the preceding calendar years, 
over 
(2) a tax, computed in accordance with such rate schedule, 
on the aggregate sum of the taxable gifts for each of the preceding 
calendar years. 
• 
RATE SCHEDULE 
If the taxable gifts are: 
The tax shall be: 
Not over $5,000 
2>1% of the taxable gifts. 
Over $5,000 but not over $10,000 
$112.50, plus 5%% of excess over 
$5,000. 
Over $10,000 but not over $20,000 
$375, plus 8)4% of excess over 
$10,000. 
' Over $20,000 but not over $30,000 
$1,200, plus 10^% of excess over 
$20,000. 
' Over $30,000 but not over $40,000 
$2,250, plus 13i^% of excess over 
! 
$30,000. 
. Over $40,000 but not over $50,000 
$3,600, plus 16)4% of excess over 
$40,000. 
Over $50,000 but not over $60,000 
$5,250, plus 18%% of excess over 
$50,000. 
; Over $60,000 but not over $100,000 
$7,125, plus 2 1 % of excess over 
$60,000. 
§ 2502(a) 
404 
INTERNAL REVENUE CODE OF 1954 
RATE SCHEDULE—Continued 
If the taxable gifts are:—Continued 
The tax shall be:—Continued 
Over $100,000 but not over $250,000 
$15,525, plus 22^2% of excess over 
$100,000. 
Over $250,000 but not over $500,000 
$49,275, plus 24% of excess over 
$250,000. 
Over $500,000 but not over $750,000 
$109,275, plus 26>^% of excess over 
$500,000. 
Over $750,000 but not over $1,000,000.- 
$174,900, plus 27%% of excess over 
$750,000. 
Over $1,000,000 but not over $1,250,000. 
$244,275, plus 29>^% of excess over 
$1,000,000. 
Over $1,250,000 but not over $1,500,000. 
$317,400, plus 31/2% of excess over 
$1,250,000. 
Over $1,500,000 but not over $2,000,000. 
$396,150, plus 33%% of excess over 
$1,500,000. 
Over $2,000,000 but not over $2,500,000. 
$564,900, plus 36%% of excess over 
$2,000,000. 
Over $2,500,000 but not over $3,000,000. 
$748,650, plus 39%%, of excess over 
$2,500,000. 
Over $3,000,000 but not over $3,600,000. 
$947,400, plus 42% of excess over 
$3,000,000. 
Over $3,500,000 but not over $4,000,000. 
$1,157,400, plus 44^4% of excess 
over $3,500,000. 
Over $4,000,000 but not over $5,000,000. 
$1,378,650, plus 4734% of excess 
over $4,000,000. 
Over $5,000,000 but not over $6,000,000. 
$1,851,150, plus 50%% of excess 
over $5,000,000. 
Over $6,000,000 but not over $7,000,000. 
$2,353,650, plus 52/2% of excess 
over $6,000,000. 
Over $7,000,000 but not over $8,000,000. 
$2,878,650, plus 54%% of excess 
over $7,000,000. 
Over $8,000,000 but not over $10,000,000. 
$3,426,150, plus 57 % of excess over 
$8,000,000. 
Over $10,000,000 
. 
$4,566,150, plus 57%% of excess 
over $10,000,000. 
(b) CALENDAR YEAR.—The term "calendar year" includes only the 
calendar year 1932 and succeeding calendar years, and, in the case 
of the calendar year 1932, includes only the portion of such year after 
June 6, 1932. 
(c) PRECEDING CALENDAR YEARS.—The term "preceding calendar 
years" means the calendar year 1932 and all calendar years intervening 
between the calendar year 1932 and the calendar year for which the 
tax is being computed. 
(d) TAX T O B E PAID BY DONOR.—The tax imposed by section 2501 
shall be paid by the donor. 
SEC. 2503. TAXABLE GIFTS. 
(a) GENERAL DEFINITION.—The term "taxable gifts" means the 
total amount of gifts made during the calendar year, less the deduc-
tions provided in subchapter C (sec. 2521 and following). 
(b) EXCLUSIONS FROM GIFTS.—In the case of gifts (other than gifts 
of future interests in property) made to any person by the donor 
during the calendar year 1955 and subsequent calendar years, the 
first $3,000 of such gifts to such person shall not, for purposes of 
subsection (a), be included in the total amount of gifts made during 
such year. 
Where there has been a transfer to any person of a present 
interest in property, the possibility that such interest may be dimin-
ished by the exercise of a power shall be disregarded in applying 
§ 2502(a) 
•'-•'•' 
' CH. 12—GIFT TAX 
405 
this subsection, if no part of such interest will at any time pass to 
any other person. 
(c) TRANSFER FOR THE BENEFIT OF MINOR.—No part of a gift to 
an individual who has not attained the age of 21 years on the date 
of such transfer shall be considered a gift of a future interest in 
property for purposes of subsection (b) if the property and the income 
therefrom^— 
(1) may be expended by, or for the benefit of, the donee before 
his attaining the age of 21 years, and 
(2) will to the extent not so expended— 
(A) pass to the donee on his attaining the age of 21 years, and 
(B) in the event the donee dies before attaining the age of 21 
years, be payable to the estate of the donee or as he may appoint 
under a general power of appointment as defined in section 
^ 
2514 (c). 
SEC. 2504. TAXABLE GIFTS FOR PRECEDING YEARS. 
(a) I N GENERAL.—In computing taxable gifts for the calendar year 
1954 and preceding calendar years for the purpose of computing the 
tax for the calendar year 1955 or any calendar year thereafter, there 
shall be treated as gifts such transfers as were considered to be gifts 
under the gift tax laws applicable to the years in which the transfers 
were made and there shall be allowed such deductions as were pro-
vided for under such laws, except that specific exemption in the 
amount, if any, allowable under section 2521 shall be applied in all 
computations in respect of the calendar year 1954 and previous 
calendar years for the purpose of computing the tax for the calendar 
year 1955 or any calendar year thereafter. 
(b) EXCLUSIONS FROM GIFTS FOR PRECEDING YEARS.—In the case 
of gifts made to any person by the donor during the calendar year 
1954 and preceding calendar years, the amount excluded, if any, by 
the provisions of gift tax laws applicable to the years in which the 
gifts were made shall not, for purposes of subsection (a), be included 
in the total amount of the gifts made during such year. 
(c) VALUATION OF CERTAIN GIFTS FOR PRECEDING 
CALENDAR 
YEARS.—If the time has expired within which a tax may be assessed 
under this chapter or under corresponding provisions of prior laws, 
on the transfer of property by gift made during a preceding calendar 
year, as defined in section 2502 (c), and if a tax under this chapter or 
under corresponding provisions of prior laws has been assessed or 
paid for such preceding calendar year, the value of such gift made in 
such preceding calendar year shall, for purposes of computing the 
tax under this chapter for the calendar year 1955 and subsequent 
calendar years, be the value of such gift which was used in computing 
the tax for the last preceding calendar year, for which a tax under 
this chapter or under corresponding provisions of prior laws was 
assessed or paid. 
(d) N E T GIFTS.—For years before the calendar year 1955, the 
term "net gifts" as used in corresponding provisions of prior laws 
shall be read as "taxable gifts" for purposes of this chapter. 
§ 2504(d) 
406 
INTERNAL REVENUE CODE OF 1954 
Subchapter B—Transfers 
Sec. 2511. Transfers in general. 
*.• j 
Sec. 2512. Valuation of gifts. 
. ' 
Sec. 2513. Gift by husband or wife to third party 
Sec. 2514, Powers of appointment. 
• 
Sec. 2515. Tenancies by the entirety. 
Sec. 2516. Certain property settlements. 
SEC. 2511. TRANSFERS IN GENERAL. 
(a) SCOPE.—Subject to the limitations contained in this chapter, 
the tax imposed by section 2501 shall apply whether the transfer is 
in trust or otherwise, whether the gift is direct or indirect, and whether 
the property is real or personal, tangible or intangible; but in the case 
of a nonresident not a citizen of the United States, shall apply to a 
transfer only if the property is situated within the United States. 
(b) STOCK IN CORPORATION.—Shares of stock owned and held by 
a nonresident not a citizen of the United States shall be deemed 
property within the United States only if issued by a domestic corpo-
ration. 
SEC. 2512. VALUATION OF GIFTS. 
(a) If the gift is made in property, the value thereof at the date of 
the gift shall be considered the amount of the gift. 
(b) Where property is transferred for less than an adequate and full 
consideration in money or money's worth, then the amount by which 
the value of the property exceeded the value of the consideration 
shall be deemed a gift, and shall be included in computing the amount 
of gifts made during the calendar year. 
SEC. 2513. GIFT BY HUSBAND OR WIFE TO THIRD PARTY. 
(a) CONSIDERED AS MADE ONE-HALF BY EACH.— 
(1) I N GENERAL.—A gift made by one spouse to any person other 
than his spouse shall, for the purposes of this chapter, be considered 
as made one-half by him and one-half by his spouse, but only if at 
the time of the gift each spouse is a citizen or resident of the United 
States. This paragraph shall not apply with respect to a gift by a 
spouse of an interest in property if he creates in his spouse a general 
power of appointment, as defined in section 2514 (c), over such in-
terest. 
For purposes of this section, an individual shall be con-
sidered as the spouse of another individual only if he is married to 
such individual at the time of the gift and does not remarry during 
the remainder of the calendar year. 
(2) CONSENT OF BOTH SPOUSES.—Paragraph (1) shall apply only 
if both spouses have signified (under the regulations provided for in 
subsection (b)) their consent to the application of paragraph (1) in 
the case of all such gifts made during the calendar year by either 
while married to the other. 
(b) MANNER AND TIME OF SIGNIFYING CONSENT.— 
(1) MANNER.—A consent under this section shall be signified in 
such manner as is provided under regulations prescribed by the 
Secretary or his delegate. 
§2511 
CH. 12—GIFT TAX 
407 
(2) TIME.—Such consent may be so signified at any time after 
' the close of the calendar year in which the gift was made, subject 
to the following limitations— 
(A) the consent may not be signified after the 15th day of 
April following the close of such year, unless before such 15th 
day no return has been filed for such year by either spouse, in 
which case the consent may not be signified after a return for 
such year is filed by either spouse; 
(B) the consent may not be signified after a notice of deficiency 
with respect to the tax for such year has been sent to either spouse 
f 
in accordance with section 6212 (a). 
' (c) REVOCATION OF CONSENT.—Revocation of a consent previously 
signified shall be made in such manner as is provided under regula-
tions prescribed by the Secretary or his delegate, but the right to 
revoke a consent previously signified with respect to a calendar year— 
(1) shall not exist after the 15th day of April following the close 
' of such year if the consent was signified on or before such 15th day; 
i and 
^ 
(2) shall not exist if the consent was not signified until after such 
^ 15th day. 
(d) JOINT AND SEVERAL LIABILITY FOR TAX.—If the consent re-
quired by subsection (a) (2) is signified with respect to a gift made 
in any calendar year, the liability with respect to the entire tax 
imposed by this chapter of each spouse for such year shall be joint 
and several. 
SEC. 2514. POWERS OF APPOINTMENT. 
(a) POWERS CREATED ON OR BEFORE OCTOBER 21, 1942.—An 
exercise of a general power of appointment created on or before 
October 21, 1942, shall be deemed a transfer of property by the in-
dividual possessing such power; but the failure to exercise such a 
power or the complete release of such a power shall not be deemed an 
exercise thereof. 
If a general power of appointment created on or 
before October 21, 1942, has 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 if— 
(1) such partial release occurred before November 1, 1951, or 
(2) the donee of such power was under a legal disability to release 
'" such power on October 21, 1942, and such partial release occurred 
' not later than six months after the termination of such legal dis-
ability. 
' (b) POWERS CREATED AFTER OCTOBER 21, 1942.—The exercise or 
release of a general power of appointment created after October 21, 
1942, shall be deemed a transfer of property by the individual possessing 
such power. 
A disclaimer or renunciation of such a power of appoint-
ment shall not be deemed a release of such power. 
(c) DEFINITION OF GENERAL POWER OF APPOINTMENT.—For pur-
poses of this section, the term "general power of appointment" means 
a power which is exercisable in favor of the individual possessing the 
power (hereafter in this subsection referred to as the "possessor"), 
his estate, his creditors, or the creditors of his estate; except that— 
(1) A power to consume, invade, or appropriate property for 
the benefit of the possessor which is limited by an ascertainable 
§ 2514(c)(1) 
408 
INTERNAL REVENUE CODE OF 1954 
standard relating to the health, education, support, or mainte-
nance of the possessor shall not be deemed a general power of 
appointment. 
(2) A power of appointment created on or before October 21, 
1942, which is exercisable by the possessor only in conjunction 
with another person shall not be deemed a general power of 
appointment. 
(3) In the case of a power of appointment created after October 
21, 1942, which is exercisable by the possessor only in conjunction 
with another person— 
(A) if the power is not exercisable by the possessor except in 
conjunction with the creator of the power—such power shall 
not be deemed a general power of appointment; 
(B) if the power is not exercisable by the possessor except in 
conjunction with a person having a substantial interest, in the 
property subject to the power, which is adverse to exercise of 
the power in favor of the possessor—such power shall not be 
deemed a general power of appointment. 
For the purposes of 
this subparagraph a person who, after the death of the possessor, 
may be possessed of a power of appointment (with respect to the 
property subject to the possessor's power) which he may exer-
cise in his own favor shall be deemed as having an interest in 
the property and such interest shall be deemed adverse to such 
exercise of the possessor's power; 
(C) if (after the application of subparagraphs (A) and (B)) the 
power is a general power of appointment and is exercisable in 
favor of such other person—such power shall be deemed a general 
power of appointment only in respect of a fractional part of the 
property subject to such power, such part to be determined by 
dividing the value of such property by the number of such 
persons (including the possessor) in favor of whom such power 
is exercisable. 
For purposes of subparagraphs (B) and (C), a power shall be 
deemed to be exercisable in favor of a person if it is exercisable in 
favor of such person, his estate, his creditors, or the creditors of 
his estate. 
(d) CREATION OF ANOTHER POWER IN CERTAIN CASES.—If a power 
of appointment created after October 21, 1942, is exercised by cre-
ating another power of appointment which, under the applicable 
local law, can be validly exercised so as to postpone the vesting of any 
estate or interest in the property which was subject to the first power, 
or suspend the absolute ownership or power of alienation of such 
property, for a period ascertainable without regard to the date of 
the creation of the first power, such exercise of the first power shall, 
to the extent of the property subject to the second power, be deemed 
a transfer of property by the individual possessing such power. 
(e) LAPSE OF POWER.—The lapse of a power of appointment cre-
ated after October 21, 1942, during the life of the individual pos-
sessing the power shall be considered a release of such power. 
The 
rule of the preceding sentence shall apply with respect to the lapse 
of powers during any calendar year only to the extent that the prop-
erty which could have been appointed by exercise of such lapsed 
powers exceeds in value the greater of the following amounts: 
§ 2514(c)(1) 
CH. 12—GIFT TAX 
40& 
(1) $5,000, or 
(2) 5 percent of the aggregate value of the assets out of which, 
or the proceeds of which, the exercise of the lapsed powers could 
be satisfied. 
(f) DATE OF CREATION OF POWER.—For purposes of this section 
a power of appointment created by a will executed on or before 
October 21, 1942, shall be considered a power created on or before 
such date if the person executing such will dies before July 1, 1949, 
without having republished such will, by codicil or otherwise, after 
October 21, 1942. 
SEC. 2515. TENANCIES BY THE ENTIRETY. 
(a) CREATION.—The creation of a tenancy by the entirety in real 
property, either by one spouse alone or by both spouses, and additions 
to the value thereof in the form of improvements, reductions in the 
indebtedness thereon, or otherwise, shall not be deemed transfers of 
property for purposes of this chapter, regardless of the proportion 
of the consideration furnished by each spouse, unless the donor 
elects to have such creation of a tenancy by the entirety treated as a 
transfer, as provided in subsection (c). 
(b) TERMINATION.—In the case of the termination of a tenancy 
by the entirety, other than by reason of the death of a spouse, 
the creation of which, or additions to which, were not deemed to be 
transfers by reason of subsection (a), a spouse shall be deemed to 
have made a gift to the extent that the proportion of the total con-
sideration furnished by such spouse multiplied by the proceeds of such 
termination (whether in form of cash, property, or interests in prop-
erty) exceeds the value of such proceeds of termination received by 
such spouse. 
(c) EXERCISE OF ELECTION.—The election provided by subsection 
(a) shall be exercised by including such creation of a tenancy by the 
entirety or additions made to the value thereof as a transfer by gift, 
to the extent such transfer constitutes a gift, determined without 
regard to this section, in the gift tax return of the donor for the 
calendar year in which such tenancy by the entirety was created or 
additions made to the value thereof; filed within the time prescribed 
by law, irrespective of whether or not the gift exceeds the exclusion 
provided by section 2503 (b). 
(d) CERTAIN JOINT TENANCIES INCLUDED.—For purposes of this 
section, the term "tenancy by the entirety" includes a joint tenancy 
between husband and wife with right of survivorship. 
SEC. 2516. CERTAIN PROPERTY SETTLEMENTS. 
Where husband and wife enter into a written agreement relative 
to their marital and property rights and divorce occurs within 2 years 
thereafter (whether or not such agreement is approved by the divorce 
decree), any transfers of property or interests in property made pur-
suant to such agreement— 
(1) to either spouse in,settlement of his or her marital or property 
'_' rights, or 
(2) to provide a reasonable allowance for the support of issue of 
the marriage during minority, 
shall be deemed to be transfers made for a full and adequate considera-
tion in money or money's worth. 
§2516 
49012°—54 
29 
410 
INTERNAL REVENUE CODE OF 1954 
Subchapter C—Deductions 
Sec. 2521. Specific exemption. 
Sec. 2522. Charitable and similar gifts. 
Sec. 2523. Gift to spouse. 
Sec. 2524. Extent of deductions. 
SEC. 2521. SPECIFIC EXEMPTION. 
In computing taxable gifts for the calendar year, there shall be 
allowed a deduction in the case of a citizen or resident an exemption 
of $30,000, less the aggregate of the amounts claimed and allowed as 
specific exemption in the computation of gift taxes for the calendar 
year 1932 and all calendar years intervening between that calendar 
year and the calendar year for which the tax is being computed under 
the laws applicable to such years. 
SEC. 2522. CHARITABLE AND SIMILAR GIFTS. 
(a) CITIZENS OR RESIDENTS.—In computing taxable gifts for the 
calendar year, there shall be allowed as a deduction in the case of a citi-
zen or resident the amount of all gifts made during such year to or for 
the use of— 
(1) the United States, any State, Territory, or any political sub-
division thereof, or the District of Columbia, for exclusively public 
purposes; 
(2) a corporation, or trust, or community chest, fund, or founda-
tion, organized and operated exclusively for religious, charitable, 
scientific, literary, or educational purposes, including the encourage-
ment of art and the prevention of cruelty to children or animals, 
no part of the net earnings of which inures to the benefit of any 
private shareholder or individual, and no substantial part of the 
activities of which is carrying on propaganda, or otherwise attempt-
ing, to influence legislation; 
(3) a fraternal society, order, or association, operating under the 
lodge system, but only if such gifts are to be used exclusively for 
religious, charitable, scientific, literary, or educational purposes, 
including the encouragement of art and the prevention of cruelty 
to children or animals; 
(4) posts or organizations of war veterans, or auxiliary units or 
societies of any such posts or organizations, if such posts, organiza-
tions, units, or societies are organized in the United States or any 
of its possessions, and if no part of their net earnings inures to the 
benefit of any private shareholder or individual. 
(b) NONRESIDENTS.—In the case of a nonresident not a citizen of 
the United States, there shall be allowed as a deduction the amount 
of all gifts made during such year to or for the use of— 
(1) the United States, any State, Territory, or any political 
subdivision thereof, or the District of Columbia, for exclusively 
public purposes; 
(2) a domestic corporation organized and operated exclusively 
for religious, charitable, scientific, literary, or educational purposes, 
§2521'- 
; 
,,__.._ , _ . ^ ^ , , , 
^ 
CH. 12—GIFT TAX 
411 
including the encouragement of art and the prevention of cruelty to 
children or animals, no part of the net earnings of which inures to 
the benefit of any private shareholder or individual, and no sub-
stantial part of the activities of which is carrying on propaganda, or 
otherwise attempting, to influence legislation; 
(3) a trust, or community chest, fund, or foundation, organized 
and operated exclusively for religious, charitable, scientific, literary, 
or educational purposes, including the encouragement of art and 
the prevention of cruelty to children or animals, no substantial part 
of the activities of which is carrying on propaganda, or otherwise 
attempting, to influence legislation; but only if such gifts are to be 
used within the United States exclusively for such purposes; 
(4) a fraternal society, order, or association, operating under the 
lodge system, but only if such gifts are to be used within the United 
States exclusively for religious, charitable, scientific, literary, or 
educational purposes, including the encouragement of art and the 
prevention of cruelty to children or animals; 
(5) posts or organizations of war veterans, or auxiliary units or 
societies of any such posts or organizations, if such posts, organiza-
tions, units, or societies are organized in the United States or any 
of its possessions, and if no part of their net earnings inures to the 
benefit of any private shareholder or individual. 
(c) DISALLOWANCE OF DEDUCTIONS IN CERTAIN CASES.— 
For disallowance of certain charitable, etc., deductions otherwise 
allowable under this section, see sections 504 and 681. 
(d) 
OTHER CROSS REFERENCES.— 
(1) For exemption of gifts to or for benefit of Library of Congress, 
see section 5 of the Act of March 3, 1925, as amended (56 Stat. 765; 2 
U. S. C. 161). 
(2) For construction of gifts for benefit of library of Post Office De-
partment as gifts to or for the use of the United States, see section 2 
of the Act of August 8, 1946 (60 Stat. 924; 5 U. S. C. 393). 
(3) For exemption of gifts for benefit of Office of Naval Records and 
Library, Navy Department, see section 2 of the Act of March 4, 1937 
(50 Stat. 25; 5 U. S. C. 419b). 
(4) For exemption of gifts to or for benefit of National Park Service, 
see section 5 of the Act of July 10, 1935 (49 Stat. 478; 16 U. S. C. 19c). 
(5) For construction of gifts accepted by the Secretary of State under 
the Foreign Service Act of 1946 as gifts to or for the use of the United 
States, see section 1021 (e) of that Act (60 Stat. 1032; 22 U. S. C. 809). 
(6) For construction of gifts or bequests of money accepted by the 
Attorney General for credit to "Commissary Funds, Federal Prisons" 
as gifts or bequests to or for the use of the United States, see section 2 
of the Act of May 15, 1952, 66 Stat. 73, as amended by the Act of July 9, 
1952, 66 Stat. 479 (31 U. S. C. 725s-4). 
(7) For payment of tax on gifts of United States obligations to the 
United States, see section 24 of the Second Liberty Bond Act, as 
amended (59 Stat. 48, § 4; 31 U. S. C. 757e). 
(8) For construction of gifts for benefit of or use in connection with 
Naval Academy as gifts to or for the use of the United States, see sec-
tion 3 of the Act of March 31, 1944 (58 Stat. 135; 34 U. S. C. 1115b). 
(9) For exemption of gifts for benefit of Naval Academy Museum, see 
section 4 of the Act of March 26, 1938 (52 Stat. 119; 34 U. S. C. 1119). 
(10) For exemption of gifts received by National Archives Trust 
Fund Board, see section 7 of the National Archives Trust Fund Board 
10 
Act (55 Stat. 582; 44 U. S. C. 300gg). 
§ 2522(d) (10) 
412 
INTERNAL REVENUE CODE OF 1954 
SEC. 2523. GIFT TO SPOUSE. 
. 
' 
' 
(a) I N GENERAL.—Where a donor who is a citizen or resident trans-
fers during the calendar year by gift an interest in property to a donee 
who at the time of the gift is the donor's spouse, there shall be allowed 
as a deduction in computing taxable gifts for the calendar year an 
amount with respect to such interest equal to one-half of its value. 
(b) LIFE ESTATE OR OTHER TERMINABLE INTEREST.—Wliere, on 
the lapse of time, on the occurrence of an event or contingency, or 
on the failure of an event or contingency to occur, such interest 
transferred to the spouse will terminate or fail, no deduction shall be 
allowed with respect to such interest— 
(1) if the donor retains in himself, or transfers or has transferred 
(for less than an adequate and full consideration in money or 
money's worth) to any person other than such donee spouse (or 
the estate of such spouse), an interest in such property, and if by 
. reason of such retention or transfer the donor (or his heirs or 
assigns) or such person (or his heirs or assigns) may possess or 
enjoy any part of such property after such termination or failure 
of the interest transferred to the donee spouse; or 
(2) if the donor immediately after the transfer to the donee 
spouse has a power to appoint an interest in such property which 
he can exercise (either alone or in conjunction with any person) in 
such manner that the appointee may possess or enjoy any part of 
such property after such termination or failure of the interest 
transferred to the donee spouse. For purposes of this paragraph, 
the donor shall be considered as having immediately after the trans-
fer to the donee spouse such power to appoint even though such 
; power cannot be exercised until after the lapse of time, upon the 
' occurrence of an event or contingency, or on the failure of an event 
or contingency to occur. 
An exercise or release at any time by the donor, either alone or in 
conjunction with any person, of a power to appoint an interest in 
property, even though not otherwise a transfer, shall, for purposes 
of paragraph (1), be considered as a transfer by him. 
Except as pro-
vided in subsection (e), where at the time of the transfer it is impos-
sible to ascertain the particular person or persons who may receive 
from the donor an interest in property so transferred by him, such 
interest shall, for purposes of paragraph (1), be considered as trans-
ferred to a person other than the donee spouse. 
(c) INTEREST IN UNIDENTIFIED ASSETS.—Where the assets out of 
which, or the proceeds of which, the interest transferred to the donee 
spouse may be satisfied include a particular asset or assets with respect 
to which no deduction would be allowed if such asset or assets were 
transferred from the donor to such spouse, then the value of the interest 
transferred to such spouse shall, for purposes of subsection (a), be 
reduced by the aggregate value of such particular assets. 
(d) JOINT INTERESTS.—If the interest is transferred to the donee 
spouse as sole joint tenant with the donor or as tenant by the entirety, 
the interest of the donor in the property which exists solely by reason 
of the possibility that the donor may survive the donee spouse, or 
that there may occur a severance of the tenancy, shall not be con-
§ 2523 , 
CH. 12—GIFT TAX 
413 
sidered for purposes of subsection (b) as an interest retained by the 
donor in himself. 
(e) L I F E 
ESTATE 
W I T H 
POWER 
OF APPOINTMENT 
IN 
DONEE 
SPOUSE.—-Where the donor transfers an interest in property, if by such 
transfer his spouse is entitled for life to all of the income from the 
entire interest, or all the income from a specific portion thereof, 
payable annually or at more frequent intervals, with power in the 
donee spouse to appoint the entire interest, or such specific portion 
(exercisable in favor of such donee spouse, or of the estate of such 
donee spouse, or in favor of either, whether or not in each case the 
power is exercisable in favor of others), and with no power in any 
other person to appoint any part of such interest, or such portion, to 
any person other than the donee spouse — 
(1) the interest, or such portion, so transferred shall, for purposes 
of subsection (a) be considered as transferred to the donee spouse, 
and 
(2) no part of the interest, or such portion, so transferred shall, 
for purposes of subsection (b) (1), be considered as retained in 
the donor or transferred to any person other than the donee spouse. 
This subsection shall apply only if, by such transfer, such power in 
the donee spouse to appoint the interest, or such portion, whether 
exercisable by will or during life, is exercisable by such spouse alone 
and in all events. 
(f) 
COMMUNITY PROPERTY.— 
(1) A deduction otherwise allowable under this section shall 
be allowed only to the extent that the transfer can be shown to 
represent a gift of property which is not, at the time of the gift, 
held as community property under the law of any State, Territory, 
or possession of the United States, or of any foreign country. 
(2) For purposes of paragraph (1), community property (except 
property which is considered as community property solely by 
reason of paragraph (3)) shall not be considered as "held as com-
munity property" if the entire value of such property (and not 
merely one-half thereof) is treated as the amount of the gift. 
(3) If during the calendar year 1942 or in succeeding calendar 
years, property held as such community property (unless con-
sidered by reason of paragraph (2) as not so held) was by the donor 
and the donee spouse converted, by one transaction or a series of 
transactions, into separate property of the donor and such spouse 
(including any form of coovvnership by them), the separate property 
so acquired by the donor and any property acquired at any time 
by the donor in exchange therefor (by one exchange or a series of 
exchanges) shall, for purposes of paragraph (1), be considered as 
"held as community property." 
(4) Where the value (at the time of such conversion) of the 
separate property so acquired by the donor exceeded the value (at 
such time) of the separate property so acquired by such spouse, 
paragraph (3) shall apply only with respect to the same portion of 
such separate property of the donor as the portion which the value 
§ 2523(f)(4) 
414 
INTERNAL REVENUE CODE OF 1954 
(as of such time) of such separate property so acquired by such 
spouse is of the value (as of such time) of the separate property 
so acquired by the donor. 
SEC. 2524. EXTENT OF DEDUCTIONS. 
The deductions provided in sections 2522 and 2523 shall be allowed 
only to the extent that the gifts therein specified are included in the 
amount of gifts against which such deductions are applied. 
( , , . *..!•. 
§ 2523(f)(4) 
CH. 21—FEDERAL INSURANCE CONTRIBUTIONS ACT 
415 
Subtitle C—Employment Taxes 
CHAPTER 21. Federal insurance contributions act. 
CHAPTER 22. Railroad retirement tax act. 
CHAPTER 23. Federal unemployment tax act. 
y-^,-
CHAPTER 24. Collection of income tax at source on wages. 
"' 
CHAPTER 25. General provisions relating to employment taxes. 
CHAPTER 21—FEDERAL INSURANCE CONTRIBU-
TIONS ACT 
SUBCHAPTER A. Tax on employees. 
SUBCHAPTER B . Tax on employers. 
' 
t^oiJi 
SUBCHAPTER C. General provisions. 
sooj 
Subchapter A—Tax on Employees 
.jjfe'i 
Sec. 3101. Rate of tax. 
Sec. 3102. Deduction of tax from wages. 
SEC. 3101. RATE OF TAX. 
In addition to other taxes, there is hereby imposed on the income of 
every individual a tax equal to the following percentages of the wages 
(as defined in section 3121 (a)) received by him with respect to 
employment (as defined in section 3121 (b))— 
(1) with respect to wages received during the calendar years 
1955 to 1959, both inclusive, the rate shall be 2 percent; 
(2) with respect to wages received during the calendar years 
1960 to 1964, both inclusive, the rate shall be 2^ percent; 
(3) with respect to wages received during the calendar years 1965 
to 1969, both inclusive, the rate shall be 3 percent; 
(4) with respect to wages received after December 31, 1969, the 
rate shall be 3% percent. 
SEC. 3102. DEDUCTION OF TAX FROM WAGES. 
(a) REQUIREMENT.—The tax imposed by section 3101 shall be col-
lected by the employer of the taxpayer, by deducting the amount of 
the tax from the wages as and when paid. 
(b) INDEMNIFICATION OF EMPLOYER.—Every employer required so 
to deduct the tax shall be liable for the payment of such tax, and shall 
be indemnified against the claims and demands of any person for the 
amount of any such payment made by such employer. 
§ 3102(b) 
416 
I M 
INTERNAL REVENUE CODE OF 1954 
: .HO 
Subchapter B—Tax on Employers ! 
Sec. 3111. Rate of tax. 
Sec. 3112. Instrumentalities of the United States. 
:\ 
SEC. 3111. RATE OF TAX. 
In addition to other taxes, there is hereby imposed on every em-
ployer an excise tax, with respect to having individuals in his employ, 
equal to the following percentages of the wages (as defined in section 
3121 (a)) paid by him with respect to employment (as defined in 
section 3121 (b))— 
(1) with respect to wages paid during the calendar years 1955 
to 1959, both inclusive, the rate shall be 2 percent; 
(2) with respect to wages paid during the calendar years 1960 
to 1964, both inclusive, the rate shall be 2^ percent; 
(3) with respect to wages paid during the calendar years 1965 
to 1969, both inclusive, the rate shall be 3 percent; 
(4) with respect to wages paid after December 31, 1969, the rate 
shall be 3K percent. 
SEC. 3112. INSTRUMENTALITIES OF THE UNITED STATES. 
Notwithstanding any other provision of law (whether enacted before 
or after the enactment of this section) which grants to any instru-
mentality of the United States an exemption from taxation, such 
instrumentality shall not be exempt from the tax imposed by section 
3111 unless such other provision of law grants a specific exemption, 
by reference to section 3111 (or the corresponding section of prior 
law), from the tax imposed by such section. 
§3111 
tin 
CH. 21—FEDERAL INSURANCE CONTRIBUTIONS ACT 
4 1 7 
Subchapter C—General Provisions 
Sec. 3121. Definitions. 
Sec. 3122. Federal service. 
Sec. 3123. Deductions as constructive payments. 
fti '•' 
Sec. 3124. Estimate of revenue reduction. 
Sec. 3125. Short title. 
SEC. 3121. DEFINITIONS. 
(a) WAGES.—For purposes of this chapter, the term "wages" 
means all remuneration for employment, including the cash value of 
all remuneration paid in any medium other than cash; except that 
such term shall not include— 
(1) that part of the remuneration which, after remuneration 
(other than remuneration referred to in the succeeding paragraphs 
r of this subsection) equal to $3,600 with respect to employment has 
been paid to an individual by an employer during any calendar year, 
, is paid to such individual by such employer during such calendar 
year. 
If an employer (hereinafter referred to as successor em-
. ployer) during any calendar year acquires substantially all the 
n property used in a trade or business of another employer (herein-
. after referred to as a predecessor), or used in a separate unit of a 
.'. trade or business of a predecessor, and immediately after the acqui-
, sition employs in his trade or business an individual who imme-
j i diately prior to the acquisition was employed in the trade or business 
} of such predecessor, then, for the purpose of determining whether 
J
, the successor employer has paid remuneration (other than remuner-
^ ation referred to in the succeeding paragraphs of this subsection) 
with respect to employment equal to $3,600 to such individual dur-
, ing such calendar year, any remuneration (other than remuneration 
.referred to in the succeeding paragraphs of this subsection) with 
respect to employment paid (or considered under this paragraph as 
.. having been paid) to such individual by such predecessor during 
, such calendar year and prior to such acquisition shall be considered 
as having been paid by such successor employer; 
, 
(2) the amount of any payment (including any amount paid by 
^ an employer for insurance or annuities, or into a fund, to provide for 
any such payment) made to, or on behalf of, an employee or any of 
_ his dependents under a plan or system established by an employer 
which makes provision for his employees generally (or for his em-
f, ployees generally and their dependents) or for a class or classes of 
, his employees (or for a class or classes of his employees and their 
. dependents), on account of— 
(A) retirement, or 
,j 
(B) sickness or accident disability, or 
^ 
(C) medical or hospitalization expenses in connection with 
sickness or accident disability, or 
I 
(D) death; 
(3) any payment made to. an employee (including any amount 
paid by an employer for insurance or annuities, or into a fund, to 
provide for any such payment) on account of retirement; 
§ 3121(a)(3) 
418 
'
"
'
*
• 
INTERNAL REVENUE CODE OF 1954 £ ••''^^ 
(4) any payment on account of sickness or accident disability, 
or medical or hospitalization expenses in connection with sick-
ness or accident disability, made by an employer to, or on behalf 
of, an employee after the expiration of 6 calendar months following 
the last calendar month in which the employee worked for such 
employer; 
(5) any payment made to, or on behalf of, an employee or his 
beneficiary— 
(A) from or to a trust described in section 401 (a) which is 
exempt from tax under section 501 (a) at the time of such pay-
ment unless such payment is made to an employee of the trust 
as remuneration for services rendered as such employee and not 
as a beneficiary of the trust, or 
(B) under or to an annuity plan which, at the time of such 
payment, meets the requirements of section 401 (a) (3), (4), (5), 
and (6); 
(6) the payment by an employer (without deduction from the 
remuneration of the employee)— 
(A) of the tax imposed upon an employee under section 3101 
(or the corresponding section of prior law), or 
(B) of any payment required from an employee under a State 
unemployment compensation law; 
(7) (A) remuneration paid in any medium other than cash to an 
employee for service not in the course of the employer's trade or 
business or for domestic service in a private home of the employer; 
(B) cash remuneration paid by an employer in any calendar 
quarter to an employee for domestic service in a private home of 
the employer, if the cash remuneration paid in the quarter for such 
service is less than $50 or the employee is not regularly employed 
by the employer in such quarter of pajrment. For purposes of this 
subparagraph, an employee shall be deemed to be regularly em-
ployed by an employer during a calendar quarter only if-— 
(i) on each of some 24 days during the quarter the employee 
performs for the employer for some portion of the day domestic 
service in a private home of the employer, or 
(ii) the employee was regularly employed (as determined under 
clause (i)) by the employer in the performance of such service 
during the preceding calendar quarter. 
As used in this subparagraph, the term "domestic service in a private 
home of the employer" does not include service described in sub-
section (g) (5); 
(8) remuneration paid in any medium other than cash for agri-
cultural labor; 
(9) any payment (other than vacation or sick pay) made to an 
employee after the month in which he attains the age of 65, if he 
did not work for the employer in the period for which such payment 
is made; or 
(10) remuneration paid by an employer in any calendar quarter 
to an employee for service described in subsection (d) (3) (C) 
(relating to home workers), if the cash remuneration paid in such 
quarter by the employer to the employee for such service is less 
than $50. 
§ 3121(a)(4) 
CH. 
21—FEDERAL INSURANCE CONTRIBUTIONS ACT 
4 1 9 
(b) EMPLOYMENT.—For purposes of this chapter, the term "employ-
ment" means any service performed after 1936 and prior to 1955 which 
was employment for purposes of subchapter A of chapter 9 of the 
Internal Revenue Code of 1939 under the law applicable to the period 
in which such service was performed, and any service, of whatever 
nature, performed after 1954 either (A) by an employee for the person 
employing him, irrespective of the citizenship or residence of either, 
(i) witliin the United States, or (ii) on or in connection with an Ameri-
can vessel or American aircraft under a contract of service which is 
entered into within the United States or during the performance of 
which and while the employee is employed on the vessel or aircraft it 
touches at a port in the United States, if the employee is employed on 
and in connection with such vessel or aircraft when outside the United 
States, or (B) outside the United States by a citizen of the United 
States as an employee for an American employer (as defined in sub-
section (h)); except that, in the case of service performed after 1954, 
such term shall not include— 
(1) (A) agricultural labor (as defined in subsection (g)) performed 
in any calendar quarter by an employee, unless the cash remun-
eration paid for such labor (other than service described in sub-
* paragraph (B)) is $50 or more and such labor is performed for 
an employer by an individual who is regularly employed by such 
i employer to perform such agricultural labor. 
For purposes of 
'• this subparagraph, an individual shall be deemed to be regularly 
employed by an employer during a calendar quarter only if— 
(i) such individual performs agricultural labor (other than 
service described in subparagraph (B)) for such employer on a 
full-time basis on 60 days during such quarter, and 
(ii) the quarter was immediately preceded by a qualifying 
quarter. 
!
! For purposes of the preceding sentence, the term "qualifying 
quarter" means— 
'i 
(I) any quarter during all of which such individual was con-
i 
tinuously employed by such employer, or 
i 
(II) any subsequent quarter which meets the test of clause (i) 
if, after the last quarter during all of which such individual was 
1 
continuously employed by such employer, each intervening 
quarter met the test of clause (i). 
• Notwithstanding the preceding provisions of this subparagraph, an 
- individual shall also be deemed to be regularly employed by an 
employer during a calendar quarter if such individual was regularly 
t. employed (upon application of clauses (i) and (ii)) by such em-
ployer during the preceding calendar quarter; 
J 
(B) service performed in connection with the production or 
' harvesting of any commodity defined as an agricultural commodity 
in section 15 (g) of the Agricultural Marketing Act, as amended 
(46 Stat. 1550, § 3; 12 U. S. C. 1141j), or in connection with the 
- ginning of cotton; 
(C) service performed by foreign agricultural workers under 
- contracts entered into in accordance with title V of the Agricultural 
i Act of 1949, as amended (65 Stat. 119; 7 U. S. C. 1461-1468); 
(2) domestic service performed in a local college club, or local 
: chapter of a college fraternity or sorority, by a student who is 
§ 3121(b)(2) 
420 
• 
INTERNAL REVENUE CODE OF 1954 
T; » 
enrolled and is regularly attending classes at a school, college, or 
university; 
(3) service not in the course of the employer's trade or busi-
ness performed in any calendar quarter by an employee, unless 
the cash remuneration paid for such service is $50 or more and 
such service is performed by an individual who is regularly em-
ployed by such employer to perform such service. 
For purposes 
of this paragraph, an individual shall be deemed to be regularly 
employed by an employer during a calendar quarter only if— 
(A) on each of some 24 days during such quarter such individual 
performs for such employer for some portion of the day service 
not in the course of the employer's trade or business, or 
(B) such individual was regularly employed (as determined 
under subparagraph (A)) by such employer in the performance 
of such service during the preceding calendar quarter. 
As used in this paragraph, the term "service not in the course of 
the employer's trade or business" does not include domestic service 
in a private home of the employer and does not include service 
described in subsection (g) (5); 
(4) service performed by an individual in the employ of his son, 
daughter, or spouse, and service performed by a child under the 
age of 21 in the employ of his father or mother; 
(5) service performed by an individual on or in connection 
with a vessel not an American vessel, or on or in connection with 
an aircraft not an American aircraft, if the individual is employed 
on and in connection with such vessel or aircraft when outside 
the United States; 
(6) service performed in the employ of any instrumentality 
of the United States, if such instrumentality is exempt from the 
tax imposed by section 3111 by virtue of any provision of law 
which specifically refers to such section (or the corresponding 
section of prior law) in granting such exemption; 
(7) (A) service performed in the employ of the United States or 
in the employ of any instrumentality of the United States, if such 
service is covered by a retirement system established by a law of 
the United States; 
(B) service performed in the employ of an instrumentality of 
the United States if such an instrumentality was exempt from the 
tax imposed by section 1410 of the Internal Revenue Code of 1939 
on December 31, 1950, except that the provisions of this subpara-
graph shall not be applicable to— 
(i) service performed in the employ of a corporation which is 
wholly owned by the United States; 
(ii) service performed in the employ of a national farm loan 
association, a production credit association, a Federal Reserve 
Bank, or a Federal Credit Union; 
(iii) service performed in the employ of a State, county, or 
community committee under the Commodity Stabilization Serv-
ice; or 
(iv) service performed by a civilian employee, not compen-
sated from funds appropriated by the Congress, in the Army and 
Air Force Exchange Service, Army and Air Force Motion Picture 
Service, Navy Exchanges, Marine Corps Exchanges, or other 
§ 3121(b)(2) 
CH. 21 
FEDERAL INSURANCE CONTRIBUTIONS ACT 
4 2 1 
' activities, conducted by an instrumentality of the United States 
subject to the jurisdiction of the Secretary of Defense, at installa-
tions of the Department of Defense for the comfort, pleasure, 
contentment, and mental and physical improvement of personnel 
of such Department; 
(C) service performed in the employ of the United States or in 
the employ of any instrumentality of the United States, if such 
service is performed— 
(i) as the President or Vice President of the United States or as 
a Member, Delegate, or Resident Commissioner, of or to the 
Congress ; 
(ii) in the legislative branch; 
(iii) in the field service of the Post Office Department unless 
performed by any individual as an employee who is excluded by 
Executive order from the operation of the Civil Service Retire-
ment Act of 1930 (46 Stat. 470; 5 U. S. C. 693) because he is 
serving under a temporary appointment pending final determina-
tion of eligibility for permanent or indefinite appointment; 
i 
(iv) in or under the Bureau of the Census of the Department 
of Commerce by temporary employees employed for the taking 
' of any census; 
(v) by any individual as an employee who is excluded by 
Executive order from the operation of the Civil Service Retire-
ment Act of 1930 (46 Stat. 470; 5 U. S. C. 693) because he is 
paid on a contract or fee basis; 
(vi) by any individual as an employee receiving nominal com-
pensation of $12 or less per annum; 
(vii) in a hospital, home, or other institution of the United 
1' States by a patient or inmate thereof; 
(viii) by any individual as a consular agent appointed under 
authority of section 551 of the Foreign Service Act of 1946 
(60 Stat. 1011; 22 U. S. C. 951); 
(ix) by any individual as an employee included under section 
2 of the Act of August 4, 1947 (relating to certain interns, student 
nurses, and other student employees of hospitals of the Federal 
Government) (61 Stat. 727; 5 U. S. C. 1052); 
(x) by any individual as an employee serving on a temporary 
basis in case of fire, storm, earthquake, flood, or other similar 
emergency; 
(xi) by any individual as an employee who is employed under 
a Federal relief program to relieve him from unemployment; 
i 
(xii) as a member of a State, county, or community committee 
under the Commodity Stabilization Service or of any other board, 
council, committee, or other similar body, unless such board, 
council, committee, or other body is composed exclusively of 
individuals otherwise in the full-time employ of the United 
States; or 
(xiii) by an individual to whom the Civil Service Retirement 
Act of 1930 (46 Stat. 470; 5 U. S. C. 693) does not apply because 
such individual is subject to another retirement system; 
(8) service (other than service which, under subsection (j), con-
stitutes covered transportation service) performed in the employ of 
a State, or any political subdivision thereof, or any instrumentality 
§3121(b)(8> 
422 
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"i 
of any one or more of the foregoing which is wholly owned by one 
or more States or pohtical subdivisions; 
(9) (A) service performed by a duly ordained, commissioned, or 
licensed minister of a church in the exercise of his ministry or by a 
member of a religious order in the exercise of duties required by 
such order; 
(B) service performed in the employ of a religious, charitable, 
educational, or other organization described in section 501 (c) (3) 
which is exempt from income tax under section 501 (a), but this 
subparagraph shall not apply to service performed during the period 
for which a certificate, filed pursuant to subsection (k) (or the 
corresponding subsection of prior law), is in effect if such service is 
performed by an employee— 
(i) whose signature appears on the list filed by such organi-
zation under subsection (k) (or the corresponding subsection of 
prior law), or 
(ii) who became an employee of such organization after the 
calendar quarter in which the certificate was filed; 
(10) service performed by an individual as an employee or 
employee representative as defined in section 3231; 
(11) (A) service performed in any calendar quarter in the employ 
of any organization exempt from income tax under section 501 (a) 
(other than an organization described in section 401 (a)) or under 
section 521, if the remuneration for such service is less than $50; 
(B) service performed in the employ of a school, college, or uni-
versity if such service is performed by a student who is enrolled and 
is regularly attending classes at such school, college, or university; 
(12) service performed in the employ of a foreign government 
(including service as a consular or other officer or employee or a 
nondiplomatic representative); 
(13) service performed in the employ of an instrumentality 
wholly owned by a foreign government— 
: 
(A) if the service is of a character similar to that performed in 
foreign countries by employees of the United States Government 
or of an instrumentality thereof; and 
(B) if the Secretary of State shall certify to the Secretary 
that the foreign government, with respect to whose instrumen-
tality and employees thereof exemption is claimed, grants an 
equivalent exemption with respect to similar service performed 
in the foreign country by employees of the United States Gov-
ernment and of instrumentalities thereof; 
(14) service performed as a student nurse in the employ of a 
hospital or a nurses' training school by an individual who is en-
rolled and is regularly attending classes in a nurses' training school 
chartered or approved pursuant to State law; and service performed 
as an intern in the employ of a hospital by an individual who has 
completed a 4 years' course in a medical school chartered or ap-
proved pursuant to State law; 
(15) service performed by an individual in (or as an officer or 
member of the crew of a vessel while it is engaged in) the catch-
ing, taking, harvesting, cultivating, or farming of any kind of fish, 
shellfish, Crustacea, sponges, seaweeds, or other aquatic forms of 
animal and vegetable life (including service performed by any 
§ 3121(b)(8) 
CH. 21—FEDERAL INSURANCE CONTRIBUTIONS ACT 
423 
such individual as an ordinary incident to any such activity), 
except— 
(A) service performed in connection with the catching or tak-
ing of salmon or halibut, for commercial purposes, and 
(B) service performed on or in connection with a vessel of more 
than 10 net tons (determined in the manner provided for deter-
mining the register tonnage of merchant vessels under the laws of 
the United States); 
(16) (A) service performed by an individual under the age of 18 
in the delivery or distribution of newspapers or shopping news, not 
including delivery or distribution to any point for subsequent 
delivery or distribution; 
(B) service performed by an individual in, and at the time of, 
the sale of newspapers or magazines to ultimate consumers, under 
an arrangement under which the newspapers or magazines are to 
be sold by him at a fixed price, his compensation being based on 
the retention of the excess of such price over the amount at which 
the newspapers or magazines are charged to him, whether or not 
he is guaranteed a minimum amount of compensation for such 
service, or is entitled to be credited with the unsold newspapers 
or magazines turned back; or 
(17) service performed in the employ of an international organ-
ization. 
(c) INCLUDED AND EXCLUDED SERVICE.—For purposes of this 
chapter, if the services performed during one-half or more of any 
pay period by an employee for the person employing him constitute 
employment, all the services of such employee for such period shall 
be deemed to be employment; but if the services performed during 
more than one-half of any such pay period by an employee for the 
person employing him do not constitute employment, then none of 
the services of such employee for such period shall be deemed to be 
employment. 
As used in this subsection, the term ''pay period" 
means a period (of not more than 31 consecutive days) for which a 
payment of remuneration is ordinarily made to the employee by the 
person employing him. 
This subsection shall not be applicable 
with respect to services performed in a pay period by an employee 
for the person employing him, where any of such service is excepted 
by subsection (b) (10). 
(d) EMPLOYEE.—For purposes of this chapter, the term "employee" 
means— 
(1) any officer of a corporation; or 
(2) any individual who, under the usual common law rules 
applicable in determining the employer-employee relationship, has 
the status of an employee; or 
(3) any individual (other than an individual who is an employee 
under paragraph (1) or (2)) who performs services for remuneration 
for any person— 
(A) as an agent-driver or commission-driver engaged in dis-
tributing meat products, vegetable products, fruit products, 
bakery products, beverages (other than milk), or laundry or dry-
cleaning services, for his principal; 
(B) as a full-time life insurance salesman; 
§ 3121(d)(3)(B) 
424 
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" 
j 
(C) as a home worker performing work, according to specifica-
tions furnished by the person for whom the services are performed, 
on materials or goods furnished by such person which are re-
quired to be returned to such person or a person designated by 
him, if the performance of such services is subject to licensing 
requirements under the laws of the State in which such services 
are performed; or 
(D) as a traveling or city salesman, other than as an agent-
driver or commission-driver, engaged upon a full-time basis in 
the solicitation on behalf of, and the transmission to, his principal 
(except for side-line sales activities on behalf of some other 
person) of orders from wholesalers, retailers, contractors, or 
operators of hotels, restaurants, or other similar establishments 
for merchandise for resale or supplies for use in their business 
operations; 
if the contract of service contemplates that substantially all of such 
services are to be performed personally by such individual; except 
that an individual shall not be included in the term "employee" 
under the provisions of this paragraph if such individual has a 
substantial investment in facilities used in connection with the 
performance of such services (other than in facilities for transporta-
tion), or if the services are in the nature of a single transaction not 
part of a continuing relationship with the person for whom the 
services are performed. 
(e) STATE, UNITED STATES, AND CITIZEN.—For purposes of this 
chapter— 
(1) STATE.—The term "State" includes Alaska, Hawaii, the 
District of Columbia, Puerto Rico, and the Virgin Islands. 
(2) UNITED STATES.—The term "United States" when used in a 
geographical sense includes Puerto Rico and the Virgin Islands. 
An individual who is a citizen of Puerto Rico (but not otherwise a 
citizen of the United States) shall be considered, for purposes of this 
section, as a citizen of the United States. 
(f) AMERICAN VESSEL AND AIRCRAFT.—For purposes of this chap-
ter, the term "American vessel" means any vessel documented or 
numbered under the laws of the United States; and includes any 
vessel which is neither documented or numbered under the laws of 
the United States nor documented under the laws of any foreign 
country, if its crew is employed solely by one or more citizens or resi-
dents of the United States or corporations organized under the laws of 
the United States or of any State; and the term "American aircraft" 
means an aircraft registered under the laws of the United States. 
(g) AGRICULTURAL LABOR.—For purposes of this chapter, the term 
"agricultural labor" includes all service performed— 
(1) on a farm, in the employ of any person, in connection with 
cultivating the soil, or in connection with raising or harvesting any 
agricultural or horticultural commodity, including the raising, 
shearing, feeding, caring for, training, and management of livestock, 
bees, poultry, and fur-bearing animals and wildlife; 
(2) in the employ of the owner or tenant or other operator of a 
farm, in connection with the operation, management, conservation, 
improvement, or maintenance of such farm and its tools and equip-
ment, or in salvaging timber or clearing land of brush and other 
§ 3121(d)(3)(C) 
CH. 21—FEDERAL INSURANCE CONTRIBUTIONS ACT 
425 
debris left by a hurricane, if the major part of such service is per-
formed on a farm; 
(3) in connection with the production or harvesting of any com-
modity defined as an agricultural commodity in section 15 (g) of 
the Agricultural Marketing Act, as amended (46 Stat. 1550, § 3; 12 
U. S. C 1141J), or in connection with the ginning of cotton, or in 
connection with the operation or maintenance of ditches, canals, 
reservoirs, or waterways, not owned or operated for profit, used 
exclusively for supplying and storing water for farming purposes; 
(4) (A) in the employ of the operator of a farm in handling, 
planting, drying, packing, packaging, processing, freezing, grading, 
storing, or delivering to storage or to market or to a carrier for trans-
portation to market, in its unmanufactured state, any agricultural 
or horticultural commodity; but only if such operator produced 
more than one-half of the commodity with respect to which such 
service is performed; 
(B) in the employ of a group of operators of farms (other than a 
cooperative organization) in the performance of service described 
in subparagraph (A), but only if such operators produced all of the 
commodity with respect to which such service is performed. 
For 
purposes of this subparagraph, any unincorporated group of oper-
ators shall be deemed a cooperative organization if the number of 
operators comprising such group is more than 20 at any time during 
the calendar quarter in which such service is performed; 
(C) the provisions of subparagraphs (A) and (B) shall not be 
deemed to be applicable with respect to service performed in con-
nection with commercial canning or commercial freezing or in con-
• 
nection with any agricultural or horticultural commodity after its 
delivery to a terminal market for distribution for consumption; or 
(5) on a farm operated for profit if such service is not in the 
course of the employer's trade or business or is domestic service in a 
private home of the employer. 
As used in this subsection, the term "farm" includes stock, dairy, 
•poultry, fruit, fur-bearing animal, and truck farms, plantations, 
ranches, nurseries, ranges, greenhouses or other similar structures used 
primarily for the raising of agricultural or horticultural commodities, 
and orchards. 
(h) AMERICAN EMPLOYER.—For purposes of this chapter, the term 
"American employer" means an employer which is— 
(1) the United States or any instrumentality thereof, 
(2) an individual who is a resident of the United States, 
(3) a partnership, if two-thirds or more of the partners are resi-
dents of the United States, 
(4) a trust, if all of the trustees are residents of the United 
States, or 
(5) a corporation organized under the laws of the United States 
or of any State. 
(i) COMPUTATION OF WAGES IN CERTAIN CASES.—For purposes of 
this chapter, in the case of domestic service described in subsection 
(a) (7) (B), any payment of cash remuneration for such service which 
is more or less than a whole-dollar amount shall, under such conditions 
and to such extent as may be prescribed by regulations made under 
this chapter, be computed to the nearest dollar. 
For the purpose of 
§3121(i) 
49012°—54^ 
30 
426 
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INTERNAL REVENUE CODE OF 1954 
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the computation to the nearest dollar, the payment of a fractional 
part of a dollar shall be disregarded unless it amounts to one-half 
dollar or more, in which case it shall be increased to $1. The amount 
of any payment of cash remuneration so computed to the nearest 
dollar shall, in lieu of the amount actually paid, be deemed to consti-
tute the amount of cash remuneration for purposes of subsection 
(a).(7)(B). 
(j) COVERED TRANSPORTATION SERVICE.—For purposes of this 
chapter— 
(1) EXISTING TRANSPORTATION SYSTEMS—GENERAL RULE.—Ex-
cept as provided in paragraph (2), all service performed in the 
employ of a State or political subdivision in connection with its 
operation of a public transportation system shall constitute covered 
transportation service if any part of the transportation system was 
acquired from private ownership after 1936 and prior to 1951. 
(2) EXISTING TRANSPORTATION SYSTEMS—CASES IN WHICH NO 
TRANSPORTATION EMPLOYEES, OR ONLY CERTAIN EMPLOYEES, ARE 
COVERED.—Service performed in the employ of a State or political 
subdivision in connection with the operation of its public trans-
portation system shall not constitute covered 
transportation 
service if— 
(A) any part of the transportation system was acquired from 
private ownership after 1936 and prior to 1951, and substantially 
all service in connection with the operation of the transportation 
system was, on December 31, 1950, covered under a general 
retirement system providing benefits which, by reason of a pro-
vision of the State constitution dealing specifically with retire-
ment systems of the State or political subdivisions thereof, can-
not be diminished or impaired; or 
(B) no part of the transportation system operated by the State 
or political subdivision on December 31, 1950, was acquired from 
private ownership after 1936 and prior to 1951; 
except that if such State or political subdivision makes an acqui-
sition after 1950 from private ownership of any part of its trans-
portation system, then, in the case of any employee who— 
(C) became an employee of such State or political subdivision 
in connection with and at the time of its acquisition after 1950 
of such part, and 
(D) prior to such acquisition rendered service in employment 
(including as employment service covered by an agreement under 
section 218 of the Social Security Act) in connection with the 
operation of such part of the transportation system acquired by 
the State or political subdivision, 
the service of such employee in connection with the operation of 
the transportation system shall constitute covered transportation 
service, commencing with the first day of the third calendar quarter 
following the calendar quarter in which the acquisition of such part 
took place, unless on such first day such service of such employee 
is covered by a general retirement system which does not, with 
respect to such employee, contain special provisions applicable only 
to employees described in subparagraph (C). 
(3) TRANSPORTATION SYSTEMS ACQUIRED AFTER 1950.—All service 
performed in the employ of a State or political subdivision thereof 
§3121(i) 
00 
-~^^n.--ioOfr 
CH. 21—FEDERAL INSURANCE CONTRIBUTIONS ACT 
427 
in connection with its operation of a public transportation system 
shall constitute covered transportation service if the transporta-
tion system was not operated by the State or political subdivision 
prior to 1951 and, at the time of its first acquisition (after 1950) 
from private ownership of any part of its transportation system, 
the State or political subdivision did not have a general retirement 
system covering substantially all service performed in connection 
with the operation of the transportation system. 
(4) DEFINITIONS.—For purposes of this subsection— 
(A) The term "general retirement system" means any pension, 
annuity, retirement, or similar fund or system established by a 
State or by a political subdivision thereof for employees of the 
State, political subdivision, or both; but such term shall not 
include such a fund or system which covers only service performed 
in positions connected with the operation of its public transpor-
tation system, 
(B) A transportation system or a part thereof shall be con-
sidered to have been acquired by a State or political subdivision 
from private ownership if prior to the acquisition service per-
formed by employees in connection with the operation of the 
system or part thereof acquired constituted employment under 
this chapter or subchapter A of chapter 9 of the Internal Revenue 
Code of 1939 or was covered by an agreement made pursuant to 
section 218 of the Social Security Act and some of such em-
ployees became employees of the State or political subdivision 
in connection with and at the time of such acquisition. 
(C) The term "political subdivision" includes an instrumental-
ity of— 
(i) a State, 
(ii) one or more political subdivisions of a State, or 
(iii) a State and one or more of its political subdivisions, 
(k) EXEMPTION OF RELIGIOUS, CHARITABLE, AND CERTAIN OTHER 
ORGANIZATIONS.— 
(1) WAIVER OF EXEMPTION BY ORGANIZATION.—An organiza-
tion described in section 501 (c) (3) which is exempt from income 
. tax under section 501 (a) may file a certificate (in such form and 
manner, and with such official, as may be prescribed by regulations 
made under this chapter) certifying that it desires to have the 
insurance system established by title II of the Social Security Act 
extended to service performed by its employees and that at least 
two-thirds of its employees concur in the filing of the certificate. 
Such certificate may be filed only if it is accompanied by a list con-
taining the signature, address, and social security account number 
(if any) of each employee who concurs in the filing of the certificate. 
Such list may be amended, at any time prior to the expiration of the 
first month following the first calendar quarter for which the certifi-
cate is in effect, by filing with such official a supplemental list or lists 
containing the signature, address, and social security account num-
ber (if any) of each additional employee who concurs in the filing of 
the certificate. 
The list and any supplemental list shall be filed in 
such form and manner as may be prescribed by regulations made 
under this chapter. 
The certificate shall be in effect (for purposes of 
subsection (b) (9) (B) and for purposes of section 210 (a) (9) (B) of 
§3121(k)(l) 
428 
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INTERNAL REVENUE CODE OF 1954 ;
' .HI 
; the Social Security Act) for the period beginning with the first day 
. following the close of the calendar quarter in which such certificate 
is filed. The period for which a certificate filed pursuant to this 
subsection or the corresponding subsection of prior law is effective 
may be terminated by the organization, effective at the end of a 
calendar quarter, upon giving 2 years' advance notice in writing, 
but only if, at the time of the receipt of such notice, the certificate 
has been in effect for a period of not less than 8 years. 
The notice 
of termination may be revoked by the organization by giving, prior 
to the close of the calendar quarter specified in the notice of termina-
tion, a written notice of such revocation. 
Notice of termination 
or revocation thereof shall be filed in such form and manner, and 
with such official, as may be prescribed by regulations made under 
this chapter. 
(2) TERMINATION 
OF WAIVER 
PERIOD BY SECRETARY 
OR HIS 
DELEGATE.—If the Secretary or his delegate finds that any organi-
- zation which filed a certificate pursuant to this subsection or the 
corresponding subsection of prior law has failed to comply sub-
stantially with the requirements applicable with respect to the 
taxes imposed by this chapter or the corresponding provisions of 
prior law or is no longer able to comply with the requirements 
applicable with respect to the taxes imposed by this chapter, the 
Secretary or his delegate shall give such organization not less than 
60 days' advance notice in writing that the period covered by such 
certificate will terminate at the end of the calendar quarter specified 
in such notice. Such notice of termination may be revoked by the 
. Secretary or his delegate by giving, prior to the close of the calendar 
quarter specified in the notice of termination, written notice of 
such revocation to the organization. 
No notice of termination or 
of revocation thereof shall be given under this paragraph to an 
organization without the prior concurrence of the Secretary of 
Health, Education, and Welfare. 
(3) No RENEWAL OF WAIVER.—In the event the period covered 
by a certificate filed pursuant to this subsection or the corresponding 
subsection of prior law is terminated by the organization, no certif-
icate may again be filed by such organization pursuant to this 
subsection. 
SEC. 3122. FEDERAL SERVICE. 
In the case of the taxes imposed by this chapter with respect to 
service performed in the employ of the United States or in the employ 
of any instrumentality which is wholly owned by the United States, 
the determination whether an individual has performed service which 
constitutes employment as defined in section 3121 (b), the determina-
tion of the amount of remuneration for such service which constitutes 
wages as defined in section 3121 (a), and the return and payment of 
the taxes imposed by this chapter, shall be made by the head of the 
Federal agency or instrumentality having the control of such service, 
or by such agents as such head may designate. 
The person making 
such return may, for convenience of administration, make payments 
of the tax imposed under section 3111 with respect to such service 
without regard to the $3,600 limitation in section 3121 (a) (1), and 
he shall not be required to obtain a refund of the tax paid under sec-
tion 3111 on that part of the remuneration not included in wages by 
§3121(k)(l) 
. • 
CH. 21—FEDERAL INSURANCE CONTRIBUTIONS ACT 
429 
reason of section 3121 (a) (1), 
The provisions of this section shall be 
applicable in the case of service performed by a civilian employee, not 
compensated from funds appropriated by the Congress, in the Army 
and Air Force Exchange Service, Army and Air Force Motion Picture 
Service, Navy Exchanges, Marine Corps Exchanges, or other activi-
ties, conducted by an instrumentality of the United States subject to 
the jurisdiction of the Secretary of Defense, at installations of the 
Department of Defense for the comfort, pleasure, contentment, and 
mental and physical improvement of personnel of such Department; 
and for purposes of this section the Secretary of Defense shall be 
deemed to be the head of such instrumentality. 
SEC. 3123. DEDUCTIONS AS CONSTRUCTIVE PAYMENTS. 
Whenever under this chapter or any act of Congress, or under the law 
of any State, an employer is required or permitted to deduct any 
amount from the remuneration of an employee and to pay the amount 
deducted to the United States, a State, or any political subdivision 
thereof, then for purposes of this chapter the amount so deducted 
shall be considered to have been paid to the employee at the time of 
such deduction, 
SEC. 3124. ESTIMATE OF REVENUE REDUCTION. 
The Secretary or his delegate at intervals of not longer than 3 
years shall estimate the reduction in the amount ot taxes collected 
under this chapter by reason of the operation of section 3121 (b) (10) 
and shall include such estimate in his annual report. 
SEC. 3125. SHORT TITLE. 
This chapter mav be cited as the "Federal Insurance Contributions 
Act." 
§3125 
CS^' 
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CH. 22—RAILROAD RETIREMENT TAX ACT 
431 
CHAPTER 22—RAILROAD RETIREMENT TAX ACT 
SUBCHAPTER A. Tax on employees. 
SUBCHAPTER B . Tax on employee representatives. 
SUBCHAPTER C. Tax on employers. 
SUBCHAPTER D . General provisions. 
Subchapter A—Tax on Employees 
Sec. 3201. Rate of tax. 
Sec. 3202. Deduction of tax from compensation. 
SEC. 3201. RATE OF TAX. 
In addition to other taxes, there is hereby imposed on the income 
of every employee a tax equal to 6% percent of so much of the com-
pensation paid to such employee after December 31, 1954, for services 
rendered by him after such date as is not in excess of $300 for any 
calendar month. 
SEC. 3202. DEDUCTION OF TAX FROM 
COMPENSATION. 
(a) KEQUIREMENT.—The tax imposed by section 3201 shall be col-
lected by the employer of the taxpayer by deducting the amount of 
the tax from the compensation of the employee as and when paid. If 
an employee is paid compensation after December 31, 1954, by more 
than one employer for services rendered during any calendar month 
after 1954 and the aggregate of such compensation is in excess of 
$300, the tax to be deducted by each employer other than a subordi-
nate unit of a national railway-labor-organization employer from the 
compensation paid by him to the employee with respect to such month 
shall be that proportion of the tax with respect to such compensation 
paid by all such employers which the compensation paid by him after 
December 31, 1954, to the employee for services rendered during such 
month bears to the total compensation paid by all such employers 
after December 31, 1954, to such employee for services rendered dur-
ing such month; and in the event that the compensation so paid by 
such employers to the employee for services rendered during such 
month is less than $300, each subordinate unit of a national railway-
labor-organization employer shall deduct such proportion of any 
additional tax as the compensation paid by such employer after 
December 31, 1954, to such employee for services rendered during 
such month bears to the total compensation paid by all such em-
ployers after December 31, 1954, to such employee for services ren-
dered during such month. 
(b) INDEMNIFICATION OF EMPLOYER.—Every employer required 
under subsection (a) to deduct the tax shall be made liable for the 
payment of such tax and shall not be liable to any person for the 
amount of any such payment. 
3202(b) 
432 
INTERNAL REVENUE CODE OF 1954 
Subchapter B—^Tax on Employee Representatives 
> 
Sec. 3211. Rate of tax. 
i, >
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^
4 
Sec. 3212. Determination of compensation. 
;^H 
SEC. 3211. RATE OF TAX. 
In addition to other taxes, there is hereby imposed on the income of 
each employee representative a tax equal to 12ji percent of so much of 
the compensation, paid to such employee representative after Decem-
ber 31, 1954, for services rendered by him after such date as is not in 
excess of $300 for any calendar month. 
SEC. 3212. DETERMINATION OF COMPENSATION. 
The compensation of an employee representative for the purpose of 
ascertaining the tax thereon shall be determined in the same manner 
and with the same effect as if the employee organization by which 
such employee representative is employed were an employer as 
defined in section 3231 (a). 
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§3211. g 
CH. 22—RAILROAD RETIREMENT TAX ACT 
433 
Subchapter C—Tax on Employers 
Sec. 3221. Rate of tax. 
SEC. 3221. RATE OF TAX. 
In addition to other taxes, there is hereby imposed on every em-
ployer an excise tax, with respect to having individuals in his employ, 
equal to 6K percent of so much of the compensation paid by such 
employer after December 31, 1954, for services rendered to him after 
December 31, 1954, as is, with respect to any employee for any 
calendar month, not in excess of $300; except that if an employee is 
paid compensation after December 31, 1954, by more than one em-
ployer for services rendered during any calendar month after 1954, 
the tax imposed by this section shall apply to not more than $300 of 
the aggregate compensation paid to such employee by all such em-
ployers after December 31, 1954, for services rendered during such 
month, and each emploj^er other than a subordinate unit of a na-
tional railway-labor-organization employer shall be liable for that 
proportion of the tax with respect to such compensation paid by all 
such employers which the compensation paid by him after December 
31, 1954, to the employee for services rendered during such month 
bears to the total compensation paid by all such employers after De-
cember 31, 1954, to such employee for services rendered during such 
month; and in the event that the compensation so paid by such em-
ployers to the employee for services rendered during such month is 
less than $300, each subordinate unit of a national railway-labor-
organization employer shall be liable for such proportion of any addi-
tional tax as the compensation paid by such employer after December 
31, 1954, to such employee for services rendered during such month 
bears to the total compensation paid by all such employers after 
December 31, 1954, to such employee for services rendered during 
such month. 
§3221 
434 
INTERNAL REVENUE CODE OF 1954 ) 
Subchapter D—General Provisions 
Sec. 3231. Definitions. 
''• =l'''»^-A ^--«'0^« 
Sec. 3232. Court jurisdiction. 
Sec. 3233. Short title. 
. / . A i l O v 
SEC. 3231. DEFINITIONS. 
(a) EMPLOYER.—For purposes of this chapter, the term "employer" 
means any carrier (as defined in subsection (g)), and any company 
which is directly or indirectly owned or controlled by one or more such 
carriers or under common control therewith, and which operates any 
equipment or facility or performs any service (except trucking service, 
casual service, and the casual operation of equipment or facilities) in 
connection with the transportation of passengers or property by rail-
road, or the receipt, deliveiy, elevation, transfer in transit, refriger-
ation or icing, storage, or handling of property transported by rail-
road, and any receiver, trustee, or other individual or body, judicial 
or otherwise, when in the possession of the property or operating 
all or any part of the business of any such employer; except that the 
term "employer" shall not include any street, interurban, or suburban 
electric railway, unless such railway is operating as a part of a general 
steam-railroad system of transportation, but shall not exclude any 
part of the general steam-railroad system of transportation now or 
hereafter operated by any other motive power. 
The Interstate 
Commerce Commission is hereby authorized and directed upon request 
of the Secretary or his delegate, or upon complaint of any party in-
terested, to determine after hearing whether any line operated by 
electric power falls within the terms of this exception. 
The term 
"employer" shall also include railroad associations, traffic associations, 
tariff bureaus, demurrage bureaus, weighing and inspection bureaus, 
collection agencies and other associations, bureaus, agencies, or 
organizations controlled and maintained wholly or principally by 
two or more employers as hereinbefore defined and engaged in the 
performance of services in connection with or incidental to railroad 
transportation; and railway labor organizations, national in scope, 
which have been or may be organized in accordance with the provisions 
of the Railway Labor Act, as amended (44 Stat. 577; 45 U. S. C , 
chapter 8), and their State and National legislative committees and 
their general committees and their insurance departments and their 
local lodges and divisions, established pursuant to the constitutions 
and bylaws of such organizations. 
The term "employer" shall not 
include any company by reason of its being engaged in the mining 
of coal, the supplying of coal to an employer where delivery is not 
beyond the mine tipple, and the operation of equipment or facilities 
therefor, or in any of such activities. 
(b) EMPLOYEB.^—For purposes of this chapter, the term "employee" 
means any individual in the service of one or more employers for com-
pensation; except that the term "employee" shall include an employee 
of a local lodge or division defined as an employer in subsection (a) 
§ 3231 
CH. 22—RAILROAD RETIREMENT TAX ACT 
435 
only if he was in the service of or in the employment relation to a 
carrier on or after August 29, 1935, An individual shall be deemed 
to have been in the employment relation to a carrier on August 29, 
1935, if— 
(1) he was on that date on leave of absence from his employment, 
expressly granted to him by the carrier by whom he was employed; 
or by a duly authorized representative of such carrier, and the 
grant of such leave of absence was established to the satisfaction 
of the Railroad Retirement Board before July 1947; or 
(2) he was in the service of a carrier after August 29, 1935, and 
before January 1946 in each of 6 calendar months, whether or not 
consecutive; or 
(3) before August 29, 1935, he did not retire and was not retired 
or discharged from the service of the last carrier by whom he was 
employed or its corporate or operating successor, but— 
(A) solely by reason of his physical or mental disability he 
ceased before August 29, 1935, to be in the service of such carrier 
and thereafter remained continuously disabled until he attained 
age 65 or until August 1945, or 
(B) solely for such last stated reason a carrier by whom he 
was employed before August 29, 1935, or a carrier who is its 
successor did not on or after August 29, 1935, and before August 
1945 call him to return to service, or 
(C) if he was so called he was solely for such reason unable to 
render service in 6 calendar months as provided in paragraph 
(2); or 
(4) he was on August 29, 1935, absent from the service of a 
carrier by reason of a discharge which, within 1 year after the 
effective date thereof, was protested, to an appropriate labor repre-
sentative or to the carrier, as wrongful, and which was followed 
within 10 years of the effective date thereof by his reinstatement 
in good faith to his former service with all his seniority rights; 
except that an individual shall not be deemed to have been on August 
29, 1935, in the employment relation to a carrier if before that date 
he was granted a pension or gratuity on the basis of which a pension 
was awarded to him pursuant to section 6 of the Railroad Retirement 
Act of 1937 (50 Stat. 312; 45 U. S. C. 228f), or if during the last payroll 
period before August 29, 1935, in which he rendered service to a 
carrier he was not in the service of an employer, in accordance with 
subsection (d), with respect to any service in such payroll period, or 
if he could have been in the employment relation to an employer 
only by reason of his having been, either before or after August 29, 
1935, in the service of a local lodge or division defined as an employer 
in subsection (a). 
The term "employee" includes an officer of an 
employer. 
The term "employee" shall not include any individual 
while such individual is engaged in the physical operations consisting 
of the mining of coal, the preparation of coal, the handling (other than 
movement by rail with standard railroad locomotives) of coal not 
beyond the mine tipple, or the loading of coal at the tipple. 
(c) EMPLOYEE REPRESENTATIVE.—For purposes of this chapter, 
the term "employee representative" means any officer or official rep-
resentative of a railway labor organization other than a labor organ-
ization included in the term "employer" as defined in subsection (a), 
§ 3231(c) 
436 
INTERNAL REVENUE CODE OF 1954 } 
who before or after June 29, 1937, was in the service of an employer 
as defined in subsection (a) and who is duly authorized and designated 
to represent employees in accordance with the Railway Labor Act 
(44 Stat. 577; 45 U. S. C , chapter 8), as amended, and any individual 
who is regularly assigned to or regularly employed by such officer or 
official representative in connection with the duties of his office. 
(d) SERVICE.—For purposes of this chapter, an individual is in the 
service of an employer whether his service is rendered within or 
without the United States, if— 
(1) he is subject to the continuing authority of the employer to 
supervise and direct the manner of rendition of his service, or he is 
rendering professional or technical services and is integrated into 
the staff of the employer, or he is rendering, on the property used 
in the employer's operations, other personal services the rendition 
of which is integrated into the employer's operations, and 
(2) he renders such service for compensation; 
except that an individual shall be deemed to be in the service of an 
employer, other than a local lodge or division or a general committee 
of a railway-labor-organization employer, not conducting the princi-
pal part of its business in the United States, only when he is rendering 
service to it in the United States; and an individual shall be deemed 
to be in the service of such a local lodge or division only if— 
(3) all, or substantially all, the individuals constituting its mem-
bership are employees of an employer conducting the principal part 
of its business in the United States; or 
(4) the headquarters of such local lodge or division is located in 
the United States; 
and an individual shall be deemed to be in the service of such a 
general committee only if— 
(5) he is representing a local lodge or division described in para-
graph (3) or (4) immediately above; or 
(6) all, or substantially all, the individuals represented by it are 
employees of an employer conducting the principal part of its busi-
ness in the United States; or 
(7) he acts in the capacity of a general chairman or an assistant 
general chairman of a general committee which represents individ-
uals rendering service in the United States to an employer, but in 
such case if his office or headquarters is not located in the United 
States and the individuals represented by such general committee 
are employees of an emploj^er not conducting the principal part of 
its business in the United States, only such proportion of the remun-
eration for such service shall be regarded as compensation as the 
proportion which the mileage in the United States under the juris-
diction of such general committee bears to the total mileage under 
its jurisdiction, unless such mileage formula is inapplicable, in which 
case such other formula as the Railroad Retirement Board may 
have prescribed pursuant to section 1 (c) of the Railroad Retirement 
Act of 1937 (50 Stat. 308; 45 U. S. C. 228a) shall be apphcable, and 
if the application of such mileage formula, or such other formula as 
the Board may prescribe, would result in the compensation of the 
individual being less than 10 percent of his remuneration for such 
service, no part of such remuneration shall be regarded as com-
pensation; 
.:•/: iiv:'<i 
•>'{• ill miUJViin 
:;^ !ii;Ni 
§ 3231(c) 
CH. 2 2—RAILROAD RETIREMENT TAX ACT 
437 
Provided however, That an individual not a citizen or resident of the 
United States shall not be deemed to be in the service of an employer 
when rendering service outside the United States to an employer who 
is required under the laws applicable in the place where the service 
is rendered to employ therein, in whole or in part, citizens or residents 
thereof; and the laws applicable on August 29, 1935, in the place 
where the service is rendered shall be deemed to have been applicable 
there at all times prior to that date. 
(e) COMPENSATION.—For purposes of this chapter— 
(1) The term "compensation" means any form of money remu-
f
. neration earned by an individual for services rendered as an employee 
to one or more employers, or as an employee representative, includ-
ing remuneration paid for time lost as an employee, but remunera-
tion paid for time lost shall be deemed earned in the month in which 
such time is lost. 
Such term does not include tips, or the voluntary 
payment by an employer, without deduction from the remuneration 
of the employee, of the tax imposed on such employee by section 
3201. 
Compensation which is earned during the period for which 
the Secretary or his delegate shall require a return of taxes under 
this chapter to be made and which is payable during the calendar 
month following such period shall be deemed to have been paid 
during such period only. 
For the purpose of determining the 
amount of taxes under sections 3201 and 3221, compensation 
earned in the service of a local lodge or division of a railway-labor-
organization employer shall be disregarded with respect to any 
calendar month if the amount thereof is less than $3. 
(2) A payment made by an employer to an individual through 
the employer's payroll shall be presumed, in the absence of evidence 
to the contrary, to be compensation for service rendered by such 
individual as an employee of the employer in the perio.d with respect 
to which the payment is made. 
An employee shall be deemed to 
be paid "for time lost" the amount he is paid by an employer with 
respect to an identifiable period of absence from the active service 
of the employer, including absence on account of personal injury, 
and the amount he is paid by the employer for loss of earnings 
resulting from his displacement to a less remunerative position or 
occupation. 
If a payment is made by an employer with respect 
to a personal injury and includes pay for time lost, the total pay-
ment shall be deemed to be paid for time lost unless, at the time of 
payment, a part of such payment is specifically apportioned to 
factors other than time lost, in which event only such part of the 
payment as is not so apportioned shall be deemed to be paid for 
time lost. 
(f) COMPANY.—For purposes of this chapter, the term "company" 
includes corporations, associations, and joint-stock companies. 
(g) CARRIER.—For purposes of this chapter, the term "carrier" 
means an express company, sleeping-car company, or carrier by rail-
road, subject to part I of the Interstate Commerce Act (49 U. S. C , 
chapter 1). 
SEC. 3232. COURT JURISDICTION. 
The several district courts of the United States shall have jurisdic-
tion to entertain an application by the Attorney General on behalf of 
the Secretary or his delegate to compel an employee or other person 
§3232 
438 
INTERNAL REVENUE CODE OF 1954 
"
* 
residing within the jurisdiction of the court or an employer subject 
to service of process within its jurisdiction to comply with any obliga-
tions imposed on such employee, employer, or other person under the 
provisions of this chapter. 
The jurisdiction herein specifically con-
ferred upon such Federal courts shall not be held exclusive of any 
jurisdiction otherwise possessed by such courts to entertain civil 
actions, whether legal or equitable in nature, in aid of the enforce-
ment of rights or obligations arising under the provisions of this 
chapter. 
SEC. 3233. SHORT TITLE. 
This chapter may be cited as the "Railroad Retirement Tax Act." 
'/• t \i 
V • : . ^'i •; n 
^-?•i'l«^ 
§3232 
CH. 2 3—FEDERAL UNEMPLOYMENT TAX ACT 
439 
CHAPTER 23—FEDERAL UNEMPLOYMENT TAX ACT 
Sec. 3301. Rate of tax. 
• 
Sec. 3302. Credits against tax. 
Sec. 3303. Conditions of additional credit allowance. 
Sec. 3304. Approval of State laws. 
Sec. 3305. Applicability of State law. 
Sec. 3306. Definitions. 
• 
Sec. 3307. Deductions as constructive payments. 
Sec. 3308. Short title. 
SEC. 3301. RATE OF TAX 
There is hereby imposed on every employer (as defined in section 
3306 (a)) for the calendar year 1955 and for each calendar year there-
after an excise tax, with respect to having individuals in his employ, 
equal to 3 percent of the total wages (as defined in section 3306 (b)) 
paid by him during the calendar year with respect to employment (as 
defined in section 3306 (c)) after December 31, 1938. 
SEC. 3302. CREDITS AGAINST TAX. 
(a) CONTRIBUTIONS TO STATE UNEMPLOYMENT FUNDS.— 
(1) The taxpayer may, to the extent provided in this subsection 
and subsection (c), credit against the tax imposed by section 3301 
' the amount of contributions paid by him into an unemployment 
fund maintained during the taxable year under the unemployment 
compensation law of a State which is certified for the taxable year 
as provided in section 3304. 
(2) The credit shall be permitted against the tax for the taxable 
: year only for the amount of contributions paid with respect to such 
• taxable year. 
(3) The credit against the tax for any taxable year shall be per-
mitted only for contributions paid on or before the last day upon 
which the taxpayer is reiquired under section 6071 to file a return 
for such year; except that credit shall be permitted for contributions 
paid after such last day, but such credit shall not exceed 90 percent 
of the amount which would have been allowable as credit on 
" account of such contributions had they been paid on or before such 
last day. 
(4) Upon the payment of contributions into the unemployment 
fund of a State which are required under the unemployment com-
pensation law of that State with respect to remuneration on the 
I basis of which, prior to such payment into the proper fund, the tax-
payer erroneously paid an amount as contributions under another 
unemployment compensation law, the payment into the proper fund 
shall, for purposes of credit against the tax, be deemed to have been 
made at the time of the erroneous payment. 
If, by reason of such 
other law, the taxpayer was entitled to cease paying contributions 
with respect to services subject to such other law, the payment into 
the proper fund shall, for purposes of credit against the tax, be 
deemed to have been made on the date the return for the taxable 
year was filed under section 6071. 
§ 3302(a)(4) 
440 
INTERNAL REVENUE CODE OF 
1954 I
T 
1 
(b) ADDITIONAL CREDIT.—In addition to the credit allowed under 
subsection (a), a taxpayer may credit against the tax imposed by 
section 3301 for any taxable year an amount, with respect to the un-
employment compensation law of each State certified for the taxable 
year as provided in section 3303 (or with respect to any provisions 
thereof so certified), equal to the amount, if any, by which the contri-
butions required to be paid by him with respect to the taxable year 
were less than the contributions such taxpayer would have been 
required to pay if throughout the taxable year he had been subject 
under such State law to the highest rate applied thereunder in the 
taxable year to any person having individuals in his employ, or to a 
rate of 2.7 percent, whichever rate is lower. 
(c) LIMIT ON TOTAL CREDITS.— 
(1) The total credits allowed to a taxpayer under this section 
shall not exceed 90 percent of the tax against which such credits are 
allowable. 
(2) If an advance or advances have been made to the unemploy-
ment account of a State under title XII of the Social Security Act, 
and if any balance of such advance or advances has not been re-
turned to the Federal unemployment account as provided in that 
title before December 1 of the taxable year, then the total credits 
(after other reductions under this section) otherwise allowable under 
this section for such taxable year in the case of a taxpayer subject 
to the unemployment compensation law of such State shall be 
reduced— 
(A) in the case of a taxable year beginning with the fourth 
, • consecutive January 1 on which such a balance of unreturned 
advances existed, by 5 percent of the tax imposed by section 3301 
with respect to the wages paid by such taxpayer during such 
taxable year which are attributable to such State; and 
(B) in the case of any succeeding taxable year beginning with 
a consecutive January 1 on which such a balance of unreturned 
advances existed, by an additional 5 percent, for each such 
succeeding taxable year, of the tax imposed by section 3301 with 
respect to the wages paid by such taxpayer during such taxable 
year which are attributable to such State. 
For purposes of this paragraph, wages shall be attributable to a 
particular State if they are subject to the unemployment compensa-
tion law of the State, or (if not subject to the unemployment com-
pensation law of any State) if they are determined (under rules or 
regulations prescribed by the Secretary or his delegate) to be at-
tributable to such State. 
SEC. 3303. CONDITIONS OF ADDITIONAL CREDIT ALLOWANCE. 
(a) STATE STANDARDS.—A taxpayer shall be allowed an additional 
credit under section 3302 (b) with respect to any reduced rate of 
contributions permitted by a State law, only if the Secretary of Labor 
finds that under such law— 
(1) no reduced rate of contributions to a pooled fund or to a 
partially pooled account is permitted to a person (or group of 
persons) having individuals in his (or their) employ except on the 
basis of his (or their) experience with respect to unemployment or 
other factors bearing a direct relation to unemployment risk during 
§ 3302(b) i 
CH. 23 
FEDERAL UNEMPLOYMENT TAX ACT 
441 
not less than the 3 consecutive years immediately preceding the 
computation date; 
(2) no reduced rate of contributions to a guaranteed employ-
ment account is permitted to a person (or a group of persons) 
having individuals in his (or their) employ unless— 
(A) the guaranty of remuneration was fulfilled in the year 
preceding the computation date; and 
(B) the balance of such account amounts to not less than 2^ 
percent of that part of the payroll or payrolls for the 3 years 
preceding the computation date by which contributions to such 
account were measured; and 
(C) such contributions were payable to such account with 
respect to 3 years preceding the computation date; 
(3) no reduced rate of contributions to a reserve account is per-
mitted to a person (or group of persons) having individuals in his 
(or their) employ unless— 
(A) compensation 
has been payable from 
such 
account 
throughout the year preceding the computation date, and 
(B) the balance of such account amounts to not less than five 
times the largest amount of compensation paid from such account 
within any 1 of the 3 years preceding such date, and 
(C) the balance of such account amounts to not less than 2^ 
percent of that part of the payroll or payrolls for the 3 years 
preceding such date by which contributions to such account 
were measured, and 
(D) such contributions were payable to such account with 
respect to the 3 years preceding the computation date. 
(b) CERTIFICATION BY THE SECRETARY OF LABOR WITH RESPECT 
TO ADDITIONAL CREDIT ALLOWANCE.— 
(1) On December 31 in each taxable year, the Secretary of Labor 
shall certify to the Secretary the law of each State (certified with 
respect to such year by the Secretary of Labor as provided in 
section 3304) with respect to which he finds that reduced rates of 
contributions were allowable with respect to such taxable year only 
in accordance with the provisions of subsection (a). 
(2) If the Secretary of Labor finds that under the law of a single 
State (certified by the Secretary of Labor as provided in section 
3304) more than one type of fund or account is maintained, and 
reduced rates of contributions to more than one type of fund or 
account were allowable with respect to any taxable year, and one or 
more of such reduced rates were allowable under conditions not 
fulfilling the requirements of subsection (a), the Secretary of Labor 
shall, on December 31 of such taxable year, certify to the Secre-
tary only those provisions of the State law pursuant to which 
reduced rates of contributions were allowable with respect to 
such taxable year under conditions fulfilling the requirements of 
subsection (a), and shall, in connection therewith, designate the 
kind of fund or account, as defined in subsection (c), established by 
the provisions so certified. 
If the Secretary of Labor finds that a 
part of any reduced rate of contributions payable under such law 
or under such provisions is required to be paid into one fund or 
account and a part into another fund or account, the Secretary of 
Labor shall make such certification pursuant to this paragraph as 
§ 3303(b)(2) 
49012°—54 
31 
442 
INTERNAL REVENUE CODE OF 1954 , ,
; 
he finds will assure the allowance of additional credits only with 
respect to that part of the reduced rate of contributions which is 
allowed under provisions which do fulfill the requirements of sub-
section (a). 
(3) The Secretary of Labor shall, within 30 days after any State 
law is submitted to him for such purpose, certify to the State agency 
his findings with respect to reduced rates of contributions to a 
type of fund or account, as defined in subsection (c), which are 
allowable under such State law only in accordance with the provi-
sions of subsection (a). 
After making such findings, the Secretary 
of Labor shall not withhold his certification to the Secretary of such 
State law, or of the provisions thereof with respect to which such 
findings were made, for any taxable year pursuant to paragraph 
(1) or (2) unless, after reasonable notice and opportunity for 
hearing to the State agency, the Secretary of Labor finds the State 
law no longer contains the provisions specified in subsection (a) 
or the State has, with respect to such taxable year, failed to comply 
substantially with any such provision, 
(c) DEFINITIONS.—As used in this section— 
(1) RESERVE AGCOUNT.—The term "reserve account" means a 
separate account in an unemployment fund, maintained with respect 
to a person (or group of persons) having individuals in his (or their) 
employ, from which account, unless such account is exhausted, is 
paid all and only compensation payable on the basis of services 
performed for such person (or for one or more of the persons com-
prising the group). 
(2) POOLED FUND.—The term "pooled fund" means an unem-
ployment fund or any part thereof (other than a reserve account 
or a guaranteed employment account) into which the total contri-
butions of persons contributing thereto are payable, in which all 
contributions are mingled and undivided, and from which compen-
sation is payable to all individuals eligible for compensation from 
such fund. 
(3) PARTIALLY POOLED ACCOUNT.—The term "partially pooled 
account" means a part of an unemployment fund in which part of 
the fund all contributions thereto are mingled and undivided, and 
from which part of the fund compensation is payable only to indi-
viduals to whom compensation would be payable from a reserve 
account or from a guaranteed employment account but for the 
exhaustion or termination of such reserve account or of such guar-
anteed employment account. 
Payments from a reserve account 
or guaranteed employment account into a partially pooled account 
shall not be construed to be inconsistent with the provisions of 
paragraph (1) or (4). 
(4) GUARANTEED EMPLOYMENT ACCOUNT.—The term "guaran-
teed employment account" means a separate account, in an unem-
ployment fund, maintained with respect to a person (or group of 
persons) having individuals in his (or their) employ who, in accord-
ance with the provisions of the State law or of a plan thereunder 
approved by the State agency, 
(A) guarantees in advance at least 30 hours of work, for 
which remuneration will be paid at not less than stated rates, for 
each of 40 weeks (or if more, 1 weekly hour may be deducted 
§ 3303(b)(2) 
re 
: ' 
: = • !0-
CH. 23 
FEDERAL UNEMPLOYMENT TAX ACT 
443 
for each added week guaranteed) in a year, to all the individuals 
who are in his (or their) employ in, and who continue to be avail-
able for suitable work in, one or more distinct establishments, 
except that any such individual's guaranty may commence after 
a probationary period (included within the 11 or less consecu-
tive weeks immediately following the first week in which the 
individual renders services), and 
(B) gives security or assurance, satisfactory to the State agency, 
for the fulfillment of such guaranties, from which account, unless 
such account is exhausted or terminated, is paid all and only 
compensation, payable on the basis of services performed for 
such person (or for one or more of the persons comprising the 
group), to any such individual whose guaranteed remuneration 
has not been paid (either pursuant to the guaranty or from the 
security or assurance provided for the fulfillment of the guaranty), 
or whose guaranty is not renewed and who is otherwise eligible for 
compensation under the State law. 
(5) YEAR.—The term "year" means any 12 consecutive calendar 
months. 
(6) BALANCE.—The term "balance", with respect to a reserve 
account or a guaranteed employment account, means the amount 
standing to the credit of the account as of the computation date; 
except that, if subsequent to January 1, 1940, any moneys have 
been paid into or credited to such account other than payments 
thereto by persons having individuals in their employ, such term 
shall mean the amount in such account as of the computation 
date less the total of such other moneys paid into or credited 
to such account subsequent to January 1, 1940. 
(7) COMPUTATION DATE.—The term "computation date" means 
the date, occurring at least once in each calendar year and within 
27 weeks prior to the effective date of new rates of contributions, 
as of which such rates are computed. 
(8) REDUCED RATE.—The term "reduced rate" means a rate 
of contributions lower than the standard rate applicable under 
the State law, and the term "standard rate" means the rate on 
the basis of which variations therefrom are computed. 
(d) VOLUNTARY CONTRIBUTIONS.—A State law may, without being 
deemed to violate the standards set forth in subsection (a), permit 
voluntary contributions to be used in the computation of reduced 
rates if such contributions are paid prior to the expiration of 120 days 
after the beginning of the year for which such rates are effective. 
SEC. 3304. APPROVAL OF STATE LAWS. 
(a) REQUIREMENTS.—The Secretary of Labor shall approve any 
State law submitted to him, within 30 days of such submission, which 
he finds provides that— 
(1) all compensation is to be paid through public emplojmaent 
offices or such other agencies as the Secretary of Labor may approve; 
(2) no compensation shall be payable with respect to any day 
of unemployrnent occurring within 2 years after the first day of 
the first period with respect to which contributions are required; 
(3) all money received in the unemployment fund shall (except 
for refunds of sums erroneously paid into such fund and except for 
refunds paid in accordance with the provisions of section 3305 (b)) 
§ 3304(a)(3) 
444 
INTERNAL REVENUE CODE OF 1954 
immediately upon such receipt be paid over to the Secretary to the 
credit of the Unemployment Trust Fund established by section 904 
of the Social Security Act (49 Stat. 640; 52 Stat. 1104, 1105; 42 
U. S. C. 1104); 
(4) all money withdrawn from the unemployment fund of the 
State shall be used solely in the payment of unemployment com-
pensation, exclusive of expenses of administration, and for refunds 
of sums erroneously paid into such fund and refunds paid in accord-
ance with the provisions of section 3305 (b); except that— 
(A) an amount equal to the amount of employee payments 
into the unemployment fund of a State may be used in the pay-
ment of cash benefits to individuals with respect to their dis-
ability, exclusive of expenses of administration; and 
(B) the amounts specified by section 903 (c) (2) of the Social 
Security Act may, subject to the conditions prescribed in such 
section, be used for expenses incurred by the State for admin-
istration of its unemployment compensation law and public 
employment offices; 
(5) compensation shall not be denied in such State to any other-
wise eligible individual for refusing to accept new work under any 
of the following conditions: 
(A) if the position offered is vacant due directly to a strike, 
lockout, or other labor dispute; 
(B) if the wages, hours, or other conditions of the work offered 
are substantially less favorable to the individual than those pre-
vailing for similar work in the locality; 
(C) if as a condition of being employed the individual would 
be required to join a company union or to resign from or refrain 
from joining any bona fide labor organization; 
(6) all the rights, privileges, or immunities conferred by such 
law or by acts done pursuant thereto shall exist subject to the power 
of the legislature to amend or repeal such law at any time. 
(b) NOTIFICATION.—rThe Secretary of Labor shall, upon approving 
such law, notify the governor of the State of his approval. 
(c) CERTIFICATION.—On December 31 of each taxable year the 
Secretary of Labor shall certify to the Secretary each State whose 
law he has previously approved, except that he shall not certify any 
State which, after reasonable notice and opportunity for hearing to the 
State agency, the Secretary of Labor finds has amended its law so that 
it no longer contains the provisions specified in subsection (a) or has 
with respect to such taxable year failed to comply substantially with 
any such provision and such finding has become effective. 
Such find-
ing shall become effective on the 90th day after the governor of the 
State has been notified thereof, unless the State has before such 90th 
day so amended its law that it will comply substantially with the 
Secretary of Labor's interpretation of the provision of subsection (a), 
in which event such finding shall not become effective. 
No finding of 
a failure to comply substantially with the provision in State law 
specified in paragraph (5) of subsection (a) shall be based on an appli-
cation or interpretation of State law with respect to which further 
administrative or judicial review is provided for under the laws of 
the State. 
13804(a)(3) 
CH. 23—FEDERAL UNEMPLOYMENT TAX ACT 
445 
(d) NOTICE OF NONCERTIFICATION.—If, at any time during the 
taxable year, the Secretary of Labor has reason to beHeve that a State 
whose law he has previously approved may not be certified under 
subsection (c), he shall promptly so notify the governor of such State. 
SEC. 3305. APPLICABILITY OF STATE LAW. 
(a) INTERSTATE AND FOREIGN COMMERCE.—No person required 
under a State law to make payments to an unemployment fund 
shall be relieved from compliance therewith on the ground that 
he is engaged in interstate or foreign commerce, or that the State 
law does not distinguish between employees engaged in interstate 
or foreign commerce and those engaged in intrastate commerce. 
(b) FEDERAL INSTRUMENTALITIES IN GENERAL.—The legislature 
of any State may require any instrumentality of the United States 
(except such as are (1) wholly owned by the United States, or (2) 
exempt from the tax imposed by section 3301 by virtue of any other 
provision of law), and the individuals in its employ, to make contribu-
tions to an unemployment fund under a State unemployment com-
pensation law approved hj the Secretary of Labor under section 3304 
and (except as provided m section 5240 of the Revised Statutes, as 
amended (12 U. S. C. 484), and as modified by subsection (c)) to 
comply otherwise with such law. 
The permission granted in this 
subsection shall apply (A) only to the extent that no discrimination 
is made against such instrumentality, so that if the rate of contribution 
is uniform upon all other persons subject to such law on account of 
having individuals in their employ, and upon aU employees of such 
persons, respectively, the contributions required of such instrumen-
tality or the individuals in its employ shall not be at a greater rate than 
is required of such other persons and such employees, and if the rates 
are determined separately for different persons or classes of persons 
having individuals in their employ or for different classes of employees, 
the determination shall be based solely upon unemployment experience 
and other factors bearing a direct relation to unemployment risk, and 
(B) only if such State law makes provision for the refund of any contri-
butions required under such law from an instrumentality of the United 
States or its employees for any year in the event said State is not certi-
fied by the Secretary of Labor under section 3304 with respect to such 
year. 
(c) NATIONAL BANKS.—Nothing contained in section 5240 of the 
Revised Statutes, as amended (12 U, S. C. 484), shall prevent any 
State from requiring any national banking association to render re-
turns and reports relative to the association's employees, their remu-
neration and services, to the same extent that other persons are 
required to render like returns and reports under a State law requiring 
contributions to an unemployment fund. 
The Comptroller of the 
Currency shall, upon receipt of a copy of any such return or report of 
a national banking association from, and upon request of, any duly 
authorized official, body, or commission of a State, cause an examina-
tion of the correctness of such return or report to be made at the time 
of the next succeeding examination of such association, and shall 
thereupon transmit to such official, body, or commission a complete 
statement of his findings respecting the accuracy of such returns or 
reports. 
§ 3305(c) 
446 
INTERNAL-REVENUE CODE OF 1954 
(d) FEDERAL PROPERTY.—No person shall be relieved from com-
pliance with a State unemployment compensation law on the ground 
that services were performed on land or premises owned, held, or 
possessed by the United States, and any State shall have full jurisdic-
tion and power to enforce the provisions of such law to the same extent 
and with the same effect as though such place were not owned, held, 
or possessed by the United States. 
(e) BONNEVILLE POWER ADMINISTRATOR.—The legislature of any 
State may, with respect to service performed after December 31, 1945, 
by a laborer, mechanic, or workman, in connection with construction 
work or the operation and maintenance of electrical facilities, as an 
employee performing service for the Bonneville Power Administrator, 
require the Administrator, who for purposes of this subsection is 
designated an instrumentality of the United States, and any such 
employee, to make contributions to an unemployment fund under a 
State unemployment compensation law approved by the Secretary of 
Labor under section 3304 and to comply otherwise with such law. 
Such permission is subject to the conditions imposed by subsection 
(b) of this section upon permission to State legislatures to require 
contributions from instrumentalities of the United States. 
The Bon-
neville Power Administrator is authorized and directed to comply 
with the provisions of any applicable State unemployment compensa-
tion law on behalf of the United States as the employer of individuals 
whose service constitutes employment under such law by reason of 
this subsection. 
(f) AMERICAN VESSELS.—The legislature of any State in which a 
person maintains the operating office, from which the operations of 
an American vessel operating on. navigable waters within or within 
and without the United States are ordinarily and regularly supervised, 
managed, directed and controlled, may require such person and the 
officers and members of the crew of such vessel to make contributions 
to its unemployment fund under its State unemployment compensation 
law approved by the Secretary of Labor under section 3304 and other-
wise to comply with its unemployment compensation law with respect 
to the service performed by an officer or member of the crew on or in 
connection with such vessel to the same extent and with the same 
effect as though such service was performed entirely within such 
State. 
Such person and the officers and members of the crew of such 
vessel shall not be required to make contributions, with respect to 
such service, to the unemployment fund of any other State. The 
permission granted by this subsection is subject to the condition that 
such service shall be treated, for purposes of wage credits given 
employees, like other service subject to such State unemployment 
compensation law performed for such person in such State, and also 
subject to the same limitation, with respect to contributions required 
from such person and from the officers and members of the crew of 
such vessel, as is imposed by the second sentence (other than clause 
(B) thereof) of subsection (b) with respect to contributions required 
from instrumentalities of the United States and from individuals in 
their employ. 
(g) VESSELS OPERATED BY GENERAL AGENTS OF UNITED STATES.— 
The permission granted by subsection (f) shall apply in the same 
ma^nner and under the same conditions (including the obligation to 
§ 3305(d) 
CH. 23—FEDERAL UNEMPLOYMENT TAX ACT 
447 
comply with all requirements of State unemployment compensation 
laws) to general agents of the Secretary of Commerce with respect to 
service performed on or after July 1, 1953, by officers and members 
of the crew on or in connection with American vessels— 
(1) owned by or bareboat chartered to the United States, and 
(2) whose business is conducted by such general agents. 
As to any such vessel, the State permitted to require contributions 
on account of such service shall be the State to which the general agent 
would make contributions if the vessel were operated for his own ac-
count. 
Such general agents are designated, for this purpose, instru-
mentalities of the United States not wholly owned by it and shall not 
be exempt from the tax imposed by section 3301. The permission 
granted by this subsection is subject to the same conditions and lim-
itations as are imposed in subsection (f), except that clause (B) of the 
second sentence of subsection (b) shall apply. 
(h) KEQUIREMENT BY STATE OF CONTRIBUTIONS.—Any State may, 
as to service performed on or after July 1, 1953, and on account of 
which contributions are made pursuant to subsection (g)— 
(1) require contributions from persons performing such service 
under its unemployment compensation law or temporary disability 
insurance law administered in connection therewith, and 
(2) require general agents of the Secretary of Commerce to make 
contributions under such temporary disability insurance law and 
to make such deductions from wages or remuneration as are re-
quired by such imemployment compensation or temporary disability 
insurance law. 
(i) GENERAL AGENT AS LEGAL ENTITY.—Each general agent of 
the Secretary of Commerce making contributions pursuant to sub-
section (g) or (h) shall, for purposes of such subsections, be considered 
a legal entity in his capacity as an instrumentality of the United 
States, separate and distinct from his identity as a person employing 
individuals on his own account. 
SEC. 3306. DEFINITIONS. 
(a) EMPLoYER.^For purposes of this chapter, the term "employer" 
does not include any person unless on each of some 20 days during 
the taxable year, each day being in a different calendar week, the 
total number of uidividuals who were employed by him in employ-
ment for some portion of the day (whether or not at the same moment 
of time) was eight or more. 
(b) WAGES.—For purposes of this chapter, the term "wages" 
means all remuneration for employment, including the cash value of 
all remuneration paid in any medium other than cash; except that 
such term shall not include— 
(1) that part of the remuneration which, after remuneration 
(other thaa remuneration referred to in the succeeding paragraphs 
of this subsection) equal to $3,000 with respect to employment has 
been paid to an individual by an employer during any calendar 
year, is paid to such individual by such employer during such 
calendar year. 
If an employer (hereinafter referred to as suc-
cessor employer) during any calendar year acquires substantially 
all the property used in a trade or business of another employer 
(hereinafter referred to as a predecessor), or used in a separate 
unit of a trade or business of a predecessor, and immediately after 
§ 3306(b)(1) 
448 
INTERNAL REVENUE CODE OF 1954 
the acquisition employs in his trade or business an individual who 
immediately prior to the acquisition was employed in the trade 
or business of such predecessor, then, for the purpose of determin-
ing whether the successor employer has paid remuneration (other 
than remuneration referred to in the succeeding paragraphs of 
this subsection) with respect to employment equal to $3,000 to 
such individual during such calendar year, any remuneration 
(other than remuneration referred to in the succeeding paragraphs 
of this subsection) with respect to employment paid (or con-
sidered under this paragraph as having been paid) to such indi-
vidual by such predecessor during such calendar year and prior 
to such acquisition shall be considered as having been paid by such 
successor employer; 
(2) the amount of any payment (including any amount paid 
by an employer for insurance or annuities, or into a fund, to provide 
for any such payment) made to, or on behalf of, an employee or 
any of his dependents under a plan or system established by an 
employer which makes provision for his employees generally (or for 
his employees generally and their dependents) or for a class or 
classes of his employees (or for a class or classes of his employees 
and their dependents), on account of— 
(A) retirement, or 
(B) sickness or accident disability, or 
(C) medical or hospitalization expenses in connection with 
sickness or accident disability, or 
(D) death; 
(3) any payment made to an employee (including any amount 
paid by an employer for insurance or annuities, or into a fund, to 
provide for any such payment) on account of retirement; 
(4) any payment on account of sickness or accident disability, 
or medical or hospitalization expenses in connection with sickness 
or accident disability, made by an employer to, or on behalf of, 
an employee after the expiration of 6 calendar months following 
the last calendar month in which the employee worked for such 
employer; 
(5) any payment made to, or on behalf of, an employee or his 
beneficiary— 
(A) from or to a trust described in section 401 (a) which is 
exempt from tax under section 501 (a) at the time of such pay-
ment unless such payment is made to an employee of the trust 
as remuneration for services rendered as such employee and not 
as a beneficiary of the trust, or 
(B) under or to an annuity plan which, at the time of such 
payment, meets the requirements of section 401 (a) (3), (4), (5), 
and (6); 
(6) the payment by an employer (without deduction from the 
remuneration of the employee)— 
(A) of the tax imposed upon an employee under section 3101 
(or the corresponding section of prior law), or 
(B) of any payment required from an employee under a State 
unemployment compensation law; 
§330,6 (b)(1) 
CH. 2 3 
FEDERAL UNEMPLOYMENT TAX ACT 
449 
(7) remuneration paid in any medium other than cash to an 
employee for service not in the course of the employer's trade or 
business; 
(8) any payment (other than vacation or sick pay) made to an 
employee after the month in which he attains the age of 65, if he 
did not work for the employer in the period for which such payment 
is made. 
(c) EMPLOYMENT.—For purposes of this chapter, the term "employ-
ment" means any service performed prior to 1955, which was employ-
ment for purposes of subchapter C of chapter 9 of the Internal Revenue 
Code of 1939 under the law applicable to the period in which such 
service was performed, and any service, of whatever nature, performed 
after 1954 by an employee for the person employing him, irrespective 
of the citizenship or residence of either, (A) within the United States, 
or (B) on or in connection with an American vessel under a contract of 
service which is entered into within the United States or during the 
performance of which the vessel touches at a port in the United States, 
if the employee is employed on and in connection with such vessel 
when outside the United States, except— 
(1) agricultural labor (as defined in subsection (k)); 
(2) domestic service in a private home, local college club, or local 
chapter of a college fraternity or sorority; 
(3) service not in the course of the employer's trade or business 
performed in any calendar quarter by an employee, unless the cash 
remuneration paid for such service is $50 or more and such service 
is performed by an individual who is regularly employed by such 
employer to perform such service. 
For purposes of this paragraph, 
an individual shall be deemed to be regularly employed by an 
employer during a calendar quarter only if— 
(A) on each of some 24 days during such quarter such indi-
vidual performs for such employer for some portion of the day 
service not in the course of the employer's trade or business, or 
(B) such individual was regularly employed (as determined 
under subparagraph (A)) by such employer in the performance 
of such service during the preceding calendar quarter; 
(4) service performed on or in connection with a vessel not an 
American vessel by an employee, if the employee is employed on 
and in connection with such vessel when outside the United States; 
(5) service performed by an individual in the employ of his 
son, daughter, or spouse, and service performed by a child under 
the age of 21 in the employ of his father or mother; 
(6) service performed in the employ of the United States Govern-
ment or of an instrumentality of the United States which is— 
(A) wholly owned by the United States, or 
(B) exempt from the tax imposed by section 3301 by virtue 
of any other provision of law; 
(7) service performed in the employ of a State, or any political 
subdivision thereof, or any instrumentality of any one or more of 
the foregoing which is wholly owned by one or more States or 
poHtical subdivisions; and any service performed in the employ of 
any instrumentality of one or more States or political subdivisions 
to the extent that the instrumentality is, with respect to such 
service, immune under the Constitution of the United States from 
the tax imposed by section 3301; 
§ 3306(c)(7) 
460 
INTERNAL REVENUE CODE OF 1954 
(8) service performed in the employ of a corporation, com-
munity chest, fund, or foundation, organized and operated exclu-
sively for religious, charitable, scientific, testing for public safety, 
literary, or educational purposes, or for the prevention of cruelty 
to children or animals, no part of the net earnings of which inures 
to the benefit of any private shareholder or individual, and no sub-
stantial part of the activities of which is carrying on propaganda, 
or otherwise attempting, to influence legislation; 
(9) service performed by an individual as an employee or em-
ployee representative as defined in section 1 of the Railroad Un-
employment Insurance Act (52 Stat. 1094, 1095; 45 U. S. C. 351); 
(10) (A) service performed in any calendar quarter in the 
employ of any organization exempt from income tax under section 
501 (a) (other than an organization described in section 401 (a)) or 
under section 521, if— 
(i) the remuneration for such service is less than $50, or 
(ii) such service is in connection with the collection of dues 
or premiums for a fraternal beneficiary society, order, or asso-
ciation, and is performed away from the home office, or is ritual-
istic service in connection with any such society, order, or asso-
ciation, or 
(iii) such service is performed by a student who is enrolled and 
is regularly attending classes at a school, college, or university; 
(B) service performed in the employ of an agricultural or horti-
cultural organization described in section 501 (c) (5) which is exempt 
from tax under section 501 (a); 
(C) service performed in the employ of a voluntary employees' 
beneficiary association providing for the payment of life, sick, acci-
dent, or other benefits to the members of such association or their 
dependents, if— 
(i) no part of its net earnings inures (other than through such 
payments) to the benefit of any private shareholder or individual, 
and 
(ii) 85 percent or more of the income consists of amounts 
collected from members for the sole purpose of making such 
payments and meeting expenses; 
(D) service performed in the employ of a voluntary employees' 
beneficiary association providing for the payment of life, sick, acci-
dent, or other benefits to the members of such association or their 
dependents or their designated beneficiaries, if— 
: 
(i) admission to membership in such association is limited to 
individuals who are officers or employees of the United States 
Government, and 
(ii) no part of the net earnings of such association inures (other 
than through such payments) to the benefit of any private share-
holder or individual; 
(E) service performed in the employ of a school, college, or 
- university, not exempt from income tax under section 501 (a), if 
such service is performed by a student who is enrolled and is 
regularly attending classes at such school, college, or university; 
(11) service performed in the employ of a foreign government 
(including service as a consular or other officer or employee or a 
nondiplomatic representative); 
-
§ 3306(c)(8) 
CH. 23—FEDERAL UNEMPLOYMENT TAX ACT 
451 
(12) service performed in the employ of an instrumentality wholly 
owned by a foreign government— 
(A) if the service is of a character similar to that performed 
in foreign countries by employees of the United States Govern-
ment or of an instrumentaHty thereof; and 
(B) if the Secretary of State shall certify to the Secretary that 
the foreign government, with respect to whose instrumentaHty 
exemption is claimed, grants an equivalent exemption with 
respect to similar service performed in the foreign country by 
employees of the United States Government and of instrumen-
talities thereof; 
(13) service performed as a student nurse in the employ of a 
hospital or a nurses' training school by an individual who is enrolled 
and is regularly attending classes in a nurses' training school char-
tered or approved pursuant to State law; and service performed as 
an intern in the employ of a hospital by an individual who has 
completed a 4 years' course in a medical school chartered or approved 
pursuant to State law; 
(14) service performed by an individual for a person as an insur-
ance agent or as an insurance solicitor, if all such service performed 
by such individual for such person is performed for remuneration 
solely by way of commission; 
(15) (A) service performed by an individual under the age of 18 
in the delivery or distribution of newspapers or shopping news, not 
including delivery or distribution to any point for subsequent 
delivery or distribution; 
(B) service performed by an individual in, and at the time of, 
the sale of newspapers or magazines to ultimate consumers, imder 
an arrangement under which the newspapers or magazines are to 
be sold by him at a fixed price, his compensation being based on the 
retention of the excess of such price over the amount at which the 
. newspapers or magazines are charged to him, whether or not he is 
guaranteed a minimum amount of compensation for such service, 
or is entitled to be credited with the unsold newspapers or maga-
zines turned back; 
(16) service performed in the employ of an international organ-
ization; or 
(17) service performed by an individual in (or as an officer or 
member of the crew of a vessel while it is engaged in) the catching, 
taking, harvesting, cultivating, or farming of any kind of fish, 
shellfish, Crustacea, sponges, seaweeds, or other aquatic forms of 
animal and vegetable life (including service performed by any 
such individual as an ordinary incident to any such activity), 
except— 
- !
v 
(A) service performed in connection with the catching or 
taking of salmon or halibut, for commercial purposes, and 
(B) service performed on or in connection with a vessel of 
more than 10 net tons (determined in the manner provided for 
determining the register tonnage of merchant vessels under the 
laws of the United States). 
(d) INCLUDED AND EXCLUDED SERVICE.—For purposes of this 
chapter, if the services performed during one-half or more of any pay 
period by an employee for the person employing him constitute 
§ 3306(d) 
452 
INTERNAL REVENUE CODE OF 1954 
employment, all the services of such employee for such period shall be 
deemed to be employment; but if the services performed during more 
than one-half of any such pay period by an employee for the person 
employing him do not constitute employment, then none of the serv-
ices of such employee for such period shall be deemed to be employ-
ment. 
As used in this subsection, the term ''pay period" means a 
period (of not more than 31 consecutive days) for which a payment of 
remuneration is ordinarily made to the employee by the person em-
ploying him. This subsection shall not be applicable with respect to 
services performed in a pay period by an employee for the person 
employing him, where any of such service is excepted by subsec-
tion (c) (9). 
(e) STATE AGENCY.—For purposes of this chapter, the term "State 
agency" means any State officer, board, or other authority, designated 
under a State law to administer the unemployment fund in such State. 
(f) UNEMPLOYMENT FUND.—For purposes of this chapter, the term 
"unemployment fund" means a special fund, established under a 
State law and administered by a State agency, for the payment of 
compensation. 
Any sums standing to the account of the State 
agency in the Unemployment Trust Fund established by section 904 
of the Social Security Act, as amended (49 Stat. 640; 52 Stat. 1104, 
1105; 42 U. S. C. 1104), shall be deemed to be a part of the unem-
ployment fund of the State, and no sums paid out of the Unemploy-
ment Trust Fund to such State agency shall cease to be a part of the 
unemployment fund of the State until expended by such State agency. 
An unemployment fund shall be deemed to be maintained during a 
taxable year only if throughout such year, or such portion of the 
year as the unemployment fund was in existence, no part of the 
moneys of such fund was expended for any purpose other than the 
payment of compensation (exclusive of expenses of administration) 
and for refunds of sums erroneously paid into such fund and refunds 
paid in accordance with the provisions of section 3305 (b); except 
that— 
(1) an amount equal to the amount of employee payments into 
the unemployment fund of a State may be used in the payment 
of cash benefits to individuals with respect to their disability, exclu-
sive of expenses of administration; and 
(2) the amounts specified by section 903 (c) (2) of the Social 
Security Act may, subject to the conditions prescribed in such sec-
tion, be used for expenses incurred by the State for administration 
of its unemployment compensation law and public employment 
offices. 
(g) GoNTRiBUTioNS.—For purposes of this chapter, the term 
"contributions" means payments required by a State law to be 
made into an unemployment fund by any person on account of hav-
ing individuals in his employ, to the extent that such payments are 
made by him without being deducted or deductible from the remu-
neration of individuals in his employ. 
(h) COMPENSATION.—For purposes of this chapter, 
the 
term 
"compensation" means cash benefits payable to individuals with 
respect to their unemployment. 
(i) EMPLOYEE.—For purposes of this chapter, the term "employee" 
includes an officer of a corporation, but such term does not include— 
13306(d) 
CH. 23—FEDERAL UNEMPLOYMENT TAX ACT 
453 
(1) any individual who, under the usual common law rules 
applicable in determining the employer-employee relationship, has 
the status of an independent contractor, or 
(2) any individual (except an officer of a corporation) who is 
not an employee under such common law rules. 
(j) STATE.—For purposes of this chapter, the term "State" includes 
Alaska, Hawaii, and the District of Columbia. 
(k) AGRICULTURAL LABOR.—For purposes of this chapter, the term 
"agricultural labor" includes all service performed— 
(1) on a farm, in the employ of any person, in connection with 
cultivating the soil, or in connection with raising or harvesting 
any agricultural or horticultural commodity, including the raising, 
shearing, feeding, caring for, training, and management of live-
stock, bees, poultry, and fur-bearing animals and wildlife; 
(2) in the employ of the owner or tenant or other operator of a 
farm, in connection with the operation, management, conserva-
tion, improvement, or maintenance of such farm and its tools and 
equipment, or in salvaging timber or clearing land of brush and 
other debris left by a hurricane, if the major part of such service 
is performed on a farm; 
(3) in connection with the production or harvesting of maple 
sirup or maple sugar or any commodity defined as an agricultural 
commodity in section 15 (g) of the Agricultural Marketing Act, 
as amended (46 Stat. 1550, § 3; 12 U. S. C. 1141j), or in con-
nection with the raising or harvesting of mushrooms, or in connec-
tion with the hatching of poultry, or in connection with the ginning 
of cotton, or in connection with the operation or maintenance of 
ditches, canals, reservoirs, or waterways used exclusively for supply-
ing and storing water for farming purposes; or 
(4) in handling, planting, drying, packing, packaging, proc-
essing, freezing, grading, storing, or delivering to storage or to 
market or to a carrier for transportation to market, any agricul-
tural or horticultural commodity; but only if such service is per-
formed as an incident to ordinary farming operations or, in the 
case of fruits and vegetables, as an incident to the preparation of 
such fruits or vegetables for market. 
The provisions of this para-
graph shall not be deemed to be applicable with respect to service 
performed in connection with commercial canning or commercial 
freezing or in connection with any agricultural or horticultural 
commodity after its deUvery to a terminal market for distribution 
for consumption. 
As used in this subsection, the term "farm" includes stock, dairy, 
poultry, fruit, fur-bearing animal, and truck farms, plantations, 
ranches, nurseries, ranges, greenhouses or other similar structures 
used primarily for the raising of agricultural or horticultural commod-
ities, and orchards. 
(1) CERTAIN EMPLOYEES OP BONNEVILLE POWER ADMINISTRA-
TOR.—For purposes of this chapter— 
(1) The term "employment" shall include such service as is 
determined by the Bonneville Power Administrator to be performed 
after December 31, 1945, by a laborer, mechanic, or workman, in 
connection with construction work or the operation and mainte-
nance of electrical facilities, as an employee performing service for 
the Administrator. 
§3306(1)(1) 
454 
INTERNAL REVENUE CODE OF 1954 
(2) The term "wages" means, with respect to service which con-
stitutes employment by reason of this subsection, such amount of 
remuneration as is determined (subject to the provisions of this 
section) by the Administrator to be paid for such service. 
The Administrator is authorized and directed to comply with the 
provisions of the internal revenue laws on behalf of the United States 
as the employer of individuals whose service constitutes employment 
by reason of this subsection. 
(m) AMERICAN VESSEL.—For purposes of this chapter, the term 
"American vessel" means any vessel documented or numbered under 
the laws of the United States; and includes any vessel which is neither 
documented or numbered under the laws of the United States nor 
documented under the laws of any foreign country, if its crew is 
employed solely by one or more citizens or residents of the United 
States or corporations organized under the laws of the United States 
or of any State. 
(n) VESSELS OPERATED BY GENERAL AGENTS OF UNITED STATES.— 
Notwithstanding the provisions of subsection (c) (6), service per-
formed on or after July 1, 1953, by officers and members of the crew 
of a vessel which would otherwise be included as employment under 
subsection (c) shall not be excluded by reason of the fact that it is 
performed on or in connection with an American vessel— 
(1) owned by or bareboat chartered to the United States and ' 
(2) whose business is conducted by a general agent of the Secre-
tary of Commerce. 
For purposes of this chapter, each such general agent shall be consid-
ered a legal entity in his capacity as such general agent, separate and 
distinct from his identity as a person employing individuals on his own 
account, and the officers and members of the crew of such an American 
vessel whose business is conducted by a general agent of the Secretary 
of Commerce shall be deemed to be performing services for such general 
agent rather than the United States. 
Each such general agent who 
in his capacity as such is an employer within the meaning of sub-
section (a) shall be subject to all the requirements imposed upon an 
employer under this chapter with respect to service which constitutes 
employment by reason of this subsection. 
SEC. 3307. DEDUCTIONS AS CONSTRUCTIVE PAYMENTS. 
'Whenever under this chapter or any act of Congress, or under 
the law of any State, an employer is required or permitted to deduct 
any amount from the remuneration of an employee and to pav the 
amount deducted to the United States, a State, or any political sub-
division thereof, then for purposes of this chapter the amount so 
deducted shall be considered to have been paid to the employee at the 
time of such deduction. 
SEC. 3308. SHORT TITLE. 
This chapter may be cited as the "Federal Unemployment Tax Act." 
3306(1) (2) 
CH. 24—COLLECTION AT SOURCE ON WAGES 
455 
CHAPTER 24—COLLECTION OF INCOME TAX AT 
SOURCE ON WAGES 
Sec. 3401. Definitions. 
' ! . f i i ' : i u v 
Sec. 3402. Income tax collected at source. 
.^ ,, " 
' 
Sec. 3403. Liability for tax. 
Sec. 3404. Return and payment by governmental employer. 
SEC. 3401. DEFINITIONS. 
(a) WAGES.—For purposes of this chapter, the term "wages" means 
all remuneration (other than fees paid to a public official) for services 
performed by an employee for his employer, including the cash value 
of all remuneration paid in any medium other than cash; except that 
such term shall not include remuneration paid— 
(1) for active service as a member of the Armed Forces of the 
United States performed in a month for which such member is 
entitled to the benefits of section 112, or 
(2) for agricultural labor (as defined in section 3121 (g)), or 
(3) for domestic service in a private home, local college club, or 
local chapter of a college fraternity or sorority, or 
(4) for service not in the course of the employer's trade or busi-
ness performed in any calendar quarter by an employee, unless the 
cash remuneration paid for such service is $50 or more and such 
service is performed by an individual who is regularly employed by 
such employer to perform such service. 
For purposes of this 
paragraph, an individual shall be deemed to be regularly employed 
by an employer during a calendar quarter only if— 
(A) on each of some 24 days during such quarter such individual 
perfomis for such employer for some portion of the day service not 
in the course of the employer's trade or business, or 
(B) such individual was regularly employed (as determined 
under subparagraph (A)) by such employer in the performance 
of such service during the preceding calendar quarter, or 
(5) for services by a citizen or resident of the United States for 
a foreign government or an international organization, or 
(6) for services performed by a nonresident alien individual, 
other than— 
(A) a resident of a contiguous country who enters and leaves 
the United States at frequent intervals, or 
(B) a resident of Puerto Rico if such services are performed as an 
employee of the United States or any agency thereof, or 
(7) for such services, performed by a nonresident alien individual 
who is a resident of a contiguous country and who enters and leaves 
the United States at frequent intervals, as may be designated by 
regulations prescribed by the Secretary or his delegate, or 
(8) (A) for services for an employer (other than the United States 
or any agency thereof) — 
(i) performed by a citizen of the United States if, at the time 
of the payment of such remuneration, it is reasonable to believe 
§ 3401(a) (8) (i) 
456 
INTERNAL REVENUE CODE OF 1964 
that such remuneration will be excluded from gross income 
under section 911, or 
(ii) performed in a foreign country by such a citizen if, at 
the time of the payment of such remuneration, the employer is 
required by the law of any foreign country to withhold income 
tax upon such remuneration, or 
(B) for services for an employer (other than the United States 
or any agency thereof) performed by a citizen of the United States 
within a possession of the United States (other than Puerto Rico), 
if it is reasonable to believe that at least 80 percent of the remunera-
tion to be paid to the employee by such employer during the 
calendar year will be for such services, or 
(C) for services for an employer (other than the United States or 
any agency thereof) performed by a citizen of the United States 
within Puerto Rico, if it is reasonable to believe that during the 
entire calendar year the employee will be a bona fide resident of 
Puerto Rico, or 
(9) for services performed by a duly ordained, commissioned, or 
licensed minister of a church in the exercise of his ministry or by a 
member of a religious order in the exercise of duties required by 
such order, or 
(10) (A) for services performed by an individual under the age 
of 18 in the delivery or distribution of newspapers or shopping news, 
not including delivery or distribution to any point for subsequent 
delivery or distribution, or 
(B) for services performed by an individual in, and at the time 
of, the sale of newspapers or magazines to ultimate consumers, 
under an arrangement under which the newspapers or magazines 
are to be sold by him at a fixed price, his compensation being 
based on the retention of the excess of such price over the amount 
at which the newspapers or magazines are charged to him, whether 
or not he is guaranteed a minimum amount of compensation for 
such service, or is entitled to be credited with the unsold newspapers 
or magazines turned back, or 
(11) for services not in the course of the employer's trade or 
business, to the extent paid in any medium other than cash, or 
(12) to, or on behalf of, an employee or his beneficiary— 
(A) from or to a trust described in section 401 (a) which is 
exempt from tax under section 501 (a) at the time of such pay-
ment unless such payment is made to an employee of the trust 
as remuneration for services rendered as such employee and not 
as a beneficiary of the trust, or 
(B) under or to an annuity plan which, at the time of such 
payment, meets the requirements of section 401 (a) (3), (4), (5), 
and (6). 
(b) PAYROLL PERIOD,—For purposes of this chapter, the term 
"payroll period" means a period for which a payment of wages is 
ordinarily made to the employee by his employer, and the term 
"miscellaneous payroll period" means a payroll period other than a 
daily, weekly, biweekly, semimonthly, monthly, quarterly, semiannual, 
or annual payroll period. 
(c) EMPLOYEE.—For purposes of this chapter, the term "employee" 
includes an officer, employee, or elected official of the United States, 
§ 3401(a) (8) (i) 
CH. 24—COLLECTION 
AT 
SOURCE 
ON WAGES 
457 
a State, Territory, or any political subdivision thereof, or the District 
of Columbia, or any agency or instrumentality of any one or more of 
the foregoing. 
The term "employee" also includes an oflficer of a 
corporation. 
(d) EMPLOYER.—For purposes of this chapter, the term "employer" 
means the person for whom an individual performs or performed any 
service, of whatever nature, as the employee of such person, except 
that— 
(1) if the person for whom the individual performs or performed 
the services does not have control of the payment of the wages for 
such services, the term "employer" (except for purposes of sub-
section (a)) means the person having control of the payment of 
such wages, and 
(2) in the case of a person paying wages on behalf of a nonresi-
dent alien individual, foreign partnership, or foreign corporation, 
not engaged in trade or business within the United States, the term 
"employer" (except for purposes of subsection (a)) means such 
person. 
(e) NUMBER OF WITHHOLDING EXEMPTIONS CLAIMED.—For pur-
poses of this chapter, the term "number of withholding exemptions 
claimed" means the number of withholding exemptions claimed in a 
withholding exemption certificate in effect under section 3402 (f), or in 
effect under the corresponding section of prior law, except that if no 
such certificate is in effect, the number of withholding exemptions 
claimed shall be considered to be zero. 
SEC. 3402. INClJOME TAX COLLECTED AT SOURCE. 
(a) REQUIREMENT OF WITHHOLDING.—Every employer making 
payment of wages shall deduct and withhold upon such wages a tax 
equal to 18 percent of the amount by which the wages exceed the 
number of withholding exemptions claimed, multiplied by the amount 
of one such exemption as shown in subsection (b) (1). 
(b) PERCENTAGE METHOD OF WITHHOLDING.— 
(1) The table referred to in subsection (a) is as follows: 
Percentage Method Withholding Table 
Payroll period 
Amount of 
one with-
holding 
exemption 
Weekly 
Biweekly.. 
Semimonthly 
Monthly 
Quarterly 
Semiannual 
..... 
Annual 
Daily or miscellaneous (per day of such period). 
$13.00 
26.00 
28.00 
56.00 
167.00 
333.00 
667.00 
1.80 
(2) If wages are paid with respect to a period which is not a 
payroll period, the withholding exemption allowable with respect 
to each payment of such wages shall be the exemption allowed for 
a miscellaneous payroll period containing a number of days (in-
cluding Sundays and holidays) equal to the number of days in the 
period with respect to which such wages are paid. 
§ 3402(b)(2) 
49012°—54 
32 
458 
INTERNAL REVENUE CODE OF 1954 
(3) In any case in which wages are paid by an employer with-
out regard to any payroll period or other period, the withholding 
exemption allowable with respect to each payment of such wages 
shall be the exemption allowed for a miscellaneous payroll period 
containing a number of days equal to the number of days (includ-
ing Sundays and holidays) which have elapsed since the date of 
the last payment of such wages by such employer during the cal-
endar year, or the date of commencement of employment with 
such employer during such year, or January 1 of such year, which-
ever is the later. 
(4) In any case in which the period, or the time described in 
paragraph (3), in respect of any wages is less than one week, the 
Secretary or his delegate, under regulations prescribed by him, 
may authorize an employer, in computing the tax required to be 
deducted and withheld, to use the excess of the aggregate of the 
wages paid to the employee during the calendar week over the 
withholding exemption allowed by this subsection for a weekly 
payroll period. 
(5) In determining the amount to be deducted and withheld 
under this subsection, the wages may, at the election of the em-
ployer, be computed to the nearest dollar. 
(c) WAGE BRACKET WITHHOLDING.^— 
(1) At the election of the employer with respect to any employee, 
the employer shall deduct and withhold upon the wages paid to 
such employee a tax determined in accordance with the followihg 
tables, which shall be in lieu of the tax required to be deducted and 
withheld under siibsection (a): 
: 
' 
. 
If the payroll period With respect to 
And the wages are— 
At least 
$0 
... 
$13 
$14 
$15 
$16 
$17 
$18 
$19 
$20 
$21 
$22 
$23 
$24 
$25.. 
$26. 
$27. 
$28 
$29 
$30 
$31 
$32 
$33. 
$34 
$35 
$36 
$37 
$38 
$39 
$40 
$41 
But less 
than 
$ 1 3 . . . . . . 
$14 
$15 
$16 
$17 
$18 
$19 
$20. 
$21 
$22 
$ 2 3 . . . . . . 
$24 
$25 
$26. 
$27. 
$28 
$29. 
$30 
$31 
$32 
$33 
$34 
$35 
$36 
$37 
$38 
$39 
$40 
$41 
$42 
iaii employed is weekly 
And the number of <:with(ioIdingezemptWseIa&ned is—^' [ 
0 
18% of 
$2.40 
2. 60 
2.80 
3.00 
3.20 
3.30 
3.60 
3.70 
3.90 
4.10 
4.20 
4.40 
4.60 
4.80 
5.00 
5.10 
5.30 
5.50 
5.70 
5.90 
6.00 
6.20 
6.40 
6.60 
6.80 
6.90 
7.10 
7.30 
7.60 
1 
2 
3 
: 4 
' • '5 . 
; 6 
': 
7 
':• 
: 8 
. 
: • • 
9 
The amount of tax to be withheld shall be— 
$0 
.10 
.30 
.60 
.70 
.80 
1.00 
1.20 
1.40 
1.60 
1.70 
1.90 
2.10 
2.30 
2.60 
2.60 
2.80 
3.00 
3.20 
3.40 
3.50 
3.70 
3.90 
4.10 
4.30 
4.40 
4.60 
4.80 
5.00 
5.20 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.20 
.30 
.50 
.70 
.90 
1.10 
1.20 
1.40 
1.60 
1.80 
2.00 
2.10 
2.80 
2.60 
2.70 
2.90 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.20 
.40 
.60 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
$0 
0 
; 0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
10 or 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
3402(b)(3) 
CH. 2 4—COLLECTION AT SOURCE ON WAGES 
459 
If the payroll period with respect to an employee is weekly—Continued 
And the wages are— 
And the number of withholding exemptions claimed is— 
At least 
But less 
than 
1 
2 
3 
4 
5 
6 
7 
8 
9 
The amount of tax to be withheld shall be— 
10 or 
more 
$42 
$43 
$44 
$45 
$46 
$47.-... 
$48 
$49 
$50..... 
$51 
$52..... 
$53 
$54 
$55 
$56 
$57 
$58 
$59 
$60 
$62 
$64 
$66 
$68 
$70 
$72..... 
$74....-
$76..... 
$78 
$80..... 
$82 
$84 
$86 
$88 
$90 
$92 
$94 
$ 9 6 . - . -
$98. 
$100...-
$105-.-
$110— 
$115..-
$120-..-
$ 1 2 5 — 
$130.... 
$135.... 
$140.... 
$ 1 4 5 — 
$150...-
$160...-
$170.— 
$180.— 
$190— 
$43-
$44.. 
$45., 
$46.. 
$47-. 
$48-
$49-. 
$50-. 
$51-. 
$52-. 
$53-. 
$54-. 
$65-. 
$56. 
$57-. 
$58-
$59-. 
$60-
$62.. 
$64-. 
$66-
$68-. 
$70-. 
$72-. 
$74.. 
$76-. 
$78-. 
$80-. 
$82-. 
$84-. 
$86-. 
$88-. 
$90-
$92-. 
$94-. 
$96-
$98-. 
$100 
$105 
$110 
$116. 
$120 
$125 
$130 
$135 
$140 
$145. 
$150. 
$160 
$170. 
$180. 
$190. 
$200. 
$7.70 
7.80 
8.00 
8.20 
8.40 
8.60 
8.70 
8.90 
9.10 
9.30 
9.60 
9.60 
9.80 
10.00 
10.20 
10.40 
10.50 
10.70 
11.00 
11.30 
11.70 
12.10 
12.40 
12.80 
13.10 
13.50 
13.90 
14.20 
14.60 
14.90 
15.30 
15.70 
16.00 
16.40 
16.70 
17.10 
17.50 
17.80 
18.50 
19.40 
20.30 
21.20 
22.10 
23.00 
23.90 
24.80 
25.70 
26.60 
27.90 
29.70 
31.60 
33.30 
35.10 
$5.30 
5.50 
5.70 
5.90 
6.10 
6.20 
6.40 
6.60 
6.80 
7.00 
7.10 
7.30 
7.50 
,7.70 
7.90 
8.00 
8.20 
8.40 
8.70 
9.00 
9.40 
9.80 
10.10 
10.50 
10.80 
11.20 
11.60 
11.90 
12.30 
12.60 
13.00 
13.40 
13.70 
14.10 
14.40 
14.80 
15.20 
15.60 
16.10 
17.00 
17.90 
18.80 
19.70 
20.60 
21.50 
22.40 
23.30 
24.20 
25.60 
27.40 
29.20 
31.00 
32.80 
$3.00 
3.20 
3.40 
3.60 
3.80 
3.90 
4.10 
4.30 
4.50 
4.70 
4.80 
5.00 
6.20 
6.40 
5.60 
5.70 
6.90 
6.10 
6.40 
6.70 
7.10 
7.40 
7.80 
8.20 
8.60 
8.90 
9.20 
9.60 
10.00 
10. 30 
10.70 
11.00 
11.40 
11.80 
12.10 
12.60 
12.80 
13.20 
13.80 
14.70 
15.60 
16.50 
17.40 
18.30 
19.20 
20.10 
21.00 
21.90 
23.30 
25.10 
26.90 
28.70 
30.60 
$0.70 
.90 
1.10 
1.30 
1.40 
1.60 
1.80 
2.00 
2.20 
2.30 
2.60 
2.70 
2.90 
3.10 
3.20 
3.40 
3.60 
3.80 
4.10 
4.40 
4.80 
5.10 
5.50 
5.90 
6.20 
6.60 
6.90 
7.30 
7.70 
8.00 
8.40 
8.70 
9.10 
9.50 
9.80 
10.20 
10.50 
10.90 
11.50 
12.40 
13.30 
14.20 
15.10 
16.00 
16.90 
17.80 
18.70 
19.60 
21.00 
22.80 
24.60 
26.40 
28.20 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.20 
.40 
.60 
.80 
.90 
1.10 
1.30 
1.50 
1.70 
2.10 
2.50 
2.80 
3.20 
3.50 
3.90 
4.30 
4.60 
5.00 
5.30 
5.70 
6.10 
6.40 
6.80 
7.10 
7.50 
7.90 
•8.20 
8.60 
9.20 
10.10 
11.00 
11.90 
12.80 
13.70 
14.60 
16.50 
16.40 
17.30 
18.70 
20.60 
22.30 
24.10 
25.90 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.20 
.50 
.90 
1.20 
1.60 
2.00 
2.30 
2.70 
3.00 
3.40 
3.80 
4.10 
4.60 
4.80 
5.20 
5.60 
6.90 
6.30 
6.90 
7.80 
8.70 
9.60 
10.50 
11.40 
12.30 
13.20 
14.10 
16.00 
16.40 
18.20 
20.00 
21.80 
23.60 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.40 
.70 
1.10 
1.50 
1.80 
2.20 
2.60 
2.90 
3.30 
3.60 
4.00 
4.60 
5.50 
6.40 
7.30 
8.20 
9.10 
10.00 
10.90 
11.80 
12.70 
14.10 
15.90 
17.70 
19.50 
21.30 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
, 0 
' 
0 
0 
0 
0 
.20 
.60 
.90 
1.30 
1.70 
2.30 
3.20 
4.10 
6.00 
5.90 
6.80 
7.70 
8.60 
9.60 
10.40 
11.70 
13.50 
15.30 
17.10 
18.90 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
. 
0 
0 
0 
0 
0 
0 
0 
0 
0 
iO 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.90 
1.80 
2.70 
3.60 
4.60 
5.40 
6.30 
7.20 
'8.10 
9.40 
11.20 
13.00 
14.80 
16.60 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 . 
0 
0 
0 
0 
0 
,0 
0 
0 
0 
0 
0 
0 
0 
0 
.0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.40 
1.30 
2.20 
3.10 
4.00 
4.90 
5.80 
7.10 
8.90 
10.70 
12.60 
14.30 
18 percent of the excess over $200 plus-
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.80 
1.70 
2.60 
3.60 
4.80 
6.60 
8.40 
10.20 
12.00 
$200 and over. 
36.00 33.70 
31.40 
29.10 
26.80 
24.50 
22.20 
19, 
17.60 
15.20 
12.90 
§ 3402(c)(1) 
460 
INTERNAL REVENUE CODE OF 1954 
If the payroll period with respect to an employee is biweekly— 
And the wages 
And the number of withholding exemptions claimed is— 
At least 
But less 
than 
The amount of tax to be withheld shall be— 
$28 
$30 
-
$32 
$34 
$36 
$38 
$40 
$42 
$44 
$46 
$48 
$50 
$52 
$64 
$56 
$58 
$60 
$62 
$64 
$66 
$68 
$70 
$72 
$74. 
$76 
$78 
$80 
$ 8 2 . . . . . . . . 
$84 
. . . . 
$86 
. . . . 
$ 8 8 . . . . ^ . . . 
$ 9 0 . . . . . . . . 
$ 9 2 . . . . . . . . 
$ 9 4 . . . . . . . . 
$ 9 6 . . - . . . . -
$98 
$100 
$102..-]— 
$104....... 
$ 1 0 6 . . - . . -
$108 
$ 1 1 0 — . — 
$ 1 1 2 . . . . . . . 
$ 1 1 4 — . . . . 
$116 
$ 1 1 8 . . . . . . . 
$120 
$124 
$ 1 2 8 — . — 
$132 
$ 1 3 6 . . . . . . . 
$140 
$144 
$148 
$152 
$156 
$160 
$164 
$168 
$172 
$176 
$180 
$184 
$188 
$192 
-
$196 
$200 
$210 
$220 
$230 
-
$240 
$250-
$260 
$26-
$28.. 
$30.. 
$32.. 
$34.. 
$36-. 
$38.. 
$40.. 
$42.. 
$44.. 
$46.. 
$48.. 
$50.. 
$52.. 
$54.. 
$56-
$58-
$60-
$62-
$64-
$66-. 
$68-. 
$70-. 
$72-. 
$74-
$76-
$78-
$80-
$82.. 
$84-. 
$86-. 
$88-. 
$90.. 
$92.. 
$94-. 
$96.. 
$98.. 
$100. 
$102. 
$104. 
$106. 
$108. 
$110. 
$112. 
$114. 
$116. 
$118. 
$120. 
$124. 
$128. 
$132. 
$136. 
$140. 
$144. 
$148. 
$152. 
$156. 
$160. 
$164. 
$168. 
$172. 
$176. 
$180. 
$184. 
$188. 
$192. 
$196. 
$200. 
$210. 
$220. 
$230. 
$240. 
$250. 
$260. 
$270. 
18% of 
wages 
$4.90 
5.20 
5.60 
5.90 
6.30 
6.70 
7.00 
7.40 
7.70 
8.10 
8.50 
8.80 
9.20 
9.50 
9.90 
10.30 
10.60 
11.00 
11.30 
11.70 
12.10 
12.40 
12.80 
13.10 
13.50 
13.90 
14.20 
14.60 
14.90 
15.30 
15.70 
16.00 
16.40 
16.70 
17.10 
17.50 
17.80 
18.20 
18.50 
18.90 
19.30 
19.60 
20.00 
20.30 
20.70 
21.10 
21.40 
22.00 
22.70 
23.40 
24.10 
24.80 
25.60 
26.30 
27.00 
27.70 
28.40 
29.20 
29.90 
30.60 
31.30 
32.00 
32.80 
33.50 
34.20 
34.90 
35.60 
36.90 
38.70 
40.50 
42.30 
44.10 
45.90 
47.70 
$0 
.20 
.60 
1.00 
1.30 
1.70 
2.00 
2.40 
2.80 
3.10 
3.60 
3.80 
4.20 
4.60 
4.90 
6.30 
5.60 
6.00 
6.40 
6.70 
7.10 
7.40 
7.80 
8.20 
8.60 
8.90 
9.20 
9.60 
10.00 
10.30 
. 10. 70 
11.00 
11.40 
11.80 
12.10 
12.50 
12.80 
13.20 
13.60 
13.90 
14.30 
14.60 
15.00 
15.40 
:15.70 
16.10 
16.40 
16.80 
17.30 
18.10 
18.80 
19.50 
20.20 
20.90 
21.70 
22.40 
23.10 
23.80 
24.60 
25.30 
26.00 
26.70 
27.40 
28.10 
28.90 
29.60 
30.30 
31.00 
32.30 
34.10 
35.90 
37.70 
39.60 
41.30 
43.10 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.30 
.70 
1.00 
1.40 
1.70 
2.10 
2.60 
2.80 
3.20 
3.50 
3.90 
4.30 
4.60 
5.00 
6.30 
5.70 
6.10 
6.40 
6.80 
7.10 
7.50 
7.90 
8.20 
8.60 
8.90 
9.30 
9.70 
10.00 
10.40 
10.70 
11.10 
11.60 
11.80 
12.20 
;12.70 
13.40 
;14.20 
14.90 
15.60 
16.30 
17.00 
17.80 
18.50 
19.20 
19.90 
20.60 
21.40 
22.10 
22.80 
23.60 
24.20 
26.00 
25.70 
26.40 
27.70 
29.50 
31.30 
33.10 
34.90 
36.70 
38.50 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.40 
.70 
1.10 
1.50 
1.80 
2.20 
2.60 
2.90 
3.30 
3.60 
4.00 
4.30 
4.70 
6.10 
6.40 
5.80 
6.10 
6.60 
6.90 
7.20 
7.60 
8.10 
i 8.80 
9.60 
10.30 
11.00 
11.70 
12.40 
13.20 
13.90 
14.60 
15.30 
16.00 
16.80 
17.60 
18.20 
18.90 
19.60 
20.40 
21.10 
21.80 
23.10 
24.90 
26.70 
28.50 
30.30 
32.10 
33.90 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.10 
.40 
.80 
1.20 
1.50 
1.90 
2.20 
2.60 
3.00 
3.60 
4.20 
4.90 
' 6.70 
6.40 
7.10 
7.80 
8.50 
9.30 
10.00 
10.70 
11.40 
12.10 
12.90 
13.60 
14.30 
15.00 
15.70 
16.50 
17.20 
18.40 
20.20 
22.00 
23.80 
25.60 
27.40 
29.20 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
: 0 
10 
: 0 
; 0 
0 
0 
0 
: 0 
0 
0 
0 
' 0 
0 
0 
i 0 
: 0 
: 0 
0 
0 
0 
0 
.30 
1.00 
1.80 
2.60 
3.20 
3.90 
4.60 
5.40 
6.10 
6.80 
7.50 
8.20 
9.00 
9.70 
10.40 
11.10 
11.80 
12.60 
13.80 
15.60 
17.40 
19.20 
21.00 
22.80 
24.60 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
; 0 
, 0 
^ 0 
0 
i 0 
0 
0 
0 
0 
0 
0 
: 0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.70 
1.50 
2.20 
2.90 
3.60 
4.30 
5.10 
5.80 
6.50 
7.20 
7.90 
9.20 
11.00 
12.80 
14.60 
16.40 
18.20 
20.00 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
, 0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.60 
1.20 
1.90 
2.60 
3.30 
4.60 
6.40 
8.20 
10.00 
11.80 
13.60 
16.40 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
: 0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
: 0 
0 
; 0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
1.80 
3.60 
6.40 
7.20 
9.00 
10.80 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.80 
2.60 
4.40 
6.20 
§ 3402(c)(1) 
CH. 24—COLLECTION AT SOURCE ON WAGES 
'4^1 
If the payroll period with respect to an employee is biweekly—Continued 
And the wages are— 
$270 
$280 
$290 
$300-
$320 
-
$ 3 4 0 - . - — 
$360 
-
$380 
$400 and 01 
But less 
than 
$280 
$290 
$300 
$ 3 2 0 — 
$340 
$360 
$380 
$400 
rer 
And the number of withholding exemptions claimed is— 
0 
$49. 50 
51.30 
53.10 
55.80 
59.40 
63.00 
66.60 
70.20 
1 
2 
3 
4 
5 
6 
7 
8 
9 
The amount of tax to be withheld shall be— 
$44.90 
46.70 
48.50 
51.20 
54.80 
58.40 
62.00 
65.60 
$40.30 
42.10 
43.90 
46.60 
50.20 
53.80 
57.40 
61.00 
$35.70 
37.50 
39.30 
42.00 
45.60 
49.20 
52.80 
56.40 
$31.00 
32.80 
34.60 
37.30 
40.90 
44.50 
48.10 
51.70 
$26.40 
28.20 
30.00 
32.70 
36.30 
39.90 
43.50 
47.10 
$21.80 
23.60 
25.40 
28.10 
31.70 
35.30 
38.90 
42.50 
$17.20 
19.00 
20.80 
23.50 
27.10 
30.70 
34.30 
37.90 
$12. 60 
14.40 
16.20 
18.90 
22.50 
26.10 
29.70 
33.30 
$8.00 
9.80 
11.60 
14.30 
17.90 
21.50 
25.10 
28.70 
10 or 
$3.30 
5.10 
6.90 
9.60 
13.20 
16.80 
20.40 
24.00 
18 percent of the excess over $400 plus— 
72.00 
67.40 
62.80 
58.20 
63.50 
48.90 
44.30 
39.70 
35.10 
30.50 
25. 80 
If the payroll period with respect to an employee is semimonthly— 
And the wages are— 
And the number of withholding exemptions claimed is-
At least 
But less 
than 
1
2
3
4
5
6
7
8
9 
The amount of tax to be withheld shall be— 
10 or 
more 
$28 
$30 
-
$32 
$34 
$36 
— 
$38 
$40 
$ 4 2 . . . . . . . . 
$44 
$46 
$48.. 
$50.i.-.-.-
$52 
$54 
$56 
$58 
$60 
$62 
$64 
$66 
-
$68 
$70 
-
$72 
$74 
$76 
$78 
$80 
$82 
$84-
$86 
- . 
$88 
-
$90 
$92 
$94 
$96 
$98 
$100 
$102 
$104 
-
$106 
$108 
-
$110 
$112 
-
$30-
$32.. 
$34.. 
$36-
$38-
$40-
$42-
$44.. 
$46.. 
$48.. 
$50.. 
$52.. 
$54.. 
$56-. 
$58-. 
$60.. 
$62.. 
$64., 
$66-, 
$68-. 
$70-. 
$72-. 
$74.. 
$76., 
$78-, 
$80-. 
$82-. 
$84.. 
$86.. 
$88-. 
$90-, 
$92-, 
$94., 
$96-. 
$98-
$100, 
$102, 
$104, 
$106, 
$108, 
$110. 
$112. 
$114. 
18% O
f 
wages 
$5.20 
5.60 
5.90 
6.30 
6.70 
7.00 
7.40 
7.70 
8.10 
8.50 
8.80 
9.20 
9.50 
9.90 
10.30 
10.60 
11.00 
11.30 
11.70 
12.10 
12.40 
12.80 
13.10 
13.50 
13.90 
14.20 
14.60 
14.90 
15.30 
15.70 
16.00 
16.40 
16.70 
17.10 
17.50 
17.80 
18.20 
18.50 
18.90 
19.30 
19.60 
20.00 
20.30 
$0 
.20 
.60 
.90 
1.30 
1.70 
2.00 
2.40 
2.70 
3.10 
3.50 
3.80 
4.20 
4.50 
4.90 
5.30 
5.60 
6.00 
6.30 
6.70 
7.10 
7.40 
7.80 
8.10 
8.50 
8.90 
9.20 
9.60 
9.90 
10.30 
10.70 
11.00 
11.40 
11.70 
12.10 
12.50 
12.80 
13.20 
13.50 
13.90 
14.30 
14.60 
15.00 
15.30 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.30 
.60 
1.00 
1.30 
1.70 
2.10 
2.40 
2.80 
3.10 
3.50 
3.90 
4.20 
4.60 
4.90 
5.30 
5.70 
6.00 
6.40 
6.70 
7.10 
7.50 
7.80 
8.20 
8.50 
8.90 
9.30 
9.60 
10.00 
10.30 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.30 
.70 
1.00 
1.40 
1.70 
2.10 
2.50 
2.80 
3.20 
3.50 
3.90 
4.30 
4.60 
5.00 
5.30 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.30 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
§ 3402(c)(1) 
462 
INTERNAL REVENUE CODE OF 1954 
If the payroll period with respect to an employee is semimonthly—Continued 
And the wages are— 
And the number of withholding exonptions claimed i 
At least 
But less 
than 
The amount of tax to be withheld shall be— 
10 
or 
more 
$114. 
$116. 
$118. 
$120. 
$124. 
$128. 
$132. 
$136. 
$140. 
$144. 
$148. 
$152. 
$156. 
$160. 
$164. 
$168. 
$172. 
$176. 
$180. 
$184. 
$188. 
$192. 
$196 
$200 
$210 
$220 
$230 
$240 
$250 
$260 
$270 
$290-
$300. 
$320. 
$340. 
$360-
$380-
$400. 
$420. 
$440. 
$460-
$480. 
$116-
$118-
$120. 
$124-
$128-
$132. 
$136. 
$140. 
$144. 
$148-
$152-
$156. 
$160-
$164-
$168-
$172-
$176-
$180-
$184-
$188-
$192. 
$196-
$200. 
$210-
$220-
$230. 
$240. 
$250. 
$260. 
$270-
$290-
$300-
$320-
$340. 
$360-
$3^-
$400. 
$42p. 
$440-
$460. 
$480-
$600. 
$20. 70 
21.10 
21.40 
22.00 
22.70 
23.40 
24.10 
24.80 
25.60 
26.30 
27.00 
27.70 
28.40 
29.20 
29.90 
30.60 
31.30 
32.00 
32.80 
33.50 
34.20 
34.90 
35.60 
36.90 
38.70 
40.60 
42.30 
44.10 
46.90 
47.70 
49.50 
61.30 
i53.10 
55.80 
69.40 
63.00 
166.60 
70.20 
73.80 
77.40 
81.00 
84.60 
88.20 
$15. 70 
16.10 
16.40 
17.00 
17.70 
18.40 
19.10 
19.80 
20.60 
21.30 
22.00 
22.70 
23.40 
24.20 
24.90 
25.60 
26.30 
27.00 
27.80 
28.60 
29.20 
29.90 
30.60 
31.90 
33.70 
35.60 
37.30 
39.10 
40.90 
42.70 
44.60 
46.30 
48.10 
50.80 
H 4 0 
58.00 
61.60 
66.20 
68.80 
72.40 
76.00 
79.60 
83.20 
$10. 70 
11.10 
11.40 
12.00 
12.70 
13.40 
14.10 
14.80 
15.60 
16.30 
17.00 
17.70 
18.40 
19.20 
19.90 
20.60 
21.30 
22.00 
22.80 
23.50 
24.20 
24.90 
25.60 
26.90 
28.70 
30.50 
32.30 
34.10 
36.90 
37.70 
39.50 
41.30 
43.10 
45. 80 
49.40 
63.00 
66.60 
60.20 
63.80 
67.40 
n.oo 
74.60 
78.20 
$5.70 
6.10 
6.40 
7.00 
7.70 
8.40 
9.10 
9.80 
10.60 
11.30 
12.00 
12.70 
13.40 
14.20 
14.90 
15.60 
16.30 
17.00 
17.80 
18.50 
19.20 
19.90 
20.60 
21.90 
23.70 
25.50 
27.30 
29.10 
30.90 
32.70 
34.50 
36.30 
38.10 
40. 80 
44.40 
48.00 
'51.60 
55.20 
68.80 
62.40 
66.00 
69.60 
73.20 
$.70 
1.10 
1.40 
2.00 
2. 70 
3.40 
4.10 
4.80 
5.60 
6.30 
7.00 
7.70 
8.40 
9.20 
9.90 
10.60 
11.30 
12.00 
12.80 
13.60 
14.20 
14.90 
16.60 
16.90 
18.70 
20.50 
22.30 
24.10 
25.90 
27.70 
29.60 
31.30 
33.10 
36.80 
89.40 
43.00 
'46.60 
60.20 
63.80 
57.40 
61.00 
64.60 
68.20 
$0 
0 
0 
0 
0 
0 
0 
0 
.60 
1.30 
2.00 
2.70 
3.40 
4.20 
4.90 
6.60 
6.30 
7.00 
7.80 
8.60 
9.20 
9.90 
10.60 
11.90 
13.70 
^6.50 
17.30 
19.10 
20.90 
22.70 
24.60 
26.30 
28.10 
30.80 
34.40 
38.00 
41; 60 
45.20 
48.80 
52.40 
56.00 
69.60 
63.20 
$0 
'0 
0 
0 
0 
0 
0 
,0 
0 
0 
0 
0 
0 
0 
0 
.60 
1.30 
2.00 
2.80 
3. 50 
4.20 
4.90 
5.60 
6.90 
8.70 
10.50 
12.30 
14.10 
16.90 
17.70 
19.50 
21.30 
23.10 
25.80 
29.40 
,33.00 
36.60 
40.20 
43.80 
47.40 
51.00 
54.60 
58.20 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.60 
1.90 
3.70 
, 6.60 
7.30 
9.10 
10.90 
12.70 
14.50 
16.30 
18.10 
20.80 
24.40 
28.00 
31.60 
35.20 
38.80 
42.40 
46.00 
49.60 
63.20 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.60 
2.30 
4.10 
5.90 
7.70 
9.50 
11.30 
13.10 
15.80 
19.40 
23.00 
26.60 
30.20 
33.80 
37.40 
41.00 
44.60 
48.20 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 •' 
0; 
0 ! 
0 '• 
.90 
2.70 
4.60 
6.30 
8.10 
10.80 
14.40 
18.00 
21.60 
26.20 
28.80 
32.40 
36.00 
39.60 
43.20 
$600 and over...... 
18 percent of the excess oyer $600 plus— 
0 
0 
0 
0 
0 
0 
-
0 
0 
0 
, 
0 
:: 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0. 
0 
. 
0: 
0 
0 
0 
. 
1.30. 
3.10 
5.80.. 
9.40. 
13.00, 
16.60 
20.20 
23.80 
27.40 
31.00 
34.60: 
38.20 
00 85.00 
80.00 
75.00 
70.00 66^00 60.00 
56.00 
60.00 
45.00 
40.00 
3402(c)(1) 
CH. 2 4—COLLECTION AT SOURCE ON WAGES 
If the payroll period with respect to an employee is monthly— 
463 
And the wages are— 
And the number of withholding exemptions claimed is-
At least 
But less 
than 
1 
2 
3 
4 
5 
6 
7 
8 
9 
The amount of tax to be withheld shall be-
10 or 
more 
$56 
-
$60- 
-
$64 
$68-
$72 
$76- 
-
$80 
-
$84 
$88 
$92— 
$96. 
-
$100 
$104 
$108. 
$112. 
$116 
$120 
$124 
$128 
$132....... 
$136 
$140 
$144 
$148 
$152--
$156 
$ 1 6 0 . . . . . . 
$164 
$168 
$172 
$176 
$180 
$184 
$188 
$192. 
$196 
$200 
$204 
$208 
$212. 
$ 2 1 6 . . . — . 
$220 
$224 
$228 
$232 
$236 
$240 
$248 
$56. 
$60. 
$64 
$68 
$72 
$76 
$80 
$84 
$88 
$92 
$96 
. 
$100 
$104 
$108 
$112 
$116 
$120 
$124 
$128 
$132 
$136 
$140 
$144 
$148 
$152 
$156 
$160 
$164 
$168 
$172 
$176 
$180 
$184 
$188 
$192 
$196..-.. 
$200 
$204..-.. 
$208 
$212 
$216 
$220 
$224 
$228 
$232 
$236 
$240 
$248 
$256 
1 8 % of 
wag B
R 
!10.40 
11.20 
11.90 
12.60 
13.30 
14.00 
14.80 
15.50 
16.20 
16.90 
17.60 
18.40 
19.10 
19.80 
20.50 
21.20 
22.00 
22.70 
23.40 
24.10 
24.80 
25.60 
26.30 
27.00 
27.70 
28.40 
29.20 
29.90 
30.60 
31.30 
32.00 
32. 80 
33.50 
34.20 
34.90 
35.60 
36.40 
37.10 
37.80 
38.50 
39.20 
40.00 
40.70 
41.40 
42.10 
42.80 
43.90 
45.40 
$0 
.40 
1.20 
1.90 
2.60 
3.30 
4.00 
4.80 
5.50 
6.20 
6.90 
7.60 
8.40 
9.10 
9.80 
10.50 
11.20 
12.00 
12.70 
13.40 
14.10 
14.80 
15.60 
16.30 
17.00 
17.70 
18.40 
19.20 
19.90 
20.60 
21. 30 
22.00 
22.80 
23.50 
24.20 
24.90 
25.60 
26.40 
27.10 
27.80 
28.50 
29.20 
30.00 
30.70 
31.40 
32.10 
32.80 
33.90 
35.40 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.50 
1.20 
2.00 
2.70 
3.40 
4.10 
4.80 
5.60 
6.30 
7.00 
7.70 
8.40 
9.20 
9.90 
10.60 
11. 30 
12.00 
12.80 
13.50 
14.20 
14.90 
15.60 
16.40 
17.10 
17.80 
18.60 
19.20 
20.00 
20.70 
21.40 
22.10 
22.80 
23.90 
25.40 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.60 
1.30 
2.00 
2.80 
3.50 
4.20 
4.90 
5.60 
6.40 
7. W 
7.80 
8.60 
9.20 
10.00 
10.70 
11.40 
12.10 
12.80 
13.90 
15.40 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.70 
1.40 
2.10 
2.80 
3.90 
5.40 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
. 0 
0 
0 
0 
0 
0 
0 
0 
0 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
, 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
$0 
0 
0 
0 
0 
0 
. 0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
§ 3402(c) (1.) 
464 
INTERNAL REVENUE CODE OF 1954 
If the payroll period with respect to an employee is monthly—Continued 
And the wages are— 
And the number of withholding exemptions claimed i 
At least 
But less 
than 
The amount of tax to be withheld shall be— 
10 or 
more 
$266 
$264 
$272 
$280. 
$288 
$296 
$304 
$312-
$320 
$328 
$336 
$344 
$362 
$360 
$368-
$376 
$384 
$392 
$400 
$420-
$440-
$460 
$480 
$600 
-
$620 
$540 
$660 
$680 
$600 
-
$640 
$680 
$720 
$760 
$800 
$840 
-
$880 
$920 
$960 
$264.. 
$272-
$280.. 
$288-
$296-
$304.. 
$312.. 
$320-
$328.. 
$336-
$344.. 
$362.. 
$360-. 
$368.. 
$376.. 
$384.. 
$392.. 
$400.. 
$420-. 
$440-
$460-
$480.. 
$600.. 
$620.. 
$640-. 
$660.. 
$680.-
$600-. 
$640.. 
$680-. 
$720-. 
$760.-
$800-. 
$840.. 
$880.. 
$920.. 
$960.. 
$1,000 
$46.80 
48.20 
49.70 
61.10 
62.60 
64.00 
65.40 
66.90 
68.30 
69.80 
61.20 
62.60 
64.10 
66.60 
67.00 
68.40 
69.80 
71.30 
73.80 
77.40 
81.00 
84.60 
88.20 
91.80 
95.40 
99.00 
102.60 
M)6.20 
111.60 
118.80 
126.00 
133.20 
140. 40 
147.60 
154.80 
162.00 
169.20 
176.40 
$36.80 
38.20 
39.70 
41.10 
42.60 
44.00 
46.40 
46.90 
48.30 
49.80 
61.20 
52.60 
64.10 
65.60 
67.00 
68.40 
69.80 
61.30 
63.80 
67.40 
71.00 
74.60 
78.20 
81.80 
86.40 
89.00 
92.60 
96.20 
101.60 
108.80 
116.00 
123.20 
130.40 
137.60 
144. 80 
162.00 
169.20 
166.40 
$26.80 
28.20 
29.70 
31.10 
32.60 
34.00 
36.40 
36.90 
38.30 
39.80 
41.20 
42.60 
44.10 
45.50 
47.00 
48.40 
49.80 
61.30 
63.80 
67.40 
61.00 
64.60 
68.20 
71.80 
75.40 
79.00 
82.60 
86.20 
91.60 
98.80 
106.00 
113.20 
120.40 
127.60 
134.80 
142.00 
149.20 
166.40 
$16.80 
18.20 
19.70 
21.10 
22.60 
24.00 
25.40 
26.90 
28.30 
29.80 
31.20 
32.60 
34.10 
36.50 
37.00 
38.40 
39.80 
41.30 
43.80 
47.40 
51.00 
54.60 
68.20 
61.80 
66.40 
69.00 
72.60 
76.20 
81.60 
88.80 
96.00 
103.20 
110.40 
117.60 
124.80 
132.00 
139.20 
146.40 
$6.80 
8.20 
9.70 
11.10 
12.60 
14.00 
16.40 
16.90 
18.30 
19.80 
21.20 
22.60 
24.10 
26.60 
27.00 
28.40 
29.80 
31.30 
33.80 
37.40 
41.00 
44.60 
48.20 
51.80 
56.40 
69.00 
62.60 
66.20 
71.60 
78.80 
86.00 
93.20 
100.40 
107.60 
114. 80 
122.00 
129.20 
136.40 
$0 
0 
0 
1.10 
2.60 
4.00 
6.40 
6.90 
8.30 
9.80 
11.20 
12.60 
14.10 
15.50 
17.00 
18.40 
19.80 
21.30 
23.80 
27.40 
31.00 
34.60 
38.20 
41.80 
45.40 
49.00 
52.60 
56.20 
61.60 
68.80 
76.00 
83.20 
90.40 
97.60 
104.80 
112.00 
119.20 
126. 40 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
1.20 
2.60 
4.10 
5.50 
7.00 
8.40 
9.80 
11.30 
13.80 
17.40 
21.00 
24.60 
28.20 
31.80 
35.40 
39.00 
42.60 
46.20 
51.60 
68.80 
66.00 
73.20 
80.40 
87.60 
94.80 
102.00 
109.20 
116.40 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
1.30 
3.80 
7.40 
11.00 
14.60 
18.20 
21.80 
25.40 
29.00 
32.60 
36.20 
41.60 
48.80 
66.00 
63.20 
70.40 
77.60 
84.80 
92.00 
99.20 
106.40 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
1.00 
4.60 
8.20 
11.80 
16.40 
19.00 
22.60 
26.20 
31.60 
38.80 
46.00 
53.20 
60.40 
67.60 
74.80 
82.00 
89.20 
96.40 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
1.80 
6.40 
9.00 
12.60 
16.20 
21.60 
28.80 
36.00 
43.20 
50.40 
67.60 
64.80 
72.00 
79.20 
86.40 
18 percent of the excess over $1,000 plus— 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
2.60 
6.20 
11.60 
18.80 
26.00 
33.20 
40.40 
47.60 
54.80 
62.00 
69.20 
76.40 
$1,000 and over. 
180.00 170.00 160.00 160.00 140.00 130.00 120.00 110.00 100.00 
90.00 
80.00 
§ 3402(c)(1) 
CH. 2 4—COLLECTION AT SOURCE ON WAGES 
465 
If the payroll period with respect to an employee is a daily payroll period or a 
miscellaneous payroll period— 
And the wages 
divided by the num-
ber of days in such 
period are— 
And the number of withholding exemptions claimed is— 
1
2
3
4
5
6
7
8
9 
10 or 
more 
At least— 
But less 
than— 
T h e amount of tax to be withheld shall be the following amount multiplied by 
the number of days in such period— 
$0.... 
$2.00. 
$2.25 
$2.50-
$2.75 
$3.00 
$3.25 
$ 3 . 5 0 — • -
$3.75 
$4.00 
$4.25 
$4.50 
$4.75 
$5.00 
$.5.25 
-
$5.50. 
$5.75. 
$6.00 
$6.25 
$6.50. 
$6.75 
$7.00 
$ 7 . 2 5 — . -
$7.50 
$7.75 
$8.00 
$8.25 
$8.60 
$8.75 
$9.00 
$9.25— — 
$9.50 
$9.75 
$10.00 
$10.50 
$11.00..-.. 
$11.50 
$12.00 
$12.50 
$13.00-..,. 
$13.50 
$14.00..... 
$14.50 
$ 1 5 . 0 0 — 
$15.50 
$16.00 
$16.50 
$17.00 
$17.50 
$18.00 
$18.50 
$19.00 
$19.50 
$20.00 
$21.00 
$22.00 
$23.00 
$24.00 
$25.00 
$26.00 
$27.00 
$28.00 
$29.00 
$2.00.. 
$2.25.. 
$2.50.. 
$2.75.. 
$3.00.. 
$3.25.. 
$3.50.. 
$3.75.. 
$4.00.. 
$4.25.. 
$4.50.. 
$4.75.. 
$5.00.. 
$5.25.. 
$5.50.. 
$5.75.. 
$6.00.. 
$6.25.. 
$6.50.. 
$6.75.. 
$7.00.. 
$7.25.. 
$7.50.. 
$7.75.. 
$8.00.. 
$8.25.. 
$8.50.. 
$8.75.. 
$9.00.. 
$9.25.. 
$9.50-. 
$9.75.. 
$10.00. 
$10.50. 
$11.00. 
$11.50. 
$12.00. 
$12.50. 
$13.00-
$13.50. 
$14.00. 
$14.50. 
$15.00. 
$15.50. 
$16.00-
$16.50. 
$17.00. 
$17.50. 
$18.00. 
$18.50. 
$19.00. 
$19.50. 
$20.00. 
$21.00. 
$22.00. 
$23.00. 
$24.00. 
$25.00. 
$26.00. 
$27.00. 
$28.00. 
$29.00. 
$30.00. 
18 % 
of wages 
$0.40 
.45 
.45 
.50 
.55 
.60 
.65 
.70 
.75 
.80 
.85 
.90 
.90 
.95 
1.00 
1.05 
1.10 
1.15 
1.20 
1.25 
1.30 
1.35 
1.35 
1.40 
1.45 
1.50 
1.55 
1.60 
. 1.65 
1.70 
1.75 
1.80 
1.85 
1.95 
2.06 
2.10 
2.20 
2.30 
2.40 
2.50 
2.55 
2.65 
2.75 
2.85 
2.95 
3.00 
3.10 
3.20 
3.30 
3.40 
3.45 
3.55 
3.70 
3.85 
4.05 
4.25 
4.40 
4.60 
4.75 
4.95 
5.15 
5.30 
$0 
.05 
.10 
.15 
.20 
.25 
.30 
.30 
.35 
.40 
.45 
.50 
.55 
.60 
.65 
.70 
.75 
.75 
.80 
.85 
.90 
.95 
1.00 
1.05 
1.10 
1.15 
1.20 
1.20 
1.25 
1.30 
1.35 
1.40 
1.45 
1.50 
1.60 
1.70 
1.80 
1.90 
1.95 
2.05 
2.15 
2.25 
2.35 
2.40 
2.50 
2.60 
2.70 
2.80 
2.85 
2.95 
3.05 
3.15 
3.25 
3.35 
3.55 
3.70 
3.90 
4.10 
4.25 
4.45 
4.60 
4.80 
5.00 
$0 
0 
0 
0 
0 
0 
0 
0 
.05 
.10 
.15 
.15 
.20 
.25 
.30 
.35 
.40 
.45 
.50 
.55 
.60 
.60 
.65 
.70 
.75 
.80 
.85 
.90 
.95 
1.00 
1.05 
1.05 
1.10 
1.20 
1.30 
1.35 
1.45 
1.55 
1.65 
1.75 
1.80 
1.90 
2.00 
2.10 
2.20 
2.25 
2.35 
2.45 
2.55 
2.65 
2.70 
2.80 
2.90 
3.05 
3.20 
3.40 
3.56 
3.76 
3.96 
4.10 
4.30 
4.45 
4.65 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.05 
.05 
.10 
.15 
.20 
.25 
.30 
.35 
.40 
.45 
.50 
.50 
.65 
.60 
.65 
.70 
.75 
,80 
.85 
.95 
1.05 
1.15 
1.20 
1.30 
1.40 
1.50 
1.60 
1.65 
1.75 
1.85 
1.95 
2.05 
2.10 
2.20 
2.30 
2.40 
2.50 
2.55 
2.70 
2.90 
3.05 
3.25 
3.40 
3.60 
3.80 
3.95 
4.15 
4.30 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.05 
.10 
.15 
.20 
.25 
.30 
.35 
.35 
.40 
.45 
.55 
.60 
.70 
.80 
.90 
1.00 
1.05 
1.15 
1.25 
1.35 
1.45 
1.50 
1.60 
1.70 
1.80 
1.90 
1.95 
2.05 
2.15 
2.25 
2.35 
2.55 
2.75 
2.90 
3.10 
3.25 
3.45 
3.65 
3.80 
4.00 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.05 
.10 
.16 
.20 
.30 
.40 
.45 
.56 
.65 
.75 
.85 
.90 
1.00 
1.10 
1.20 
1.30 
1.35 
1.45 
1.55 
1.65 
1.75 
1.80 
1.90 
2.05 
2.25 
2.40 
2.60 
2.75 
2.95 
3.15 
3.30 
3.50 
3.65 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.05 
.15 
.25 
.30 
.40 
.50 
.60 
.70 
.75 
.85 
.95 
1.05 
1.15 
1.20 
1.30 
1.40 
1.50 
1.60 
1.70 
1.90 
2.10 
2.25 
2.45 
2.60 
2.80 
3.00 
3.15 
3.35 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.10 
.15 
.25 
.35 
.45 
.55 
.60 
.70 
.80 
.90 
1.00 
1.05 
1.15 
1.25 
1.40 
1.55 
1.75 
1.95 
2.10 
2.30 
2.45 
2.65 
2.85 
3.00 
$0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.10 
.20 
.30 
.40 
.45 
.55 
.65 
.75 
.85 
.90 
1.05 
1.25 
1.40 
1.60 
1.80 
1.95 
2.15 
2.30 
2.50 
2.70 
$0 
0. 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.05 
.15 
.25 
.35 
.40 
.50 
.60 
.75 
.90 
1.10 
1.25 
1.45 
1.65 
1.80 
2.00 
2.15 
2.36 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
.10 
.20 
.25 
.40 
.60 
.75 
.95 
1.10 
1.30 
1.50 
1.65 
1.85 
2.00 
18 percent of the excess over $30 plus— 
$30.00 and over. 
5.40 
5.05 
4.76 
4.40 
4.10 
3.75 
3.45 
3.10 
2.75 
2.45 
2.10 
§3402.(c)(l) 
466 
INTERNAL REVENUE CODE OF 1964 
(2) If wages are paid with respect to a period which is not a 
payroll period, the amount to be deducted and withheld shall be 
that applicable in the case of a miscellaneous payroll period con-
taining a number of days (including Sundays and holidays) equal 
to the number of days in the period with respect to which such 
wages are paid. 
(3) In any case in which wages are paid by an employer without 
regard to any payroll period or other period, the amount to be 
deducted and withheld shall be that applicable in the case of a 
miscellaneous payroll period containing a number of days equal to 
the number of days (including Sundays and holidays) which have 
elapsed since the date of the last payment of such wages by such 
employer during the calendar year, or the date of commencement 
of employment with such employer during such year, or January 1 
of such year, whichever is the later. 
(4) In any case in which the period, or the time described in 
paragraph (3), in respect of any wages is less than one week, the 
Secretary or his delegate, under regulations prescribed by him, 
may authorize an employer to determine the amount to be deducted 
and withheld under the tables applicable in the case of a weekly 
payroll period, in which case the aggregate of the wages paid to the 
employee during the calendar week shall be considered the weekly 
wages. 
(5) If the wages exceed the highest wage bracket, in determining 
the amount to be deducted and withheld under this subsection, the 
wages may, at the election of the employer, be computed to the 
nearest dollar. 
(d) TAX PAID BY KECIPIENT.—If the employer, in violation of 
the provisions of this chapter, fails to deduct and withhold the tax 
under this chapter, and thereafter the tax against which such tax 
may be credited is paid, the tax so required to be deducted and 
withheld shall not be collected from the employer; but this subsection 
shall in no case relieve the employer from Hability for any penalties 
or additions to the tax otherwise appHcable in respect of such failure 
to deduct and withhold. 
(e) INCLUDED AND EXCLUDED WAGES.— If the remuneration, paid 
by an employer to an employee for services performed during one-half 
or more of any payroU period of not more than 31 consecutive days 
constitutes wages, aU the remuneration paid by such employer to 
such employee for such period shall be deemed to be wages j but if the 
remuneration paid by an employer to an employee for services per-
formed during more than one-half of any such payroll period does not 
constitute wages, then none of the remuneration paid by such employer 
to such employee for such period shall be deemed to be wages. 
(f) WITHHOLDING EXEMPTIONS.— 
(1) IN GENEKAL.—An employee receiving wages shall on any 
day be entitled to the following withholding exemptions: 
(A) an exemption for himself; 
(B) one additional exemption for himself if, on the basis of 
facts existing at the beginning of such day, there may reasonably 
be expected to be allowable an exemption under section 151 (c) (1) 
(relating to old age) for the taxable year imder subtitle A in 
respect of which amounts deducted and withheld under this 
§ 3402(c)(2) 
CH. 2 
4—COLLECTION AT 
SOURCE ON WAGES 
467 
chapter in the calendar year in which such day falls are allowed 
as a credit; 
(C) one additional exemption for himself if, on the basis of 
facts existing at the beginning of such day, there may reasonably 
be expected to be allowable an exemption under section 151 
(d) (1) (relating to the blind) for the taxable year under sub-
title A in respect of which amounts deducted and withheld 
under this chapter in the calendar year in which such day falls 
are allowed as a credit; 
(D) if the employee is married, any exemption to which his 
spouse is entitled, or would be entitled if such spouse were an 
employee receiving wages, under subparagraph (A), (B), or (C), 
but only if such spouse does not have in effect a withholding 
exemption certificate claiming such exemption; and 
(E) an exemption for each individual with respect to whom, 
on the basis of facts existing at the beginning of such day, there 
may reasonably be expected to be allowable an exemption under 
section 151 (e) for the taxable year under subtitle A in respect 
of which amounts deducted and withheld under this chapter in. 
the calendar year in which such day falls are allowed as a credit. 
(2) EXEMPTION CERTIFICATES.— 
(A) O N COMMENCEMENT OF EMPLOYMENT,—OD. OT bcforC t h e 
date of the commencement of employment with an employer, 
the employee shall furnish the employer with a signed withholding 
exemption certificate relating to the number of withholding 
exemptions which he claims, which shall in no event exceed the 
number to which he is entitled. 
(B) CHANGE 
OF STATUS.—If, on any day during the cal-
endar year, the number of withholding exemptions to which the 
employee is entitled is less than the number of withholding 
exemptions claimed by the employee on the withholding exemp-
tion certificate then in effect with respect to him, the employee 
shall within 10 days thereafter furnish the employer with a new 
withholding exemption certificate relating to the number of with-
holding exemptions which the employee then claims, which shall 
in no event exceed the number to which he is entitled on such 
day. If, on any day during the calendar year, the number of 
withholding exemptions to which the employee is entitled ig 
greater than the number of withholding exemptions claimed, the 
employee may furnish the employer with a new withholding 
exemption certificate relating to the number of withholding 
exemptions which the employee then claims, which shall in no 
event exceed the number to which he is entitled on such day. 
(C) 
CHANGE 
OF STATUS 
WHICH 
AFFECTS 
NEXT 
CALENDAR 
YEAR.—If on any day during the calendar year the number of 
withholding exemptions to which the employee will be, or may 
reasonably be expected to be, entitled at the beginning of his 
next taxable year under subtitle A is different from the number to 
which the employee is entitled on such day, the employee shall, 
in such cases and at such times as the Secretary or his delegate 
may by regulations prescribe, furnish the employer with a with-
holding exemption certificate relating to the number of withhold-
ing exemptions which he claims with respect to such next taxable 
§3402 (f)(2)(C) 
468 
INTERNAL REVENUE CODE OF 1954 
year, which shall in no event exceed the number to which he will 
be, or may reasonably be expected to be, so entitled. 
(3) W H E N CERTIFICATE TAKES EFFECT.— 
(A) FIRST CERTIFICATE FURNISHED.—A withholding exemption 
certificate furnished the employer in cases in which no previous 
such certificate is in effect shall take effect as of the beginning of 
the first payroll period ending, or the first payment of wages made 
. : 
without regard to a payroll period, on or after the date on which 
such certificate is so furnished. 
(B) FURNISHED TO TAKE PLACE OP EXISTING CERTIFICATE.—A 
withholding exemption certificate furnished the employer in cases 
in which a previous such certificate is in effect shall take effect 
with respect to the first payment of wages made on or after the 
first status determination date which occurs at least 30 days from 
the date on which such certificate is so furnished, except that at 
:,; the election of the employer such certificate may be made effec-
!jj tive with respect to any payment of wages made on or after the 
.(date on which such certificate is so furnished; but a certificate 
furnished pursuant to para^aph (2) (C) shall not take effect, 
and may not be made effective, with respect to any payment of 
wages made in the calendar year in which the certificate is 
furnished. 
For purposes of this subparagraph the term "status 
determination date" means January 1 and July 1 of each year. 
(4) PERIOD DURING WHICH CERTIFICATE REMAINS IN EFFECT.—• 
A withholding exemption certificate which takes effect under this 
subsection, or which on December 31, 1954, was in effect under 
the corresponding subsection of prior law, shall continue in effect 
with respect to the employer until another such certificate takes 
effect under this subsection. 
(5) FORM AND CONTENTS OF CERTIFICATE.—Withholding exemp-
tion certificates shall be in such form and contain such information 
as the Secretary or his delegate may by regulations prescribe. 
(g) OVERLAPPING PAY PERIODS, 
AND PAYMENT BY AGENT OR 
FIDUCIARY.—If a payment of wages is made to an employee by an 
employer— 
(1) with respect to a payroll period or other period, any part 
of which is included in a payroll period or other period with respect 
to which wages are also paid to such employee by such employer, or 
(2) without regard to any payroll period or other period, but 
on or prior to the expiration of a payroll period or other period 
with respect to which wages are also paid to such employee by such 
employer, or 
(3) with respect to a period beginning in one and ending in 
another calendar year, or 
(4) through an agent, fiduciary, or other person who also has 
the control, receipt, custody, or disposal of, or pays, the wages 
payable by another employer to such employee, 
the manner of withholding and the amount to be deducted and with-
held under this chapter shall be determined in accordance with 
regulations prescribed by the Secretary or his delegate under which 
the withholding exemption allowed to the employee in any calendar 
year shall approximate the withholding exemption allowable with 
respect to an annual payroll period. 
§3402 (f)(2)(C) 
CH. 24^COLLECTION AT SOURCE ON WAGES 
469 
(h) WITHHOLDING ON BASIS OF AVERAGE WAGES.—The Secretary 
or his delegate may, under regulations prescribed by him, authorize 
employers— 
(1) to estimate the wages which will be paid to any employee 
in any quarter of the calendar year, 
(2) to determine the amount to be deducted and withheld upon 
each payment of wages to such employee during such quarter as 
if the appropriate average of the wages so estimated constituted the 
actual wages paid, and 
(3) to deduct and withhold upon any payment of wages to such 
employee during such quarter such amount as may be necessary to 
adjust the amount actually deducted and withheld upon the wages 
of such employee during such quarter to the amount required to 
be deducted and withheld during such quarter without regard to 
this subsection. 
(i) ADDITIONAL WITHHOLDING.—The Secretary or his delegate is 
authorized by regulations to provide, under such conditions and to 
such extent as he deems proper, for withholding in addition to that 
otherwise required under this section in cases in which the employer 
and the employee agree (in such form as the Secretary or his delegate 
may by regulations prescribe) to such additional withholding. 
Such 
additional withholding shall for all purposes be considered tax required 
to be deducted and withheld under this chapter. 
SEC. 3403. LIABILITY FOR TAX. 
The employer shall be liable for the payment of the tax required 
to be deducted and withheld under this chapter, and shall not be 
liable to any person for the amount of any such payment. 
SEC. 3404. RETURN AND PAYMENT BY GOVERNMENTAL EMPLOYER. 
If the employer is the United States, or a State, Territory, or 
political subdivision thereof, or the District of Columbia, or any 
agency or instrumentality of any one or more of the foregoing, the 
return of the amount deducted and withheld upon any wages may be 
made by any officer or employee of the United States, or of such 
State, Territory, or pohtical subdivision, or of the District of Colum-
bia, or of such agency or instrumentality, as the case may be, having 
control of the payment of such wages, or appropriately designated for 
that purpose. 
§ 3404 
--•';-::'-,MJ 
ill 
{.iiuiu'r 
' i 
' • ' * • ( ' 
CH. 2 5—GENERAL EMPLOYMENT TAX PROVISIONS 
471 
CHAPTER 25—GENERAL PROVISIONS RELATING TO 
EMPLOYMENT TAXES 
Sec. 3501. Collection and payment of taxes. 
Sec. 3502. Nondeductibility of taxes in computing taxable income. 
Sec. 3503. Erroneous payments. 
Sec. 3504. Acts to be performed by agents. 
SEC. 3501. COLLECTION AND PAYMENT OF TAXES. 
The taxes imposed by this subtitle shall be collected by the Secretary 
or his delegate and shall be paid into the Treasury of the United States 
as internal-revenue collections. 
SEC. 3502. NONDEDUCTIBILITY OF TAXES IN COMPUTING TAXABLE 
INCOME. 
(a) The taxes imposed by section 3101 of chapter 21, and by 
sections 3201 and 3211 of chapter 22 shall not be allowed as a deduction 
to the taxpayer in computing taxable income under subtitle A. 
(b) The tax deducted and withheld under chapter 24 shall not be 
allowed as a deduction either to the emplpyer or to the recipient of 
the income in computing taxable income under subtitle A. 
SEC. 3503. ERRONEOUS PAYMENTS. 
Any tax paid under chapter 21 or 22 by a taxpayer with respect to 
any period with respect to which he is not liable to tax under such 
chapter shall be credited against the tax, if any, imposed by such 
other chapter upon the taxpayer, and the ballance, if any, shall be 
refunded. 
SEC. 3504. ACTS TO BE PERFORMED BY AGENTS. 
In case a fiduciary, agent, or other person has the control, receipt, 
custody, or disposal of, or pays the wages of an employee or group of 
employeses, employed by one or more employers, the Secretary or his 
delegate, under regulations prescribed by him, is authorized to desig-
nate such fiduciary, agent, or other person to perform such acts as 
are required of employers under this subtitle and as the Secretary or 
his delegate may specify. 
Except as may be otherwise prescribed by 
the Secretary or his delegate, all provisions of law (including penalties) 
applicable in respect of an employer shall be applicable to a fiduciary, 
agent, or other person so designated but, except as so provided, the 
employer for whom such fiduciary, agent, or other person acts shall 
remain subject to the provisions of law (including penalties) applicable 
in respect of employers. 
§ 3504 
vcas.;)—-? 
;o 
?.jhlH(i' 
.r'Pj 
/OMliil-
CH. 31 
RETAILERS EXCISE TAXES 
473 
Subtitle D—Miscellaneous Excise Taxes 
CHAPTER 31. Retailers excise taxes. 
CHAPTER 32. Manufacturers' excise taxes. 
CHAPTER 33. Facilities and services. 
CHAPTER 34. Documentary stamp taxes. 
CHAPTER 35. Taxes on wagering. 
CHAPTER 36. Certain other excise taxes. 
J: , _ 
CHAPTER 37. Sugar, coconut and palm oil. 
CHAPTER 38. Import taxes. 
CHAPTER 39. Regulatory taxes. 
CHAPTER 40. General provisions relating to occupational taxes. 
CHAPTER 31—RETAILERS EXCISE TAXES 
SUBCHAPTER A. Jewelry and related items. 
SUBCHAPTER B. Furs. 
SUBCHAPTER C. Toilet preparations. 
SUBCHAPTER D . Luggage, handbags, etc. 
SUBCHAPTER E . Special fuels. 
SUBCHAPTER F . Special provisions applicable to retailers tax. 
Subchapter A—Jewelry and Related Items 
Sec. 4001. Imposition of tax. 
Sec. 4002. Definition of sale includes auctions. 
Sec. 4003. Exemptions. 
SEC. 4001. IMPOSITION OF TAX. 
There is hereby imposed upon the following articles sold at retail 
a tax equivalent to 10 percent of the price for which so sold: 
All articles commonly or commercially known as jewelry, 
whether real or imitation. 
Pearls, precious and semi-precious stones, and imitations 
thereof. 
Articles made of, or ornamented, mounted or fitted with 
precious metals or imitations thereof. 
Watches. 
Clocks. 
Cases and movements for watches and clocks. 
Gold, gold-plated, silver, or sterling flatware or hollow ware 
and silver-plated hollow ware. 
Opera glasses. 
Lorgnettes. 
Marine glasses. 
Field glasses. 
Binoculars. 
SEC. 4002. DEFINITION OF SALE INCLUDES AUCTIONS. 
For the purposes of section 4001, the term "articles sold at retail" 
includes an article sold at retail by an auctioneer or other agent in the 
course of his business on behalf of (1) a person who is not engaged in 
the business of selling like articles, or (2) the legal representative of 
§ 4002 
49012"—54— 
33 
474 
INTERNAL REVENUE CODE OF 1954 
the estate of a decedent who was not engaged in the business of selling 
like articles. In the case of articles so sold, the auctioneer or other 
agent shall be considered the "person who sells at retail." 
SEC. 4003. EXEMPTIONS. 
(a) SPECIFIC AETICLES.—The tax imposed by section 4001 shall not 
apply to any article used for religious purposes, to siu-gical instruments, 
to watches designed especially for use by the blind, to frames or mount-
ings for spectacles or eye-glasses, to a fountain pen, mechanical pencil, 
or smokers' pipe if the only parts of the pen, the pencil, or the pipe 
which consist of precious metals are essential parts not used for orna-
mental purposes, or to buttons, insignia, cap devices, chin straps, and 
other devices prescribed for use in connection with the uniforms of the 
armed forces of the United States. 
(b) CERTAIN AUCTION SALES.— 
(1) In the case of an auction sale held at the home of a person 
whose articles are being sold, any taxable article (as defined in para-
graph (2)) of such person sold by the auctioneer shall be exempt from 
the tax imposed by section 4001 except to the extent that the price 
for which such article is sold, when added to the sum of the sale 
prices of all other taxable articles of such person previously sold at 
the same auction, exceeds $100. 
(2) For the purposes of this subsection— 
(A) the term "taxable article" means an article which, by 
reason of section 4002 and without regard to the exemption pro-
vided in paragraph (1), is taxable under section 4001 when sold at 
auction; and 
(B) in the case of articles of a decedent sold on behalf of the 
legal representative of his estate, an auction sale held at the home 
of such decedent shall be considered as "held at the home of a 
person whose articles are being sold". 
4002 
CH. 31—RETAILERS EXCISE TAXES 
475 
Subchapter B—^Furs 
Sec. 4011. Imposition of tax. 
Sec. 4012. Definitions. 
Sec. 4013. Exemption of certain auction sales. 
SEC. 4011. IMPOSITION OF TAX. 
There is hereby imposed upon the following articles sold at re-
tail a tax equivalent to 10 percent of the price for which so sold: 
Articles made of fur on the hide or pelt, and articles of which such 
fur is the component material of chief value, but only if such value is 
more than three times the value of the next most valuable component 
material. 
SEC. 4012. DEFINITIONS. 
(a) MANUFACTURE FROM CUSTOMERS MATERIAL.—Where a person, 
who is engaged in the business of dressing or dyeing fur skins or of 
manufacturing, selling, or repairing fur articles, produces an article 
of the kind described in section 4011 from fur on the hide or pelt 
furnished, directly or indirectly, by a customer and the article is for 
the use of, and not for resale by, such customer, the transaction shall 
be deemed to be a sale at retail and the person producing the article 
shall be deemed to be the person selling such article at retail for the 
purposes of such section. The tax on such a transaction shall be com-
puted and paid by such person upon the fair retail market value, as 
determined by the Secretary or his delegate, of the finished article. 
(b) SALE INCLUDES AUCTIONS.—For the purposes of section 4011, 
the term "articles sold at retail" includes an article sold at retail by 
an auctioneer or other agent in the course of his business on behalf 
of— 
(1) a person who is not engaged in the business of selling like 
articles, or 
(2) the legal representative of the estate of a decedent who was 
not engaged in the business of selling like articles. 
In the case of 
articles so sold, the auctioneer or other agent shall be considered 
the "person who sells at retail." 
SEC. 4013. EXEMPTION OF CERTAIN AUCTION SALES. 
(a) In the case of an auction sale held at the home of a person 
whose articles are being sold, any taxable article (as defined in sub-
section (b)) of such person sold by the auctioneer shall be exempt from 
the tax imposed by section 4011 except to the extent that the price 
for which such article is sold, when added to the sum of the sale 
prices of all other taxable articles of such person previously sold at 
the same auction, exceeds $100. 
(b) For the purposes of this section— 
(1) the term "taxable article" means an article which, by reason 
of section 4012 (b) and without regard to the exemption provided in 
subsection (a), is taxable under section 4011 when sold at auction; 
and 
(2) in the case of articles of a decedent sold on behalf of the 
legal representative of his estate, an auction sale held at the home 
of such decedent shall be considered as "held at the home of a 
person whose articles are being sold". 
§ 4013(b)(2) 
476 
INTERNAL REVENUE CODE OF 1954 
Subchapter C—^Toilet Preparations 
Sec. 4021. Imposition of tax. 
Sec. 4022. Exemptions. 
. ?
* 
-,; 
. 
r"; 
-A.. 
, '^'?B 
SEC. 4021. IMPOSITION OF TAX. 
There is hereby imposed upon the following articles sold at retail a 
tax equivalent to 10 percent of the price for which so sold— 
Perfume. 
Pomades. 
Essences. 
Hair dressings. 
Extracts. 
Hair restoratives. 
Toilet waters. 
Hair dyes. 
Cosmetics. 
Aromatic cachous. 
Petroleum jellies. 
Toilet powders. 
Hair oils. 
Any other similar substance, article, or preparation, by what-
soever name known or distinguished; any of the above which 
are used or applied or intended to be used or applied for toilet 
purposes. 
SEC. 4022. EXEMPTIONS. 
(a) ITEMS FOR BABIES.—The tax imposed by section 4021 shall 
not apply to lotion, oil, powder, or other article intended to be used 
or applied only in the care of babies. 
(b) BARBER SHOPS AND BEAUTY PARLORS.—For the purposes of sec-
tion 4021, the sale of any article described in such section to any 
person operating a barber shop, beauty parlor, or similar establish-
ment for use in the operation thereof, or for resale, shall not be con-
sidered as a sale at retail. 
The resale of such article at retail by such 
person shall be subject to the provisions of section 4021. 
(c) MINIATURE SAMPLES.—For the purposes of section 4021, the 
sale of miniature samples of any article described in such section for 
demonstration use only to a house-to-house salesman by the manu-
facturer or distributor, shall not be considered as a sale at retail. 
The resale of such sample at retail by such house-to-house salesman 
shall be subject to the provisions of section 4021. 
r 
§4021 
CH. 31 
RETAILERS EXCISE TAXES 
477 
Subchapter D—Luggage, Handbags, Etc. 
Sec. 4031. Imposition of tax. 
SEC. 4031. IMPOSITION OF TAX. 
There is hereby imposed upon the following articles sold at retail 
(including in each case fittings or accessories therefor sold on or in 
connection with the sale thereof) a tax equivalent to 10 percent of the 
price for which so sold— 
Trunks. 
Valises. 
Traveling bags. 
Suitcases. 
Satchels. 
Overnight bags. 
Hat boxes for use by trav-
elers. 
Beach bags. 
Bathing suit bags. 
Brief cases made of leather 
or imitation leather. 
Salesmen's sample and dis-
play cases. 
Purses. 
Handbags. 
Pocketbooks. 
Wallets. 
Billfolds. 
Card, pass, and key cases. 
Toilet cases. 
Other cases, bags, and kits (without regard to size, shape, con-
struction, or material from which made) for use in carrying toilet 
articles or articles of wearing apparel. 
SHU "sol blev. Q1B BIBUI wJom tebsa^; 
§4031 
478 
INTERNAL REVENUE CODE OF 1954 
Subchapter E—Special Fuels 
"'^ 
Sec. 4041. Imposition of tax. 
. 
- 
• 
Sec. 4042. Cross reference. 
SEC. 4041. IMPOSITION OF TAX. 
(a) DIESEL FUEL.—There is hereby imposed a tax of 2 cents a 
gallon upon any liquid (other than any product taxable under section 
4081)— 
(1) sold by any person to an owner, lessee, or other operator of 
a diesel-powered highway vehicle, for use as a fuel in such vehicle; 
or 
(2) used by any person as a fuel in a diesel-powered highway 
vehicle unless there was a taxable sale of such liquid under para-
graph (1). 
(b) SPECIAL MOTOR FUELS.—^There is hereby imposed a tax of 2 
cents a gallon upon benzol, benzene, naphtha, liquefied petroleum 
gas, or any other liquid (other than kerosene, gas oil, or fuel oil, or 
any product taxable under section 4081 or subsection (a) of this 
section) — 
(1) sold by any person to an owner, lessee, or other operator of 
a motor vehicle, motorboat, or airplane for use as a fuel for the 
propulsion of such motor vehicle, motorboat, or airplane; or 
(2) used by any person as a fuel for the propulsion of a motor 
vehicle, motorboat, or airplane unless there was a taxable sale of 
such liquid under paragraph (1). 
(c) RATE REDUCTION.—On and after April 1, 1955, the taxes 
imposed by this section shall be 1)^ cents a gallon in lieu of 2 cents 
a gallon. 
SEC. 4042. CROSS REFERENCE. 
For exemption from tax where special motor fuels are sold for use 
for certain vessels, see section 4222. 
§4041 
CH. 31—RETAILERS EXCISE TAXES 
479 
Subchapter F—Special Provisions Applicable to Retailers 
Tax 
Sec. 4051. Definition of price. 
''•'t: 
Sec. 4052. Lease considered sale. 
Sec. 4053. Computation of tax on installment sales, etc. 
Sec. 4054. Application of taxes to sales by United States, etc. 
Sec. 4055. State and local government exemption. 
Sec. 4056. Exemption for exports. 
Sec. 4057. Cross reference. 
< 
SEC. 4051. DEFINITION OF PRICE. 
In determining, for the purposes of this chapter, the price for which 
an article is sold, there shall be included any charge for coverings and 
containers of whatever nature, and any charge incident to placing 
the article in condition packed ready for shipment, but there shall be 
excluded the amount of tax imposed by this chapter, whether or not 
stated as a separate charge. A transportation, delivery, insurance, 
installation, or other charge (not required by the foregoing sentence 
to be included) shall be excluded from the price only if the amount 
thereof is established to the satisfaction of the Secretary or his dele-
gate, in accordance with the regulations. There shall also be excluded, 
if stated as a separate charge, the amount of any retail sales tax 
imposed by any State or Territory or political subdivision of the fore-
going, or the District of Columbia, whether the liability for such tax 
is imposed on the vendor or the vendee. 
SEC. 4052. LEASE CONSIDERED SALE. 
For the purposes of this chapter, the lease of an article shall be 
considered the sale of such article. 
SEC. 4053. COMPUTATION OF TAX ON INSTALLMENT SALES, ETC. 
In the case of— 
(1) a lease, 
(2) a contract for the sale of an article wherein it is provided that 
the price shall be paid by installments and title to the article sold 
does not pass until a future date notwithstanding partial payment 
by installments, 
(3) a conditional sale, or 
(4) a chattel mortgage arrangement wherein it is provided that 
the sales price shall be paid in installments, 
there shall be paid upon each payment with respect to the article that 
portion of the total tax which is proportionate to the portion of the 
total amount to be paid represented by such payment. 
SEC. 4054. APPLICATION OF TAXES TO SALES BY UNITED STATES, 
ETC. 
The taxes imposed by this chapter shall apply with respect to 
articles sold at retail by the United States, or by any agency or 
instrumentality of the United States, unless sales by such agency or 
instrumentality are by statute specifically exempted from such taxes. 
§4054 
480 
INTERNAL REVENUE CODE OF 1954 
SEC. 4055. STATE AND LOCAL GOVERNMENT EXEMPTION. 
Under regulations prescribed by the Secretary or his delegate, no 
tax shall be imposed under this chapter with respect to the sale of any 
article for the exclusive use of any State, Territory of the United 
States, or any political subdivision of any of the foregoing, or the 
District of Columbia, or, in the case of the tax imposed by section 4041, 
with respect to the use by any of the foregoing of any liquid as a fuel. 
SEC. 4056. EXEMPTION FOR EXPORTS. 
Under regulations prescribed by the Secretary or his delegate, no 
tax shall be imposed under this chapter upon the sale of any article 
for export, or for shipment to a possession of the United States, and 
in due course so exported or shipped. 
SEC. 4057. CROSS REFERENCE. 
(1) For exemption on sales to the United States in certain cases see 
section 4293. 
(2) For administrative provisions of general application to the taxes 
imposed under this chapter, see subtitle F. 
M'iJlM 'Td 11/. IJ .MKi?:l I'O..'. 
feiA#.T 
••11? '/If-'' 
' 
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. t c i y r 
: id 
§4055 
CH. 
32—MANUFACTURERS EXCISE TAXES 
4 8 1 
CHAPTER 
32—MANUFACTURERS 
EXCISE 
TAXES 
SUBCHAPTER A. Automotive and related items. 
SUBCHAPTER B . Household type equipment, etc. 
SUBCHAPTER C . Entertainment equipment. 
SUBCHAPTER D . Recreational equipment. 
SUBCHAPTER E . Other items. 
SUBCHAPTER F . Special provisions applicable to manufacturers tax. 
Subchapter A—^Automotive and Related Items 
Part 
I. Motor vehicles. 
Part II. Tires and tubes. 
Part III. Petroleum products. 
PART I—MOTOR VEHICLES 
—,: 
Sec. 4061. Imposition of tax. 
^f>^ 
Sec. 4062. Definitions. 
Sec. 4063. Exemptions. 
SEC. 4061. IMPOSITION OF TAX. 
(a) AUTOMOBILES.—There is hereby imposed upon the following 
articles (including in each case parts or accessories therefor sold on 
or in connection therewith or with the sale thereof) sold by the 
manufacturer, producer, or importer a tax equivalent to the specified 
percent of the price for which so sold : 
(1) Articles taxable at 8 percent, except that on and after April 
1, 1955, the rate shall be 5 percent— 
Automobile truck chassis. 
Automobile truck bodies. 
"o^ 
Automobile bus chassis. 
' 
Automobile bus bodies. 
Truck and bus trailer and semitrailer chassis. 
^ r+ , 
Truck and bus trailer and semitrailer bodies. 
Tractors of the kind chiefly used for highway transportation 
: 
in combination with a trailer or semitrailer. 
A sale of an automobile truck, bus, truck or bus trailer or semi-
trailer shall, for the purposes of this paragraph, be considered to 
be a sale of the chassis and of the body. 
(2) Articles taxable at 10 percent except that on and after April 
1, 1955, the rate shall be 7 percent— 
Automobile chassis and bodies other than those taxable 
under paragraph (1). 
&shi 
Chassis and bodies for trailers and semitrailers (other than 
house trailers) suitable for use in connection with pas-
senger automobiles. 
Motorcycles. 
A sale of an automobile, trailer, or semitrailer shall, for the pur-
poses of this paragraph, be considered to be a sale of the chassis 
and of the body. 
^ 
§ 4061(a)(2) 
482 
INTERNAL REVENUE CODE OF 
1954 
• , 
(b) PARTS AND ACCESSORIES.—There is hereby imposed upon parts 
or accessories (other than tires and inner tubes and other than auto-
mobile radio and television receiving sets) for any of the articles 
enumerated in subsection (a) sold by the manufacturer, producer, or 
importer a tax equivalent to 8 percent of the price for which so sold, 
except that on and after April 1, 1955, the rate shall be 5 percent. 
SEC. 4062. DEFINITIONS. 
(a) CERTAIN ARTICLES CONSIDERED AS PARTS.—For the purposes 
of section 4061, spark plugs, storage batteries, leaf springs, coils, 
timers, and tire chains, which are suitable for use on or in connection 
with, or as component parts of, any of the articles enumerated in 
section 4061 (a), shall be considered parts or accessories for such 
articles, whether or not primarily adapted for such use. 
(b) SALE PRICE OP REBUILT PARTS.—In determining the sale price 
of a rebuilt automobile part or accessory there shall be excluded 
from the price, in accordance with regulations prescribed by the 
Secretary or his delegate, the value of a like part or accessory accepted 
in exchange. 
SEC. 4063, EXEMPTIONS. 
(a) SPECIFIC ARTICLES EXEMPT FROM TAX ON AUTOMOBILES.— 
The tax imposed under section 4061 (a) (2) shall not apply in the case 
of house trailers or tractors. 
(b) SALES TO MANUFACTURERS.—Under regulations prescribed by 
the Secretary or his delegate, the tax under section 4061 shall not apply 
in the case of sales of bodies or parts or accessories by the manufacturer, 
producer, or importer to a manufacturer or producer of automobile 
trucks or other automobiles to be sold by such vendee. 
For the 
purposes of section 4061, such vendee shall be considered the manu-
facturer or producer of such bodies, or parts or accessories. 
PART II—TIRES AND TUBES 
' 
Sec. 4071. Imposition of tax. 
Sec. 4072. Definition of rubber. 
Sec. 4073. Exemptions. 
. 
, ^ 
SEC. 4071. IMPOSITION OF TAX. 
There is hereby imposed upon the following articles sold by the 
manufacturer, producer, or importer a tax at the following rates: 
(1) Tires wholly or in part of rubber, 5 cents a pound on total 
weight (exclusive of metal rims or rim bases); 
(2) Inner tubes (for tires) wholly or in part of rubber, 9 cents a 
pound on total weight. 
The total weight of the foregoing articles is to be determined under 
regulations prescribed by the Secretary or his delegate. 
SEC. 4072, DEFINITION OF RUBBER. 
For the purposes of this chapter, the term "rubber" includes 
synthetic and substitute rubber, 
SEC. 4673. EXEMPTIONS. 
(a) TIRES OF CERTAIN SIZES.—The tax imposed by section 4071 
shall not apply to tires which are not more than 20 inches in diameter 
and not more than 1% inches in cross-section, if such tires are of all-
§ 4061(b) 
CH. 32—MANUFACTURERS EXCISE TAXES 
483 
rubber construction (whether hollow center or solid) without fabric 
or metal reinforcement. 
(b) TIRES WITH INTERNAL W I R E FASTENING.—The tax imposed 
by section 4071 shall not apply to tires of extruded tiring with an 
internal wire fastening agent. 
PART III—PETROLEUM PRODUCTS 
Subpart A, Gasoline. 
Subpart B. Lubricating oil. 
Subpart C. Special provisions applicable to petroleum products. 
Subpart A—Gasoline 
Sec. 4081. Imposition of tax. 
Sec. 4082. Definitions. 
Sec. 4083. Exemption of sales to producer. 
SEC. 4081. IMPOSITION OF TAX. 
There is hereby imposed on gasoline sold by the producer or importer 
thereof, or by any producer of gasoline, a tax of 2 cents a gallon. On 
and after April 1, 1955, the tax imposed by this section shall be IJ^ 
cents a gallon in lieu of 2 cents a gallon. 
SEC. 4082. DEFINITIONS. 
(a) PRODUCER.—As used in this subpart, the term "producer" 
includes a refiner, compounder, or blender, and a dealer selling gasoline 
exclusively to producers of gasoline, as well as a producer. Any 
person to whom gasoline is sold tax-free under this subpart shall be 
considered the producer of such gasoline. 
(b) GASOLINE.—As used in this subpart, the term "gasoline" 
means all products commonly or commercially known or sold as 
gasoline (including casinghead and natural gasoline). 
(c) CERTAIN USES DEFINED AS SALES.—If a producer or importer 
uses (otherwise than in the production of gasoline or of special motor 
fuels referred to in section 4041 (b)) gasoline sold to him free of tax, 
or produced or imported by him, such use shall for the purposes of 
this chapter be considered a sale. 
SEC. 4083. EXEMPTION OF SALES TO PRODUCER. 
Under regulations prescribed by the Secretary or his delegate the 
tax imposed by section 4081 shall not apply in the case of sales of 
gasoline to a producer of gasoline. 
Subpart B—Lubricating Oil 
Sec. 4091. Imposition of tax. 
Sec. 4092. Definition of certain vendees as a manufacturer. 
Sec. 4093. Exemption of sales to producer. 
SEC. 4091. IMPOSITION OF TAX. 
There is hereby imposed upon lubricating oils sold in the United 
States by the manufacturer or producer a tax at the rate of 6 cents a 
gallon (except that, in the case of cutting oils, the tax shall not exceed 
10 percent of the price for which so sold), to be paid by the manu-
facturer or producer. 
For purposes of this section, the term "cutting 
oils" means oils used primarily in cutting and machining operations 
§4091 
484 
INTERNAL REVENUE CODE OF 19 
54 
-
(including forging, drawing, rolling, shearing, punching, and stamp-
ing) on metals and known commercially as cutting oils. 
SEC. 4092. DEFINITION OF CERTAIN VENDEES AS A MANUFACTURER. 
For the purposes of this subpart a vendee who has purchased lubri-
cating oils free of tax under section 4093 shall be considered the manu-
facturer or producer of such lubricating oils. 
SEC. 4093. EXEMPTION OF SALES TO PRODUCERS. 
Under regulations prescribed by the Secretary or his delegate, no 
tax shall be imposed under this subpart upon lubricating oils sold to a 
manufacturer or producer of lubricating oils for resale by him. 
Subpart C—Special Provisions Applicable to Petroleum Products 
Sec. 4101. Registration and bond. 
Sec. 4102. Inspection of records, returns, etc., by local officers. 
SEC. 4101. REGISTRATION AND BOND. 
Every person subject to tax under section 4081 or section 4091 shall, 
before incurring any liability for tax under such sections, register with 
the Secretary or his delegate and shall give a bond, to be approved by 
the Secretary or his delegate, conditioned that he shall not engage in 
any attempt, by himself or by collusion with others, to defraud the 
United States of any tax under such sections; that he shall render truly 
and completely all returns, statements, and inventories required by 
law or regulations in pursuance thereof and shall pay aU taxes due 
under such sections; and that he shall comply with all requirements of 
law and regulations in pursuance thereof with respect to tax under 
such sections. 
Such bond shall be in such sum as the Secretary or 
his delegate may require in accordance with regulations prescribed 
by him, but not less than $2,000. 
The Secretary or his delegate may 
from time to time require a new or additional bond in accordance with 
this section. 
SEC. 4102. INSPECTION OF RECORDS, RETURNS, ETC., BY LOCAL 
OFFICERS. 
Under regulations prescribed by the Secretary or his delegate, 
records required to be kept with respect to taxes under this part, and 
returns, reports, and statements with respect to such taxes filed with 
the Secretary or his delegate, shall be open to inspection by such 
officers of any State or Territory or political subdivision thereof or the 
District of Columbia as shall be charged with the enforcement or 
collection of any tax on gasoline or lubricating oUs. 
The Secretary or 
his delegate shall furnish to any of such officers, upon written request, 
certified copies of any such statements, reports, or returns filed in his 
office, upon the payment of a fee of $1 for each 100 words or fraction 
thereof in the copy or copies requested. 
§4091 
no 
CH. 32—MANUFACTURERS EXCISE TAXES 
485 
Subchapter B—Household Type Equipment, Etc. 
Part 
I. Refrigeration equipment. 
Part II. Electric, gas, and oil appliances. 
Part III. Electric light bulbs. 
':'.>:?,B 
PART I—REFRIGERATION EQUIPMENT 
Sec. 4111. Imposition of tax. 
...ui ., . 
Sec. 4112. Definitions. 
Sec. 4113. Exemptions for manufacturers. 
» 
SEC. 4111. IMPOSITION OF TAX. 
There is hereby imposed upon the sale of the following articles (in-
cluding in each case parts or accessories therefor sold on or in connec-
tion with the sale thereof) by the manufacturer, producer, or importer 
a tax equivalent to the specified percent of the price for which so 
sold: 
ARTICLES TAXABLE AT 5 PERCENT— 
Household type refrigerators (for single or multiple cabinet 
installations) having, or being primarily designed for use 
with, a mechanical refrigerating unit operated by electricity, 
gas, kerosene, or gasoline. 
Household type units for the quick freezing or frozen storage 
of foods operated by electricity, gas, kerosene, or gasoline. 
Combinations of household type refrigerators and quick-
freeze units described above. 
Refrigerator components. 
ARTICLES TAXABLE AT lo PERCENT— 
Self-contained air-conditioning units. 
SEC. 4112. DEFINITIONS. 
(a) EEFRIGERATOR COMPONENTS.—As used in section 4111, the 
term "component" means cabinets, compressors, condensers, con-
densing units, evaporators, expansion units, absorbers, and controls 
for, or suitable for use as parts of or with, household-type refrigerators 
or quick-freeze units of the kind described in section 4111 except 
when sold as component parts of complete refrigerators, refrigerating 
or cooling apparatus, or quick-freeze units (hereinafter referred to as 
"refrigerating equipment"). 
(b) CERTAIN VENDEES CONSIDERED PRODUCERS.—If any of 
the 
refrigerator components defined in section 4112 (a) are resold by the 
manufacturer or producer to whom sold or resold tax free as provided 
in section 4113 otherwise than on or in connection with, or with the 
sale of, complete refrigerating equipment manufactured or produced 
by him, then for the purposes of this part such manufacturer or pro-
ducer shall be considered the manufacturer or producer of the 
refrigerator components so resold by him. 
SEC. 4113. EXEMPTIONS FOR MANUFACTURERS. 
Under regulations prescribed by the Secretary or his delegate, the 
tax under section 4111 shall not apply in the case of sales of any such 
refrigerator components by the manufacturer, producer, or importer to 
§4113 
486 
INTERNAL REVENUE CODE OF 1954 
(1) a manufacturer or producer of refrigerating equipment, or 
(2) a vendee for resale to a manufacturer or producer of refriger-
ating equipment if such components are in due course so resold, 
PART II—ELECTRIC, GAS, AND OIL APPLIANCES 
Sec. 4121. Imposition of tax. 
SEC. 4121. IMPOSITION OF TAX. 
(a) HOUSEHOLD-TYPE ARTICLES,—There is hereby imposed upon 
the sale by the manufacturer, producer, or importer of the following 
articles of the household type (including in each case parts or acces-
sories therefor sold on or in connection with the sale thereof), a tax 
equivalent to 5 percent of the price for which so sold: 
Electric, gas, or oil water heaters. 
Electric flatirons. 
Electric air heaters (not including furnaces). 
Electric immersion heaters. 
Electric blankets, sheets, and spreads. 
Electric, gas, or oil appliances of the type used for cooking, 
warming, or keeping warm food or beverages for consump-
tion on the premises. 
Electric mixers, whippers, and juicers. 
Electric belt-driven fans. 
Electric exhaust blowers. 
Electric or gas clothes driers. 
Electric door chimes. 
Electric dehumidifiers. 
Electric dishwashers. 
Electric floor polishers and waxers. 
Electric food choppers and grinders. 
Electric hedge trimmers. 
Electric ice cream freezers. 
Electric mangles. 
.-^>^Oi 
: 
.:::•'• 
Electric pants pressers. 
Electric garbage disposal units. 
> 
Power lawn mowers. 
(b) NoNiNDUSTRiAL TYPE ARTICLES.—There is hereby imposed 
upon the sale by the manufacturer, producer, or importer of electric 
direct motor driven fans and air circulators not of the industrial type 
(including in each case parts or accessories therefor sold on or in 
connection with the sale thereof), a tax equivalent to 5 percent of 
the price for which so sold. 
PART III—ELECTRIC LIGHT BULBS 
^ 
Sec. 4131. Imposition of tax. 
SEC. 4131. IMPOSITION OF TAX. 
There is hereby imposed upon the sale by the manufacturer, pro-
ducer, or importer of electric light bulbs and tubes, not including 
articles taxable under any other provision of this chapter, a tax equiva-
lent to 10 percent of the price for which so sold. 
Hii3(i) 
CH. 32—MANUFACTURERS EXCISE TAXES 
487 
Subchapter C—Entertainment Equipment 
^ 
Part I. Radio and television sets, phonographs and records. 
Part II. Musical instruments. 
PART I—RADIO AND TELEVISION SETS, PHONOGRAPHS 
AND RECORDS 
Sec. 4141. Imposition of tax. 
Sec. 4142. Definition of radio and television component. 
Sec. 4143. Exemptions for sales to United States. 
SEC. 4141. IMPOSITION OF TAX. 
There is hereby imposed upon the sale by the manufacturer, pro-
ducer, or importer of the following articles (including in each case parts 
or accessories therefor sold on or in connection with the sale thereof), 
a tax equivalent to 10 percent of the price for which so sold: 
Radio receiving sets. 
Automobile radio receiving sets. 
Television receiving sets. 
Automobile television receiving sets. 
Phonographs. 
Combinations of any of the foregoing. 
Radio and television components. 
Phonograph records. 
SEC. 4142. DEFINITION OF RADIO AND TELEVISION COMPONENT. 
As used in section 4141 the term "radio and television components" 
means chassis, cabinets, tubes, speakers, amplifiers, power supply 
units, antennae of the "built-in" type, and phonograph mechanisms, 
which are suitable for use on or in connection with, or as component 
parts of any of the articles enumerated in section 4141, whether or not 
primarily adapted for such use. 
SEC. 4143. EXEMPTIONS FOR SALES TO UNITED STATES. 
(a) COMMUNICATION, DETECTION AND NAVIGATION RECEIVERS.— 
No tax shall be imposed under section 4141 with respect to the sale 
to the United States for its exclusive use of a communication, detec-
tion, or navigation receiver of the type used in commercial, military, 
or marine iastallations. 
(b) COMPONENTS 
OF COMMUNICATION RECEIVERS, ETC.—Under 
regulations prescribed by the Secretary or his delegate, no tax shall be 
imposed under section 4141 with respect to the sale of any article for 
use by the vendee as material in the manufacture or production of, 
or as a component part of, communication, detection, or navigation 
receivers of the type used in commercial, military, or marine installa-
tions if such receivers are to be sold by the vendee to the United States 
for its exclusive use. 
If any article sold tax-free to such vendee is not 
so used by him, or being so used the receiver is not so sold, the vendee 
shall be considered as the manufacturer or producer of such article. 
§ 4143(b) 
488 
INTERNAL REVENUE CODE OF 1954 
PART II—MUSICAL INSTRUMENTS 
Sec. 4151. Imposition of tax. 
Sec. 4152. Exemption for religious or educational use. 
SEC. 4151. IMPOSITION OF TAX. 
There is hereby imposed upon the sale of musical instruments by 
the manufacturer, producer, or importer a tax equivalent to 10 per-
cent of the price for which so sold. 
SEC. 4152. EXEMPTION FOR RELIGIOUS OR EDUCATIONAL USE. 
The tax imposed by section 4151 shall not apply to musical instru-
ments sold for the use of any religious or nonprofit educational institu-
tion for exclusively religious or educational purposes. 
The right to 
exemption under this section shall be evidenced in such manner as the 
Secretary or his delegate may prescribe by regulations. 
.tel.03 7A 
§4151 
CH. 32—MANUFACTURERS EXCISE TAXES 
489 
fiV}0'\\>i 
a 
Subchapter D—Recreational Equipment 
Part 
I. Sporting goods. 
Part II. Photographic equipment. 
* 
Part III. Firearms. 
f: 
PART I—SPORTING GOODS 
" 
Sec. 4161. Imposition of tax. 
SEC. 4161. IMPOSITION OF TAX. 
There is hereby imposed upon the sale by the manufacturer, pro-
ducer, or importer of the following articles (including in each case parts 
or accessories of such articles sold on or in connection therewith, or 
with the sale thereof) a tax equivalent to 10 percent of the price for 
which so sold: 
Badminton nets, rackets and racket frames (measuring 22 
3 
inches overall or more in length), racket string, shuttlecocks, 
£ 
and standards. 
Billiard and pool tables (measumng 45 inches overall or more 
fi,.: 
in length) and balls and cues for such tables. 
Bowling balls and pins. 
Clay pigeons and traps for throwing clay pigeons. 
Cricket balls and bats. 
Croquet balls and mallets. 
, Curling stones. 
Deck tennis rings, nets and posts. 
Fishing rods, creels, reels and artificial lures, baits and flies. 
Golf bags (measuring 26 inches or more in length), balls and 
clubs (measuring 30 inches or more in length). 
•'': 
Lacrosse balls and sticks. 
^ 
Polo balls and mallets. 
Skis, ski poles, snowshoes, and snow toboggans and sleds 
(measuring more than 60 inches overall in length). 
Squash balls, rackets and racket frames (measuring 22 inches 
overall or more in length), and racket string. 
Table tennis tables, balls, nets and paddles. 
Tennis balls, nets, rackets and racket frames (measuring 22 
inches overall or more in length) and racket string. 
•Hil 
PART II—PHOTOGRAPHIC EQUIPMENT 
Sec. 4171. Imposition of tax. 
Sec. 4172. Definition of certain vendees as manufacturers. 
Sec. 4173. Exemptions. 
SEC. 4171. IMPOSITION OF TAX. 
There is hereby imposed upon the sale by the manufacturer, pro-
ducer, or importer of the following articles (including in each case 
parts or accessories of such articles sold on or in connection there-
§4171 
49012°—54 
34 
490 
INTERNAL REVENUE CODE OF 
1954 •
> 
with, or with the sale thereof) a tax equivalent to the specified percent 
of the price for which so sold: 
ARTICLES TAXABLE AT lo PERCENT— 
Cameras. 
Camera lenses. 
Unexposed photographic film in rolls (including motion picture 
film). 
ARTICLES TAXABLE AT 5 PERCENT— 
Electric motion or still picture projectors of the household type. 
SEC. 4172. DEFINITION OF CERTAIN VENDEES AS MANUFACTURERS. 
Any person who acquires unexposed photographic film not subject 
to tax under this part and sells such unexposed film in form and 
dimensions subject to tax hereunder (or in connection with a sale 
cuts such film to form and dimensions subject to tax hereunder) shall 
for the purposes of section 4171 be considered the manufacturer of 
the film so sold by him. 
SEC. 4173. EXEMPTIONS. 
The tax imposed under this part shall not apply to— 
(1) CAMERAS.—X-ray cameras or cameras weighing more than 
four pounds exclusive of lens and accessories; 
(2) LENSES.—Still camera lenses having a focal length of more 
than one hundred and twenty millimeters, or motion picture camera 
lenses having a focal length of more than thirty millimeters; 
(3) FILM.—X-ray film, unperforated microfilm, film more than 
one hundred and fifty feet in length, or film more than twenty-
five feet in length and more than thirty millimeters in width. 
PART III—FIREARMS 
• ' 
/ 
Sec. 4181. Imposition of tax. 
i 
Sec. 4182. Exemptions. 
SEC. 4181. IMPOSITION OF TAX. 
There is hereby imposed upon the sale by the manufacturer, 
producer, or importer of the following articles a tax equivalent to the 
specified percent of the price for which so sold: 
„ 
ARTICLES TAXABLE AT lo PERCENT— 
Pistols. 
,. 
Revolvers. 
. 
ARTICLES TAXABLE AT ii PERCENT— 
Firearms (other than pistols and revolvers). 
-i 
Shells, and cartridges. 
SEC. 4182. EXEMPTIONS. 
(a) MACHINE 
GUNS AND SHORT 
BARRELLED 
FIREARMS.—The 
tax imposed by section 4181 shall not apply to any firearm on which 
the tax provided by section 5811 has been paid. 
(b) SALES 
TO DEFENSE 
DEPARTMENT.—No 
firearms, 
pistols, 
revolvers, shells, and cartridges purchased with funds appropriated 
for the military department shall be subject to any tax imposed on 
the sale or transfer of such articles. 
§4171 
. ^ 
t8 
tri ^.£if<ii. 
CH. 32—MANUFACTURERS EXCISE TAXES 
491 
Subchapter E—Other Items 
Part 
I. Business machines. 
Part II. Pens and nnechanical pencils and lighters. 
Part III. Matches. 
PART I—BUSINESS MACHINES 
Sec. 4191. Imposition of tax. 
Sec. 4192. Exemption for retail sales cash register. 
SEC. 4191. IMPOSITION OF TAX. 
There is hereby imposed upon the sale by the manufacturer, pro-
ducer, or importer of the following articles (including in each case 
parts or accessories of such articles sold on or in connection therewith, or 
with the sale thereof), a tax equivalent to 10 percent of the price for 
which so sold: 
Fare registers and boxes. 
Listing machines. 
Line-a-time and similar ma-
chines. 
Mailing machines, 
Multigraph machines, type-
setting 
machines 
and 
type justifying machines. 
Numbering machines. 
Portable 
paper 
fastening 
machines. 
Payroll machines. 
Pencil sharpeners. 
Postal permit mailing ma-
chines. 
Punch card machines. 
Sorting machines. 
Stencil cutting machines. 
Shorthand 
writing 
ma-
chines. 
Sealing machines. 
Tabulating machines. 
Ticket counting machines. 
Ticket issuing machines. 
Typewriters. 
Transcribing machines. 
Time recording devices. 
Combinations of any of the 
foregoing. 
Adding machines. 
Addressing machines. 
Autographic registers. 
Bank proof machines. 
Billing machines. 
Bookkeeping machines. 
Calculating machines. 
Card punch machines. 
Cash registers. 
Change making machines. 
Check writing, signing, can-
celing, perforating, cut-
ting, 
and 
dating 
ma-
chines and other check 
protector 
machine 
de-
vices. 
Computing machines. 
Coin counters. 
Dictographs. 
Dictating machines. 
Dictating machine record 
shaving machines. 
Duplicating machines. 
Embossing machines. 
Envelope 
opening 
chines. 
Erasing machines. 
Folding machines, 
Fanfold machines. 
ma-
SEC. 4192. EXEMPTION FOR RETAIL SALES CASH REGISTER. 
No tax shall be imposed under section 4191 on the sale of cash 
registers of the type used in registering over-the-counter retail sales. 
§4192 
492 
- INTERNAL REVENUE CODE OF 1954 
PART II—PENS AND MECHANICAL PENCILS AND LIGHTERS 
Sec, 4201. Imposition of tax. 
SEC. 4201. IMPOSITION OF TAX. 
There is hereby imposed upon the sale by the manufacturer, pro-
ducer, or importer of the following articles, a tax equal to 10 percent 
of the price for which so sold: 
Mechanical lighters for cigarettes, cigars and pipes. 
Mechanical pencils, fountain pens and ball point pens. 
PART III—MATCHES 
^"^ 
Sec. 4211. Imposition of tax. 
"
^
J
G
l
! )o8 
SEC. 4211. IMPOSITION OF TAX. 
- - "/^ . . . , . . . . , , . . . . . . . ..,. 
There is hereby imposed upon the sale by the manufacturer, pro-
ducer, or importer of matches, a tax of 2 cents per 1,000 matches 
but not more than 10 percent of the price for which so sold, except 
that in the case of fancy wooden matches and wooden matches having 
a stained, dyed, or colored stick or stem, packed in boxes or in bulk, 
the tax shall be 5}^ cents per 1,000 matches. 
. 'iyiiiii 
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§4201 
CH. 32—MANUFACTURERS EXCISE TAXES 
493 
Subchapter F—Special Provisions Applicable to 
Manufacturers Tax 
Sec. 4216. Definition of price. 
5
= 
Sec. 4217. Lease considered sale. 
is 
Sec. 4218. Use by manufacturer or importer considered sale. 
. 
Sec. 4219. Application of tax in case of sales by other than manu-
, 
facturer or importer. 
Sec. 4220. Exemptions for sales or resales to manufacturers. 
' 
Sec. 4221. Exemption for articles taxable as jewelry. 
Sec. 4222. Exemption from tax of certain supplies for vessels and 
.p. 
" 
airplanes. 
Sec. 4223, Exemption of articles manufactured 
or produced by 
Indians. 
t 
Sec. 4224. State and local governmental exemption. 
-£ 
Sec. 4225. Exemption for export. 
Sec. 4226. Cross references. 
SEC. 4216. DEFINITION OF PRICE. 
(a) CONTAINERS, PACKING AND TRANSPORTATION CHARGES.—In 
determining, for the purposes of this chapter, the price for which 
an article is sold, there shall be included any charge for coverings 
and containers of whatever nature, and any charge incident to 
placing the article in condition packed ready for shipment, but 
there shall be excluded the amount of tax imposed by this chap-
ter, whether or not stated as a separate charge. 
A transportation, 
delivery, insurance, installation, or other charge (not required by the 
foregoing sentence to be included) shall be excluded from the price 
only if the amount thereof is established to the satisfaction of the Sec-
retary or his delegate in accordance with the regulations. 
(b) CONSTRUCTIVE SALE PRICE,—If an article is— 
(1) sold at retail, 
(2) sold on consignment, or 
(3) sold (otherwise than through an arm's length transaction) at 
less than the fair market price, 
the tax under this chapter shall (if based on the price for which the 
article is sold) be computed on the price for which such articles are 
sold, in the ordinary course of trade, by manufacturers or producers 
thereof, as determined by the Secretary or his delegate. 
(c) PARTIAL PAYMENTS.—In the case of— 
(1) a lease, 
(2) a contract for the sale of an article wherein it is provided that 
the price shall be paid by installments and title to the article sold 
does not pass until a future date notwithstanding partial payment 
by installments, 
(3) a conditional sale, or 
(4) a chattel mortgage arrangement wherein it is provided that 
the sales price shall be paid in installments, 
there shall be paid upon each payment with respect to the article that 
portion of the total tax which is proportionate to the portion of the 
total amount to be paid represented by such payment. 
§ 4216(c)(4) 
494 
.INTERNAL REVENUE CODE OF 1954 
SEC. 4217. LEASE CONSIDERED AS SALE. 
For the purposes of this chapter, the lease of an article (including 
any renewal or any extension of a lease or any subsequent lease of such 
article) by the manufacturer, producer, or importer shall be considered 
a taxable sale of such article. 
SEC. 4218. USE BY MANUFACTURER OR IMPORTER CONSIDERED SALE. 
(a) GENERAL RULE.—If— 
(1) any person manufactures, produces, or imports an article 
(other than a tire, inner tube, or automobile radio or television 
receiving set taxable under section 4141 and uses it (otherwise than 
as material in the manufacture or production of, or as a component 
part of, another article to be manufactured or produced by him 
which will be taxable under this chapter or sold free of tax by virtue 
of section 4220 or 4224, relating to tax-free sales), or 
(2) any person manufactures, produces, or imports a tire, inner 
tube, or automobile radio or television receiving set taxable under 
section 4141 and sells it on or in connection with, or with the sale of, 
an article taxable under section 4061, relating to the tax on auto-
mobiles, or uses it, 
he shall be liable for tax under this chapter in the same manner as if 
such article was sold by him, and the tax (if based on the price for 
which the article is sold) shall be computed on the price at which such 
or similar articles are sold, in the ordinary course of trade, by manufac-
turers, producers, or importers thereof, as determined by the Secretary 
or his delegate. 
(b) EXCEPTION.—This section shall not apply with respect to the 
use by the manufacturer, producer, or importer of articles described 
in section 4141 if such articles are used by him as material in the 
manufacture or production of, or as a component part of, communi-
cation, detection, or navigation receivers of the type used in com-
mercial, military, or marine installations if such receivers are to be 
sold to the United States for its exclusive use. 
SEC. 4219. APPLICATION OF TAX IN CASE OF SALES BY OTHER THAN 
MANUFACTURER OR IMPORTER. 
In case any person acquires from the manufacturer, producer, or 
importer of an article, by operation of law or as a result of any trans-
action not taxable under this chapter, the right to sell such article, 
the sale of such article by such person shall be taxable under this 
chapter as if made by the manufacturer, producer, or importer, and 
such person shall be liable for the tax. 
SEC. 4220. EXEMPTION FOR SALES OR RESALES TO MANUFACTURERS. 
Under regulations prescribed by the Secretary or his delegate, no 
tax under this chapter shall be imposed with respect to the sale of 
any article— 
(1) for use by the vendee as material in the manufacture or 
production of, or as a component part of, an article enumerated 
in this chapter; 
(2) for resale by the vendee for such use by his vendee, if such 
article is in due course so resold. 
For the purposes of this chapter, the manufacturer or producer to 
whom an article is sold under paragraph (1) or resold under para-
graph (2) shall be considered the manufacturer or producer of such 
§4217 
• 
CH. 32—MANUFACTURERS EXCISE TAXES 
495 
article. 
The provisions of paragraphs (1) and (2) shall not apply with 
respect to tires, inner tubes, or automobile radio or television receiving 
sets taxable under section 4141, 
SEC. 4221. EXEMPTION FOR ARTICLES TAXABLE AS JEWELRY. 
No tax shall be imposed under this chapter on any article taxable 
under section 4001 (relating to jewelry tax). 
SEC. 4222. EXEMPTION FROM TAX OF CERTAIN SUPPLIES FOR VES-
SELS AND AIRPLANES. 
Under regulations prescribed by the Secretary or his delegate, 
no tax under this chapter or under section 4041 (b) (relating to retailers 
excise tax on special motor fuels) shall be imposed upon any article 
sold for use as fuel supplies, ships' stores, sea stores, or legitimate 
equipment on vessels of war of the United States or of any foreign 
nation, vessels employed in the fisheries or in the whaling business, 
or actually engaged in foreign trade or trade between the Atlantic 
and Pacific ports of the United States or between the United States 
and any of its possessions. 
Articles manufactured or produced with 
the use of articles upon the importation of which tax has been paid 
under subchapter A, B, C, or D of chapter 38, if laden for use as 
supplies on such vessels, shall be held to be exported for the purposes 
of section 4601. The term "vessels" as used in.this section includes 
civil aircraft employed in foreign trade or trade between the United 
States and any of its possessions, and the term "vessels of war of 
the United States or of any foreign nation" includes aircraft owned 
by the United States or by any foreign nation and constituting 
a part of the armed forces thereof. 
The privileges granted under 
this section in respect to civil aircraft employed in foreign trade 
or trade between the United States and any of its possessions, in 
respect of aircraft registered in a foreign country, shall be allowed 
only if the Secretary of the Treasury has been advised by the Secre-
tary of Commerce that he has found that such foreign country 
allows, or will allow, substantially reciprocal privileges in respect of 
aircraft registered in the United States. 
If the Secretary of the 
Treasury is advised by the Secretary of Commerce that he has found 
that a foreign country has discontinued or will discontinue the allow-
ance of such privileges, the privileges granted under this section shall 
not apply thereafter in respect of civil aircraft registered in that 
foreign country and employed in foreign trade or trade between the 
United States and any of its possessions. 
SEC. 4223. EXEMPTION OF ARTICLES MANUFACTURED OR PRODUCED 
BY INDIANS. 
No tax shall be imposed under this chapter on any article of native 
Indian handicraft manufactured or produced by Indians on Indian 
reservations, or in Indian schools, or by Indians under the jurisdiction 
of the United States Government in Alaska. 
SEC. 4224. STATE AND LOCAL GOVERNMENTAL EXEMPTION. 
Under regulations prescribed by the Secretary or his delegate, no 
tax shall be imposed under this chapter upon the sale of any article 
for the exclusive use of any State, Territory of the United States, 
or any political subdivision of the foregoing, or the District of Colum-
bia. 
§4224 
496 
INTERNAL REVENUE CODE OF 1 9 5 4 ' l i 
SEC. 4225. EXEMPTION FOR EXPORTS. 
" 
"•' 
Under regulations prescribed by the Secretary or his delegate, no 
tax shall be imposed under this chapter upon the sale of any article 
for export or for shipment to a possession of the United States, and 
in due course so exported or shipped. 
SEC. 4226. CROSS REFERENCES. 
(1) For exemption from tax in case of certain sales to the United States, 
see section 4293. 
(2) For credit for taxes on tires and inner tubes, and automobile radio 
and television receiving sets, see section 6416 (c). 
(3) For administrative provisions of general application to the taxes 
imposed under this chapter, see subtitle F. 
qq :io -rasuTaA^-rji 
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§4225 
CH. 3 3^FACILITIES AND SERVICES 
4 9 7 
CHAPTER 33—FACILITIES AND SERVICES 
SUBCHAPTER A. Admissions and dues. 
SUBCHAPTER B . Communications. 
SUBCHAPTER C . Transportation. 
SUBCHAPTER D . Safe deposit boxes. 
SUBCHAPTER E . Special provisions applicable to services and 
facilities taxes. 
Subchapter A—^Admissions and Dues 
Part I. Admissions. 
Part II. Club dues. 
PART I—ADMISSIONS 
Sec. 4231. Imposition of tax. 
Sec. 4232. Definitions. 
Sec. 4233. Exemptions. 
Sec. 4234. Printing of price on ticket. 
SEC. 4231. IMPOSITION OF TAX. 
There is hereby imposed: 
(1) GENERAL.—A tax of 1 cent for each 10 cents or major fraction 
thereof of the amount paid for admission to any place, including 
admission by season ticket or subscription. 
No tax shall be imposed 
under this paragraph on the amount paid for admission— 
(A) if the amount paid for admission is 50 cents or less, or 
(B) in the case of a season ticket or subscription, if the amount 
which would be charged to the holder or subscriber for a single 
admission is 50 cents or less. 
The tax imposed under this paragraph shall be paid by the person 
paying for such admission. 
(2) CERTAIN RACE TRACKS.—In lieu of the tax imposed under 
paragraph (1), a tax of 1 cent for each 5 cents or major fraction 
thereof of the amount paid for admission to any place (including 
admission by season ticket or subscription) if the principal amuse-
ment or recreation offered with respect to such admission is horse 
or dog racing at a race track. 
The tax imposed under this paragraph 
shall be paid by the person paying for such admission. 
(3) PERMANENT USE OR LEASE OF BOXES OR SEATS.—In the case 
of persons having the permanent use of boxes or seats in an opera 
house or any place of amusement or a lease for the use of such box 
or seat in such opera house or place of amusement (in lieu of the 
J tax imposed under paragraph (1) or (2)), a tax equivalent to 10 
percent (20 percent if paragraph (2) would otherwise apply) of 
the amount for which a similar box or seat is sold for each per-
. formance or exhibition at which the box or seat is used or reserved 
by or for the lessee or holder. The tax imposed under this para-
]., graph shall be paid by the lessee or holder. 
(4) SALES OUTSIDE OF BOX OFFICE IN EXCESS OF ESTABLISHED 
PRICE.—Upon tickets or cards of admission to theaters, operas, 
§4231(4) 
498 
INTERNAL REVENUE CODE OF 1964 
and other places of amusement, sold at news stands, hotels, and 
places other than the ticket offices of such theaters, operas, or 
other places of amusement, at a price in excess of the sum of the 
established price therefor at such ticket offices plus the amount of 
any tax imposed under paragraph (1) or (2), a tax equivalent to 
10 percent (20 percent if paragraph (2) applies) of the amount of 
such excess. 
The tax imposed under this paragraph shall be 
returned and paid by the person selling such tickets. 
(5) SALES BY PROPEIETORS IN EXCESS OF REGULAR PRICE.—^A tax 
equivalent to 50 percent of the amount for which the proprietors, 
managers, or employees of any opera house, theater, or other place 
of amusement sell or dispose of tickets or cards of admission in 
excess of the regular or established price or charge therefor. 
The 
tax imposed under this paragraph shall be returned and paid by 
the persons selling such tickets. 
(6) CABARETS.—^A tax equivalent to 20 percent of all amounts 
paid for admission, refreshment, service, or merchandise, at any 
roof garden, cabaret, or other similar place furnishing a public per-
formance for profit, by or for any patron or guest who is entitled 
to be present during any portion of such performance. 
The tax 
imposed under this paragraph shall be returned and paid by the 
person receiving such payments. 
No tax shall be applicable under 
paragraph (1) or (2) on account of an amount paid with respect 
to wliich tax is imposed under this paragraph. 
SEC. 4232. DEFINITIONS. 
(a) ADMISSION.—The term "admission" as used in this chapter 
includes seats and tables, reserved or otherwise, and other similar 
accommodations, and the charges made therefor. 
(b) ROOF GARDEN, 
CABARET OR OTHER SIMILAR PLACE.^—The 
term "roof garden, cabaret, or other similar place," as used in this 
chapter, shall include any room in any hotel, restaurant, hall, or other 
public place where music and dancing privileges or any other entertain-
ment, except instrumental or mechanical music alone, are afforded 
the patrons in connection with the serving or selling of food, refresh-
ment, or merchandise. 
In no case shall such term include any ball-
room, dance hall, or other similar place where the serving or selling 
of food, refreshment, or merchandise is merely incidental, unless such 
place would be considered, without the application of the preceding 
sentence, as a "roof garden, cabaret, or other similar place." 
(c) PERFORMANCE FOR PROFIT.—A performance shall be regarded 
as being furnished for profit for purposes of section 4231 (6) even 
though the charge made for admission, refreshment, service, or mer-
chandise is not increased by reason of the furnishing of such perform-
ance. 
SEC. 4233. EXEMPTIONS. 
(a) ALLOWANCE.—No tax shall be imposed under section 4231 in 
respect of: 
(1) C E R T A I N RELIGIOUS, EDUCATIONAL, OR CHARITABLE 
ENTER-
TAINMENTS, ETC. 
(A) I N GENERAL.—Except as provided in subparagraph (C), 
any admissions all the proceeds of which inure exclusively to the 
benefit of— 
(i) a church or a convention or association of churches; 
§ 4231 (4) 
CH. 33—FACILITIES AND SERVICES 
499 
(ii) an educational institution described in section 501 (c) 
(3) which is exempt from tax under section 501 (a) or which 
is an educational institution of a government or political sub-
division thereof, if such organization normally maintains a 
regular faculty and curriculum and normally has a regularly 
organized body of pupils or students in attendance at the place 
where its educational activities are regularly carried on; 
(iii) a corporation or any community chest, fund, or foun-
dation organized and operated exclusively for charitable pur-
poses, described in section 501 (c) (3) which is exempt from 
tax under section 501 (a), if such corporation or organization 
is supported, in whole or in part, by funds contributed by the 
United States or any State or political subdivision thereof, or 
is primarily supported by contributions from the general public; 
(iv) a society or organization conducted for the sole purpose 
of maintaining symphony orchestras or operas and receiving 
substantial support from voluntary contributions; 
(v) an organization (organized prior to October 1, 1951) 
described in section 501 (c) (3) which is exempt from tax under 
section 501 (a) and which is operated for the purpose of con-
ducting an annual chautauqua program of educational, cultural, 
and religious activities at a permanent location; 
(vi) National Guard organizations, Keserve ojQScers' associa-
tions or organizations, posts or organizations of war veterans, 
or auxiliary units or societies of any such posts or organizations, 
if such posts, organizations, units, or societies are organized in 
the United States or any of its possessions— 
if no part of the net earnings thereof inures to the benefit of any 
private stockholder or individual. 
(B) POLICEMEN'S AND FIEEMEN'S DISABILITY FUNDS.—Except 
as provided in subparagraph (C), any admissions all the proceeds 
of which inure exclusively to the benefit of a police or fire depart-
ment of any city, town, village, or any municipality or exclu-
sively to a retirement, pension, or disability fund for the sole 
benefit of members of such a police or fire department or to a 
fund for the heirs of such members. 
(C) NONEXEMPT ADMISSIONS.—The exemption provided under 
subparagraph (A) or (B) shall not apply in the case of admissions 
to— 
(i) any athletic game or exhibition unless the proceeds inure 
exclusively to the benefit of an elementary or secondary school 
or unless in the case of an athletic game between teams com-
posed of students from elementary or secondary schools, or 
colleges, the entire gross proceeds from such game inure to the 
benefit of a hospital for crippled children, 
(ii) wrestling matches, prize fights, or boxing, sparring, or 
other pugilistic matches or exhibitions, 
(iii) carnivals, rodeos (except as provided in paragraph (9)), 
or circuses in which any professional performer or operator 
participates for compensation, or 
(iv) any motion picture exhibition. 
Clauses (i) and (ii) shall not apply in the case of any athletic 
event between educational institutions held during the regular 
§ 4233(a)(1)(G) 
500 
INTERNAL REVENUE CODE OF 1954 
athletic season for such event, if the proceeds therefrom inure 
exclusively to the benefit of such institutions. 
(2) AGRICULTURAL FAIRS.—Any admissions to agricultural fairs 
if no part of the net earnings thereof inures to the benefit of any 
stockholders or members of the association conducting the same—if 
the proceeds therefrom are used exclusively for the improvement, 
maintenance, and operation of such agricultural fairs. 
(3) CERTAIN CONCERTS.—Any admissions to concerts conducted 
by a civic or community membership association if no part of the net 
earnings thereof inures to the benefit of any stockholders or mem-
bers of such association. 
(4) MUNICIPAL 
SWIMMING 
POOLS, 
ETC.—Any admissions 
to 
swimming pools, bathing beaches, skating rinks, or other places 
providing facilities for physical exercise, operated by any State or 
political subdivision thereof or by the United States or any agency 
or instrumentality thereof—if the proceeds therefrom inure ex-
clusively to the benefit of the State, political subdivision, United 
States, agency, or instrumentality. 
(5) HOME AND GARDEN TOURS.—Any admission to a home or 
garden which is temporarily opened to the general public as part of 
a program conducted by a society or organization to permit the in-
spection of historical homes and gardens—if no part of the net 
earnings thereof inures to the benefit of any private stockholder or 
individual. 
(6) HISTORIC SITES, MUSEUMS, AND PLANETARIUMS.—Any admis-
sion to an historic site, house, or shrine, to a museum of history, art, 
or science, to a planetarium, or to any exhibition in connection with 
any of the foregoing, operated— 
(A) by any State or political subdivision thereof or by the 
United States or any agency or instrumentality thereof—if the 
proceeds therefrom inure exclusively to the benefit of the State, 
political subdivision. United States, agency, or instrumentality, or 
(B) by any society or organization not organized for profit— 
if no part of the net earnings thereof inures to the benefit of any 
private stockholder or individual. 
(7) CERTAIN AMATEUR THEATER PERFORMANCES.—Any admis-
sion to an amateur performance presented and performed by a 
civic or community theater group or organization—if no part of 
the net earnings thereof inures to the benefit of any private stock-
holder or individual. 
(8) CERTAIN AMATEUR AND SEMIPROFESSIONAL BASEBALL GAMES.— 
Any admission to a baseball game, if all the players who participate 
therein have an amateur or semiprofessional standing, and if (A) 
such game is not primarily conducted for profit, (B) neither team 
participating in such game is regularly engaged in playing baseball 
for its own profit, and (C) no part of the net earnings thereof inures 
to the benefit of any private stockholder or individual. 
(9) CERTAIN RODEOS AND PAGEANTS.—Any admission to a rodeo 
or an historical pageant, if the proceeds therefrom are used exclu-
sively for the improvement, maintenance, and operation of such 
rodeo or pageant, and if no part of the net earnings thereof inures 
to the benefit of any private stockholder or individual. 
§ 4233(a)(1)(C) 
CH. 3 3—FACILITIES AND SERVICES 
501 
(b) STATE DEFINED.—For purposes of subsection (a), the term 
"State" includes Alaska, Hawaii, and the District of Columbia. 
SEC. 4234. PRINTING OF PRICE ON TICKET. 
(a) GENERAL.—The price (exclusive of the tax to be paid by the 
person paying for admission) at which every admission ticket or card 
is sold shall be conspicuously and indelibly printed, stamped, or writ-
ten on the face or back of that part of the ticket which is to be taken 
up by the management of the theater, opera, or other place of amuse-
ment, together with the name of the vendor if sold other than at the 
ticket office of the theater, opera, or other place of amusement. 
(b) PENALTY.—Whoever sells an admission ticket or card on which 
the name of the vendor and the price are not printed, stamped, or 
written, as provided in subsection (a), or at a price in excess of the 
price so printed, stamped, or written thereon, is guilty of a misde-
meanor, and upon conviction thereof shall be fined not more than $100. 
PART II—CLUB DUES 
Sec. 4241. Imposition of tax. 
Sec. 4242. Definitions. 
Sec. 4243. Exemption—Fraternal organizations. 
SEC. 4241. IMPOSITION OF TAX. 
(a) RATE.—There is hereby imposed— 
(1) DUES OR MEMBERSHIP FEES.—A tax equivalent to 20 percent 
of any amount paid as dues or membership fees to any social, 
athletic, or sporting club or organization, if the dues or fees of an 
active resident annual member are in excess of $10 per year. 
(2) INITIATION FEES.—A tax equivalent to 20 percent of any 
amount paid as initiation fees to such a club or organization, if 
such fees amount to more than $10, or if the dues or membership 
fees, not including initiation fees, of an active resident annual mem-
ber are in excess of $10 per year. 
(3) L I F E MEMBERSHIPS.—In the case of life memberships, a tax 
equivalent to the tax upon the amount paid by active resident 
. annual members for dues or membership fees other than assess-
ments, but no tax shall be paid upon the amount paid for life mem-
bership. 
In such a case, the tax shall be paid annually at the time 
for the payment of dues by active resident annual members. 
(b) B Y WHOM PAID.—The taxes imposed by this section shall be 
paid by the person paying such dues or fees, or holding such life 
membership. 
SEC. 4242. DEFINITIONS. 
(a) DUES.—As used in this part the term "dues" includes any 
assessment, irrespective of the purpose for which made, and any 
charges for social privileges or facilities, or for golf, tennis, polo, 
swimming, or other athletic or sporting privileges or facilities, for 
any period of more than six days; and 
(b) INITIATION FEES.—As used in this part the term "initiation 
fees" includes any payment, contribution, or loan, required as a con-
dition precedent to membership, whether or not any such payment, 
contribution, or loan is evidenced by a certificate of interest or 
§ 4242(b) 
502 
INTERNAL REVENUE CODE OF 19 54 
indebtedness or share of stock, and irrespective of the person or 
organization to whom paid, contributed, or loaned. 
SEC. 4243. EXEMPTION—FRATERNAL ORGANIZATIONS. 
There shall be exempted from the provisions of section 4241 all 
amounts paid as dues or fees to a fraternal society, order, or associa-
tion, operating under the lodge system, or to any local fraternal 
organization among the students of a college or university. 
'i:^!a a-j.v; u .>;,i^i 
§ 4242(b) 
CH. S3—FACILITIES AND SERVICES 
503 
Subchapter B—Communications 
Sec. 4251. Imposition of tax. 
Sec. 4252. Definitions. 
-ii :;- \ 
^^^- 4253. Exemptions. 
Sec. 4254. Computation of tax. 
, 
SEC. 4251. IMPOSITION OF TAX. 
There is hereby imposed on amounts paid for the communication 
services or faciUties enumerated in the following table a tax equal to 
the percent of the amount so paid as is specified in such table: 
Taxable service 
Local telephone service 
Long distance telephone service 
Telegraph service 
Leased wire, teletypewriter or talking circuit special service. 
Wire and equipment service 
Rate 
of tax 
Percent 
10 
10 
10 
10 
8 
The taxes imposed by this section shall be paid by the person paying 
for the services or facilities. 
SEC. 4252. DEFINITIONS. 
(a) LOCAL TELEPHONE SERVICE.—As used in section 4251 the term, 
"local telephone service" means any telephone service not taxable as 
long distance telephone service; leased wire, teletypewriter or talking 
circuit special service; or wire and equipment service. 
Amounts paid 
for the installation of instruments, wires, poles, switchboards, ap-
paratus, and equipment shall not be considered amounts paid for 
service. 
This subsection shall not be construed as defining as local 
telephone service, amounts paid for services and facilities which are 
exempted from other communication taxes by section 4253 (b). 
(b) LONG DISTANCE TELEPHONE SERVICE.—As used in section 4251 
the term "long distance telephone service" means a telephone or radio 
telephone message or conversation for which the toll charge is more 
than 24 cents and for which the charge is paid within the United 
States. 
(c) TELEGRAPH 
SERVICE,—As used in section 4251 the term 
"telegraph service" means a telegraph, cable, or radio dispatch or 
message for which the charge is paid within the United States. 
(d) LEASED WIRE, TELETYPEWRITER OR TALKING CIRCUIT SPECIAL 
SERVICE.—As used in section 4251 the term "leased wire, teletype-
writer or talking circuit special service" does not include any service 
used exclusively in rendering a service taxable as wire and equipment 
service. 
The tax imposed by section 4251 with respect to a leased 
wire, teletypewriter or talking circuit special service shall apply 
whether or not the wires or services are within a local exchange area. 
§ 4252(d) 
504 
INTERNAL REVENUE CODE OF 1954 
(e) W I R E AND EQUIPMENT SERVICE.—As used in section 4251 the 
term "wire and equipment service" shall include stock quotation 
and information services, burglar alarm or fire alarm service, and all 
other similar services, but not including service described in subsec-
tion (d) of this section. 
The tax imposed by section 4251 with respect 
to wire and equipment service shall apply whether or not the wires or 
services are within a local exchange area. 
SEC. 4253. EXEMPTIONS. 
(a) CERTAIN COIN-OPERATED SERVICE.—Services paid for by insert-
ing coins in coin-operated telephones available to the public shall not 
be subject to the tax imposed by section 4251 with respect to local 
telephone service, except that where such coin-operated telephone 
service is furnished for a guaranteed amount, the amounts paid under 
such guarantee plus any fixed monthly or other periodic charge shall 
be subject to the tax. 
(b) N E W S SERVICES.—No tax shall be imposed under section 4251, 
except with respect to local telephone service, upon any payment re-
ceived from any person for services or facilities utilized in the collection 
of news for the public press, or a news ticker service furnishing a 
general news service similar to that of the public press, or radio broad-
casting, or in the dissemination of news through the public press, or a 
news ticker service furnishing a general news service similar to that of 
the public press, or by means of radio broadcasting, if the charge for 
such services or facilities is billed in writing to such person. 
(c) CERTAIN ORGANIZATIONS.—No tax shall be imposed under 
section 4251 upon any payment received for services or facilities 
furnished to an international organization, or any organization created 
by act of Congress to act in matters of relief under the treaty of 
Geneva of August 22, 1864. 
(d) SERVICEMEN IN COMBAT ZONE.—No tax shall be imposed under 
section 4251 with respect to long distance telephone service upon any 
payment received for any telephone or radio telephone message which 
originates within a combat zone, as defined in section 112, from a 
member of the Armed Forces of the United States performing service 
in such combat zone, as determined under such section, provided a 
certificate, setting forth such facts as the Secretary or his delegate 
may by regulations prescribe, is furnished to the person receiving 
such payment. 
(e) FOR ITEMS OTHERWISE TAXED.—Only one payment of tax under 
section 4251 shall be required with respect to the tax on long distance 
telephone service or telegraph service notwithstanding the lines or 
stations of one or more persons are used in the transmission of such 
dispatch, message or conversation. 
(f) SPECIAL WIRE SERVICE IN COMPANY BUSINESS.—No tax shall 
be imposed under section 4251 on the amount paid for so much of the 
service described in sections 4252 (d) and (e) as is utilized in the con-
duct, by a common carrier or a telephone or telegraph company or 
radio broadcasting station or network, of its business as such. 
SEC. 4254. COMPUTATION OF TAX. 
(a) I N GENERAL.—If a bill is rendered the taxpayer for telephone 
services or telegraph services with respect to which a tax is imposed 
by section 4251, the amount upon which the tax shall be based shall 
§ 4252(e) 
CH. 33—FACILITIES AND SERVICES 
505 
be the sum of all such charges included in the bill, and the tax shall 
not be based upon the charge for each item, separately, included in 
the bill. 
(b) WHERE PAYMENT I S MADE FOR LONG DISTANCE TELEPHONE 
SERVICE OR TELEGRAPH SERVICE IN COIN-OPERATED TELEPHONES.— 
If the tax imposed by section 4251 with respect to long distance 
telephone service or telegraph service is paid by inserting coins in 
coin-operated telephones, tax shall be computed to the nearest mul-
tiple of 5 cents, except that where the tax is midway between multiples 
of 5 cents, the next higher multiple shall apply. 
''''' .lo-St- .1'3.E 
ad ilmk 
§ 4254(b) 
49012°—54 
35 
506 
INTERNAL REVENUE CODE 
OF 
1954 
Subchapter C—Transportation 
Part 
I. Persons. 
Part II. Property. 
Part III. Oil by pipeline. 
PART I—PERSONS 
Sec. 4261. Imposition of tax. 
Sec. 4262. Exemptions. 
SEC. 4261. IMPOSITION OF TAX. 
(a) AMOUNTS PAID WITHIN THE UNITED STATES.—There is hereby 
imposed upon the amount paid within the United States for the trans-
portation of persons by rail, motor vehicle, water, or air within or 
without the United States a tax equal to 10 percent of the amount 
so paid. 
(b) AMOUNTS PAID WITHOUT THE UNITED STATES.—There is hereby 
imposed upon the amount paid without the United States for the 
transportation of persons by rail, motor vehicle, water, or air which 
begins and ends in the United States a tax equal to 10 percent of the 
amount so paid. 
(c) SEATS, 
BERTHS, ETC.—There is hereby imposed upon the 
amount paid for seating or sleeping accommodations in connection 
with transportation with respect to which a tax is imposed by sub-
section (a) or (b) a tax equivalent to 10 percent of the amount so 
paid. 
(d) B Y WHOM PAID.—The taxes imposed by this section shall be 
paid by the person making the payment subject to the tax. 
SEC. 4262. EXEMPTIONS. 
(a) CERTAIN FOREIGN TRAVEL.—The tax imposed by section 4261 
shall not apply with respect to transportation any part of which is 
outside the northern portion of the Western Hemisphere, except with 
respect to any part of such transportation which is from any port or 
station within the United States, Canada, or Mexico to any other 
port or station within the United States, Canada, or Mexico. In the 
case of transportation by water on a vessel which makes one or more 
intermediate stops at ports within the United States, Canada, or 
Mexico on a voyage which begins or ends in the United States and 
ends or begins outside the northern portion of the Western Hemi-
sphere, no part of such transportation shall be considered for the pur-
poses of the preceding sentence to be from any port within the United 
States, Canada, or Mexico to any other such port if the vessel in 
stopping at any such intermediate port is not authorized both to 
discharge and to take on passengers. A port or station within New-
foundland shall not, for the purposes of the preceding two sentences, 
be considered as a port or station within Canada. 
For the purposes 
of this section, the words "northern portion of the Western Hemi-
sphere" mean the area lying west of the 30th meridian west of Green-
§4261 
cs - ir, 
-IGO. 
CH. 33—FACILITIES AND SERVICES 
507 
wich, east of the International Date Line, and north of the equator, 
but not including any country of South America. 
(b) COMMUTATION TRAVEL, ETC.—The tax imposed by section 4261 
shall not apply to amounts paid for transportation which do not exceed 
35 cents, to amounts paid for commutation or season tickets for single 
trips of less than 30 miles, or to amounts paid for commutation 
tickets for one month or less. 
(c) SMALL VEHICLES ON NONESTABLISHED LINES.—The tax im-
posed by section 4261 shall not apply to transportation by motor 
vehicles having a passenger seating capacity of less than ten adult 
passengers, including the driver, except when such vehicle is operated 
on an established line. 
(d) FISHING TRIPS.—The tax imposed by section 4261 shall not 
apply to amounts paid for transportation by boat for the purpose of 
fishing from such boat. 
(e) CERTAIN ORGANIZATIONS.—The tax imposed by section 4261 
shall not apply to the payment for transportation or facilities fur-
nished to an international organization, or any corporation created 
by act of Congress to act in matters of relief under the treaty of 
Geneva of August 22, 1864. 
(f) MEMBERS OF THE ARMED FORCES.—The tax imposed by section 
4261 shall not apply to the payment for transportation or facilities 
furnished under special tariffs providing for fares of not more than 
2.025 cents per mile applicable to round-trip tickets sold to personnel 
of the United States Army, Air Force, Navy, Marine Corps, and 
Coast Guard traveling in uniform of the United States at their own 
expense when on official leave, furlough, or pass, including authorized 
cadets and midshipmen, issued on presentation of properly executed 
certificate. 
PART II—PROPERTY 
Sec. 4271. Imposition of tax. 
Sec. 4272. Exemptions. 
Sec. 4273. Registration. 
SEC. 4271. IMPOSITION OF TAX. 
^^» 
(a) PROPERTY OTHER THAN COAL.—There is hereby imposed upon 
the amount paid within or without the United States for the transpor-
tation of property, except coal, by rail, motor vehicle, water, or air from 
one point in the United States to another, a tax equal to 3 percent of 
the amount so paid. 
(b) COAL.—There is hereby imposed upon the amount paid within 
or without the United States for the transportation of coal by rail, 
motor vehicle, water, or air from one point in the United States to 
another, a tax equal to 4 cents per short ton for the coal so transported. 
(c) APPLICATION OP TAX TO TRANSPORTATION PARTIALLY WITHIN 
THE UNITED STATES.—In the case of property transported from a 
point without the United States to a point within the United States, 
the tax shall apply to the amount paid within the United States for 
that part of the transportation which takes place within the United 
States. 
(d) B Y WHOM PAID.—The taxes imposed by this section shall be 
paid by the person making the payment subject to the tax. 
§ 4271(d) 
508 
INTERNAL REVENUE CODE OF 1954 
SEC. 4272. EXEMPTIONS. 
(a) N O T IN BUSINESS FOR HIRE.—The tax imposed under section 
4271 shall apply only to amounts paid to a person engaged in the 
business of transporting property for hire, including amounts paid to 
a freight forwarder, express company, or similar person, but not 
including amounts paid by a freight forwarder, express company, or 
similar person for transportation with respect to which a tax has 
previously been paid under such section. 
(b) CONSTRUCTION PROJECTS.—The tax imposed by section 4271 
shall not apply to the transportation of earth, rock, or other material 
excavated within the boundaries of, and in the course of, a construc-
tion project and transported to any place within, or adjacent to, the 
boundaries of such project. 
(c) COAL PREVIOUSLY TAXED.—The tax imposed by section 4271 
(b) on the transportation of coal shall not apply to the transportation 
of coal with respect to which there has been a previous taxable 
transportation. 
(d) CERTAIN ORGANIZATIONS.—The tax imposed by section 4271 
shall not apply to amounts paid for the transportation of property to 
or from an international organization, or any corporation created by 
act of Congress to act in matters of relief under the treaty of Geneva 
of August 22, 1864. 
(e) POST OFFICE DEPARTMENT.—The tax imposed by section 4271 
shall not apply to amounts paid to the Post Office Department for the 
transportation of property. 
SEC. 4273. REGISTRATION. 
Every person engaged in the business of transporting property for 
hire, including freight forwarders, express companies, and similar 
persons, shall, within 60 days after first engaging in the business of 
transportation of property for hire, register his name and his place 
or places of business with the Secretary or his delegate. 
PART III—OIL BY PIPELINE 
Sec. 4281. Imposition of tax. 
Sec. 4282. Definition of fair charge. 
Sec. 4283. Exemption for oil transported within premises of a plant. 
SEC. 4281. IMPOSITION OF TAX. 
There is hereby imposed upon all transportation of crude petroleum 
and liquid products thereof by pipeline a tax equivalent to 4}^ percent 
of the amount paid for such transportation. 
If no charge for trans-
portation is made (either by reason of ownership of the commodity 
transported or for any other reason), or if the payment for transporta-
tion is less than the fair charge therefor (other than in the case of an 
arm's length transaction), such tax shall be imposed on the fair charge 
for such transportation. 
The tax imposed by this section is to be paid 
by the person furnishing such transportation. 
SEC. 4282. DEFINITION OF FAIR CHARGE. 
For the purposes of section 4281, the fair charge for transportation 
shall be computed 
(1) from actual bona fide rates or tariffs; or 
§4272 
CH. 3 3—FACILITIES AND SERVICES 
509 
(2) if no such rates or tariffs exist, then on the basis of the actual 
bona fide rates or tariffs of other pipehnes for Hke services, as deter-
mined by the Secretary or his delegate; or 
(3) if no such rates or tariffs exist, then on the basis of a reason-
able charge for such transportation, as determined by the Secretary 
or his delegate. 
SEC. 4283. EXEMPTION FOR OIL TRANSPORTED WITHIN PREMISES 
OF A PLANT. 
For the purposes of section 4281, the term "transportation" shall not 
include any movement through lines of pipe within the premises of a 
refinery, a bulk plant, a terminal, or a gasoline plant, if such movement 
is not a continuation of a taxable transportation. 
The crossing of 
rights-of-way, streets, highways, railroads, levees, or narrow bodies of 
water, in connection with such a movement, shall not of itself consti-
tute such movement as being "transportation." 
§4283 
510 
INTERNAL REVENUE CODE OF 1954 
Subchapter D—Safe Deposit Boxes 
Sec. 4286, Imposition of tax. 
>'Ei' 
le 
Sec. 4287. Definition of safe deposit box. 
SEC. 4286. IMPOSITION OF TAX. 
There is hereby imposed a tax equivalent to 10 percent of the 
amount collected for the use of any safe deposit box. 
Such tax shall 
be paid by the person paying for the use of the safe deposit box. 
SEC. 4287. DEFINITION OF SAFE DEPOSIT BOX. 
For the purposes of section 4286, any vault, safe, box, or other 
receptacle, of not more than 40 cubic feet capacity, used for the safe-
keeping or storage of jewelry, plate, money, specie, bullion, stocks, 
bonds, securities, valuable papers of any kind, or other valuable 
personal property, shall be regarded as a safe deposit box. 
§4286 
CH. 33—FACILITIES AND SERVICES 
5 H 
Subchapter E—Special Provisions Applicable to Services and 
Facilities Taxes 
Sec. 4291. Cases where persons receiving payment must collect tax. 
Sec. 4292. State and local governmental exemption. 
Sec. 4293. Exemption for United States and possessions. 
Sec. 4294. Cross reference to general administrative provisions. 
SEC. 4291. CASES WHERE PERSONS RECEIVING PAYMENT MUST 
COLLECT TAX. 
Every person receiving any payment for facilities or services on 
which a tax is imposed upon the payor thereof under this chapter, 
shall collect the amount of the tax from the person making such 
payment, except that if the payment specified in section 4261 is 
made outside the United States for a prepaid order, exchange order, 
or similar order, the person furnishing the initial transportation pur-
suant to such order shall collect the amount of the tax. 
For the 
purpose of this section every club or organization having life members 
shall collect the tax imposed on life memberships by section 4241, 
SEC. 4292. STATE AND LOCAL GOVERNMENTAL EXEMPTION. 
Under regulations prescribed by the Secretary or his delegate, no 
tax shall be imposed under section 4251, 4261, or 4271 upon (1) any 
payment received for services or facilities furnished to or (2) amounts 
paid for the transportation of property to or from the Government 
of any State, Territory of the United States, or any political sub-
division of the foregoing or the District of Columbia. 
SEC. 4293. EXEMPTION FOR UNITED STATES AND POSSESSIONS. 
The Secretary may authorize exemption from the taxes imposed 
by chapters 31 and 32 and subchapters B and C of chapter 33, as to 
any particular article, or service or class of articles or services, to be 
purchased for the exclusive use of the United States, if he determines 
that the imposition of such taxes with respect to such articles or 
services, or class of articles or services will cause substantial burden 
or expense which can be avoided by granting tax exemption and that 
full benefit of such exemption, if granted, will accrue to the United 
States. 
SEC. 4294. CROSS REFERENCE TO GENERAL ADMINISTRATIVE PRO-
VISIONS. 
See Subtitle F for administrative provisions of general application to 
the taxes imposed under this chapter. 
§4294 
asiorrnsa UKA e^rwuiDixi-^--^i:\im' 
i '^ 
»J- r K 
', i 
r>'. 9rft 
CH. 3 4—DOCUMENTARY STAMP TAXES 
513 
CHAPTER 
34—DOCUMENTARY STAMP TAXES 
SUBCHAPTER A, Issuance of capital stock and certificates of indebt-
edness by a corporation. 
SUBCHAPTER B . Sales or transfers of capital stock and certificates 
of indebtedness of a corporation. 
SUBCHAPTER C. Conveyances. 
SUBCHAPTER D . Policies issued by foreign insurers. 
SUBCHAPTER E . Miscellaneous provisions applicable to documentary 
stamp taxes. 
Subchapter A—Issuance of Capital Stock and Certificate of 
Indebtedness by a Corporation 
Part I. Issuance of capital stock and similar interests. 
Part II. Issuance of certificates of indebtedness. 
PART I—ISSUANCE OF CAPITAL STOCK AND SIMILAR 
INTERESTS 
Sec. 4301. Imposition of tax. 
,, ^ 
Sec. 4302. Recapitalization. 
' " 
Sec. 4303. Exemptions. 
Sec. 4304. Affixing of stamps. 
Sec. 4305. Cross references, 
SEC. 4301. IMPOSITION OF TAX. 
There shall be imposed a tax on each original issue of shares or 
certificates of stock, issued by a corporation, whether on organization 
or reorganization, at the following rates: 
(1) PAR VALUE STOCK.—Eleven cents on each $100 or fraction 
thereof of the par or face value of each certificate (or of the shares 
where no certificate is issued). 
J, , 
(2) NO-PAR-VALUE STOCK.— 
(A) ACTUAL VALUE OF $100 OR MORE PER SHARE.—Eleven cents 
on each $100 or fraction thereof of the actual value of each 
certificate (or of the shares where no certificate is issued). 
(B) ACTUAL VALUE OF LESS THAN $100 PER SHARE.—Three cents 
on each $20 or fraction thereof of the actual value of each certifi-
cate (or of the shares where no certificate is issued). 
SEC. 4302. RECAPITALIZATION. 
In the case of a recapitalization, the tax imposed by section 4301 
shall be that proportion of the tax computed on the certificates (or on 
the shares where no certificates are issued) issued in the recapitaliza-
tion that (1) the amount dedicated as capital for the first time by the 
recapitalization, whether by a transfer of earned surplus or otherwise, 
bears to (2) the total par value tor actual value if no par stock) 01 
such certificates or shares issued in the recapitalization. 
§4302 
514 
INTERNAL REVENUE CODE OF 19 54 
SEC. 4303. EXEMPTIONS. 
(a) COMMON TRUST FUNDS.—The tax imposed by section 4301 
shall not apply to the issue of shares or certificates of a common trust 
fund, as defined in section 584. 
(b) OTHER EXEMPTIONS.— 
For other exemptions, see section 4382. 
SEC. 4304. AFFIXING OF STAMPS. 
The stamps representing the tax imposed by section 4301 shall be 
affixed to the stock books or corresponding records of the organization 
and not to the certificates issued. 
SEC. 4305. CROSS REFERENCES. 
For definitions, penalties, and other general and administrative pro-
visions applicable to this part, see sections 4381 and 4383 and subtitle F. 
PART II—ISSUANCE OF CERTIFICATES OF INDEBTEDNESS 
Sec. 4311. Imposition of tax. 
Sec. 4312. Definitions. 
, . 
Sec. 4313. Renewals. 
.• 
Sec. 4314. Bond as security for debt. 
Sec. 4315. Exemptions. 
, „^,..,, ,., 
Sec. 4316. Cross references. 
- 
i 1^41,. J 
SEC. 4311. IMPOSITION OF TAX. 
There shall be imposed a tax on all certificates of indebtedness 
issued by a corporation at the rate of 11 cents on each $100 of face 
value or fraction thereof. 
SEC. 4312. DEFINITIONS. 
(a) CORPORATION.—For the purpose of section 4311 the term 
"corporation" includes any receiver, trustee in bankruptcy, assignee, 
or other person, having custody of property, or charge of the affairs, 
of the corporation. 
(b) CROSS KEFERENCES.— 
For other definitions, see section 4381 and subtitle F. 
SEC. 4313. RENEWALS. 
Every renewal of any certificate of indebtedness shall be taxed as a 
new issue. 
SEC. 4314. BOND AS SECURITY FOR DEBT. 
In the case where a bond conditioned for the repayment or payment 
of money is given in a penal sum greater than the debt secured, the tax 
imposed by section 4311 shall be based upon the amount secured. 
SEC. 4315. EXEMPTIONS. 
(a) INSTALLMENT PURCHASE OF OBLIGATIONS.—The tax imposed 
by section 4311 shall not apply to any instrument under the terms of 
which the obligee is required to make payment therefor in installments 
and is not permitted to make in any year a payment of more than 
20 percent of the cash amount to which entitled upon maturity of the 
instrument. 
(b) OTHER EXEMPTIONS.— 
For other exemptions, see section 4382. 
SEC. 4316. CROSS REFERENCES. 
For penalties and other general and administrative provisions ap-
plicable to this part, see section 4383 and subtitle F. 
§ 4303 
CH. 34—DOCUMENTARY STAMP TAXES 
515 
Subchapter B—Sales or Transfers of Capital Stock and 
Certificates of Indebtedness of a Corporation 
Part 
I. Sales or transfers of capital stock and similar interests. 
Part II. Sales or transfers of certificates of indebtedness. 
Part III. Provisions common to sales or transfers of capital stock 
and certificates of indebtedness. 
PART I—SALES OR TRANSFERS OF CAPITAL STOCK AND 
SIMILAR INTERESTS 
Sec. 4321. Imposition of tax. 
Sec. 4322. Exemptions. 
Sec. 4323. Affixing of stamps. 
Sec. 4324. Cross references. 
SEC. 4321. IMPOSITION OF TAX. 
There shall be imposed a tax on each sale or transfer of shares or 
certificates of stock, or of rights to subscribe for or to receive such 
shares or certificates, issued by a corporation, at the following rates: 
(1) PAR-VALUE STOCK.—Five cents on each $100 or fraction 
thereof of the par or face value of each certificate (or of the shares 
where no certificate is sold or transferred), except as provided in 
paragraph (3). 
(2) NO-PAR-VALUE STOCK.—Five cents on each share, except as 
provided in paragraph (3). 
(3) EXCEPTION.—In the case of a sale at $20 or more per share, 
the rate provided in paragraphs (1) and (2) shall be 6 cents in lieu 
of 5 cents. 
SEC. 4322. EXEMPTIONS. 
(a) EXEMPTIONS FOR CERTAIN TRANSFERS.—The tax imposed by 
section 4321 shall not apply to any delivery or transfer of shares, 
certificates, or rights— 
(1) LOANS.—To a borrower as a loan of such shares, certificates, 
or rights, or to the lender as a return of such loan; 
(2) BROKERS.—To a broker or his registered nominee for sale of 
such shares, certificates, or rights; by a broker or his registered 
nominee to a customer for whom and upon whose order the broker 
has purchased same; or by a purchasing broker to his registered 
nominee to be held by such nominee for the same purpose as if 
held by the broker; 
(3) CORPORATIONS.—From a corporation to a registered nominee 
of such corporation, or from one such nominee to another such 
nominee, provided that in each instance such shares, certificates, 
or rights are to be held by the nominee for the same purpose as if 
retained by the corporation; or from such nominee to such corpo-
ration; or 
(4) WORTHLESS STOCK.—By an executor or administrator to a 
legatee, heir, or distributee, if it is shown to the satisfaction of the 
Secretary or his delegate that the value of such shares, certificates, 
§ 4322(a)(4) 
516 
INTERNAL REVENUE CODE 
OF 1954 
or rights is not greater than the amount of the tax that would 
otherwise be imposed on such deHvery or transfer, 
(b) OTHER EXEMPTIONS.— 
For other exemptions, see sections 4341 to 4343, inclusive, and 
section 4382. 
SEC. 4323. AFFIXING OF STAMPS. 
(a) BOOKS OF THE CORPORATION.—The stamps representing the tax 
imposed by section 4321 shall be affixed to the books of the corporation 
in case of sale where the evidence of transfer is shown only by the 
books of the corporation. 
(b) OTHER EVIDENCES OF SALE OR TRANSFER.— 
For provisions applicable to the affixing of stamps in cases of sale or 
transfer shown otherwise than only by the books of the corporation, see 
section 4353. 
SEC. 4324. CROSS REFERENCES. 
For definitions, penalties, and other general and administrative 
provisions applicable to this part, see sections 4344, 4351, 4352, 4381, 
and 4383, and subtitle F. 
PART 11—SALES OR TRANSFERS OF CERTIFICATES OF 
INDEBTEDNESS 
Sec. 4331. Imposition of tax. 
Sec. 4332, Exemptions. 
Sec. 4333. Cross references. 
SEC. 4331. IMPOSITION OF TAX. 
There shall be imposed a tax on each sale or transfer of any certifi-
cates of indebtedness, issued by a corporation, at the rate of 5 cents 
on each $100 or fraction thereof of the face value. 
SEC. 4332. EXEMPTIONS. 
(a) BROKERS.—The tax imposed by section 4331 shall not apply to 
any delivery or transfer to a broker for sale, nor upon any delivery or 
transfer by a broker to a customer for whom and upon whose order 
he has purchased same. 
(b) OTHER EXEMPTIONS.— 
For other exemptions, see sections 4341 to 4343, inclusive, and sec-
tion 4382. 
SEC. 4333. CROSS REFERENCES. 
For definitions, penalties, and other general and administrative 
provisions applicable to this part, see sections 4344, 4381, and 4383; 
sections 4351 to 4353 inclusive; and subtitle F. 
§ 4322(a)(4) 
CH. 34—DOCUMENTARY STAMP TAXES 
517 
PART III—PROVISIONS COMMON TO SALES OR TRANSFERS 
OF CAPITAL STOCK AND CERTIFICATES OF INDEBTED-
NESS 
Subpart A. Exemptions. 
Subpart B. Miscellaneous provisions. 
Subpart A—Exemptions 
^^'''' 
Sec. 4341. Transfers as security. 
Sec. 4342. Fiduciaries and custodians. 
Sec. 4343. Transfers by operation of law. 
Sec. 4344. Exemption certificates. 
Sec. 4345. Cross references. 
SEC. 4341. TRANSFERS AS SECURITY. 
The taxes imposed by sections 4321 and 4331 shall not apply to any 
delivery or transfer of any of the instruments referred to in such 
sections— 
(1) COLLATERAL SECURITY.—To a lender as collateral security for 
money loaned thereon, provided that such collateral security is not 
actually sold; or 
(2) SECURITY FOR PERFORMANCE.—To a trustee or public officer 
made pursuant to Federal or State law as security for the perform-
ance of an obligation, or by such trustee or public officer as a return 
of such security. 
SEC. 4342. FIDUCIARIES AND CUSTODIANS. 
The taxes imposed by sections 4321 and 4331 shall not apply to any 
delivery or transfer of any of the instruments referred to in such 
sections— 
(1) FIDUCIARIES.—From a fiduciary to his nominee, or from one 
nominee of the fiduciary to another nominee, provided that in each 
instance such instruments are to be held by the nominee for the 
same purpose as if retained by the fiduciary; or from the nominee 
to such fiduciary; or 
(2) CUSTODIANS.— 
(A) from the owner to a custodian if under a written agreement 
between the parties such instruments are to be held or disposed of 
by such custodian for, and subject at all times to the instructions 
of, the owner; or from such custodian to such owner; 
(B) from a custodian as specified in subparagraph (A) to a regis-
tered nominee of such custodian, or from one such nominee to 
another such nominee, provided that in each instance such instru-
ments are to be held by the nominee for the same purpose as if 
.^. 
retained by the custodian; or from such nominee to such cus-
todian. 
SEC. 4343. TRANSFERS BY OPERATION OF LAW. 
(a) EXEMPT TRANSFERS.—The taxes imposed by sections 4321 and 
4331 shall not apply to any delivery or transfer of any of the instru-
ments referred to in such sections— 
(1) DECEDENTS.—From a decedent to his executor or adminis-
trator; 
(2) MINORS.—From a minor to his guardian, or from a guardian 
to his ward upon attaining majority; 
(3) INCOMPETENTS.—From an incompetent to his committee or 
similar legal representative, or from a committee or similar legal 
representative to a former incompetent upon removal of disability; 
§ 4343(a)(3) 
518 
INTERNAL REVENUE CODE OF 19 
54 
(4) FINANCIAL INSTITUTIONS.—From a bank, trust company, 
financial institution, insurance company, or other similar entity, 
or nominee, custodian, or trustee therefor, to a public officer or 
commission, or.,person designated by such officer or commission or 
by a court, in the taking over of its assets, in whole or part, under 
Federal or State law regulating or supervising such institutions, nor 
upon redelivery or re transfer by any such transferee or successor 
thereto; 
(5) BANKRUPTS.—From a bankrupt or person in receivership due 
to insolvency to the trustee in bankruptcy or receiver, from such 
receiver to such trustee, or from such trustee to such receiver, nor 
upon redelivery or re 
transfer by any such transferee or successor 
thereto; 
(6) SUCCESSORS.—From a transferee under paragraphs (1) to 
(5), inclusive, to his successor acting in the same capacity, or from 
one such successor to another; 
(7) FOREIGN 
GOVERNMENTS 
AND 
ALIENS.—From 
a 
foreign 
country or national thereof to the United States or any agency 
thereof, or to the government of any foreign country, directed 
pursuant to the authority vested in the President by section 5 (b) 
of the Trading with the Enemy Act (40 Stat. 415), as amended by 
the First War Powers Act, 1941 (55 Stat. 838; 50 U. S. C. App. 5); 
(8) TRUSTEES.—From trustees to surviving, substituted, suc-
ceeding, or additional trustees of the same trust; or 
(9) SURVIVORS.—Upon the death of a joint tenant or tenant by 
the entireties, to the survivor or survivors. 
(b) NoNEXEMPT TRANSFERS.—No delivery or transfer shall be 
exempt because effected by operation of law unless an exemption is 
otherwise specifically provided. 
SEC. 4344. EXEMPTION 
CERTIFICATES. 
No exemption shall be granted under section 4322 (a) (1), (2), or 
(3), section 4332 (a), section 4341 (2), section 4342, or under section 
4343 (a) unless the delivery or transfer is accompanied by a certificate 
setting forth such facts as the Secretary or his delegate may by 
regulations prescribe. 
SEC. 4345. CROSS REFERENCES. 
For other exemptions, see sections 4322, 4332, and 4382. 
Subpart B—Miscellaneous Provisions 
Sec. 4351. Definitions. 
Sec. 4352. Stock or certificates of indebtedness owned by a partner-
ship. 
Sec. 4353. Affixing of stamps. 
Sec. 4354. Cross references. 
SEC. 4351. DEFINITIONS. 
(a) KEGISTERED NOMINEE.—For the purpose of this subchapter, the 
term "registered nominee" means any person registered with the 
official in charge of the collection district in accordance with such 
regulations as the Secretary or his delegate shall prescribe. 
(b) SALE OR TRANSFER.—For the purpose of this subchapter, the 
term ''sale or transfer" means any sale, agreement to sell, memo-
randum of sale or delivery, or transfer of legal title, whether or not 
§ 4343(a)(4) 
CH. 34—DOCUMENTARY STAMP TAXES 
519 
shown by the books of the corporation or other organization (or by 
any assignment in blank, or by any deHvery, or by any paper or agree-
ment or memorandum or other evidence of transfer or sale); and 
whether or not the holder acquires a beneficial interest in the instru-
ments. 
SEC. 4352. STOCK OR CERTIFICATES OF INDEBTEDNESS OWNED BY 
A PARTNERSHIP. 
In the case of a transfer of an interest in a partnership owning any 
of the instruments referred to in sections 4321 and 4331, the tax im-
posed by each of such sections shall be that proportion of the tax 
computed on the transfer of all of the instruments taxable under each 
of such sections that— 
(1) the interest in the partnership transferred bears to 
(2) the total interests in the partnership of all the partners. 
SEC. 4353. AFFIXING OF STAMPS. 
The stamps representing the taxes imposed by section 4321 and 
section 4331 shall be afl&xed to— 
(1) INSTRUMENT.—The instrument where the change of owner-
ship is by transfer of the instrument; 
(2) BILL OR MEMORANDUM OF SALE.—The bill or memorandum of 
sale in cases of an agreement to sell or where the transfer is by deliv-
ery of the instrument assigned in blank; such bill or memorandum 
of sale shall be made and delivered by the seller to the buyer, and 
shall show the date thereof, the name of the seller, the amount of 
the sale, and the instrument to which it refers. 
SEC. 4354. CROSS REFERENCES. 
For penalties and other general and administrative provisions appli-
cable to this subchapter, see section 4383 and subtitle F. 
§4354 
520 
INTERNAL REVENUE CODE OF 1954 
Subchapter C—Conveyances 
Sec. 4361. Imposition of tax. 
Sec. 4362. Exemptions. 
Sec. 4363. Cross references. 
SEC. 4361. IMPOSITION OF TAX. 
There shall be imposed a tax on each deed, instrument, or writing 
(unless deposited in escrow before April 1, 1932), whereby any lands, 
tenements, or other realty sold shall be granted, assigned, transferred, 
or otherwise conveyed to, or vested in, the purchaser or purchasers, 
or any other person or persons, by his, her, or their direction, when 
the consideration or value of the interest or property conveyed, ex-
clusive of the value of any lien or encumbrance remaining thereon 
at the time of sale, exceeds $100 and does not exceed $500, in the 
amount of 55 cents; and at the rate of 55 cents for each additional 
$500 or fractional part thereof. 
SEC. 4362. EXEMPTIONS. 
(a) SECURITY FOR DEBT.—The tax imposed by section 4361 shall 
not apply to any instrument or writing given to secure a debt. 
(b) OTHER EXEMPTIONS.— 
For other exemptions, see section 4382. 
SEC. 4363. CROSS REFERENCES. 
For penalties and other general and administrative provisions appli-
cable to this subchapter, see section 4383 and subtitle F. 
§4361 
CH. 34—DOCUMENTARY STAMP TAXES 
521 
Subchapter D—Policies Issued by Foreign Insurers 
Sec. 4371. Imposition of tax. 
: i 
Sec. 4372. Definitions. 
<i,' 
Sec. 4373. Exemptions. 
Sec. 4374. Affixing of stamps. 
,-r-, . - ' , 
Sec. 4375. Cross references. 
SEC. 4371. IMPOSITION OF TAX. 
There shall be imposed a tax on each policy of insurance, indemnity 
bond, annuity contract, or policy of reinsurance issued by any foreign 
insurer or reinsurer at the following rates: 
(1) CASUALTY INSURANCE AND INDEMNITY BONDS.—Four cents 
on each dollar, or fractional part thereof, of the premium charged 
on the policy of casualty insurance or the indemnity bond, if issued 
V to or for, or in the name of, an insured as defined in section 4372 (d); 
(2) LIFE INSURANCE, SICKNESS, AND ACCIDENT POLICIES, AND 
' ANNUITY CONTRACTS.—One ccut on each dollar, or fractional part 
thereof, of the premium charged on the policy of life, sickness, or 
f. accident insurance, or annuity contract, unless the insurer is sub-
ject to tax under section 807; 
(3) REINSURANCE.—One cent on each dollar, or fractional part 
thereof, of the premium charged on the policy of reinsurance cover-
ing any of the contracts taxable under paragraph (1) or (2). 
SEC. 4372. DEFINITIONS. 
(a) FOREIGN INSURER OR REINSURER.—For the purpose of this 
subchapter, the term "foreign insurer or reinsurer" means an insurer 
or reinsurer who is a nonresident alien individual, or a foreign partner-
ship, or a foreign corporation. The term includes a nonresident alien 
individual, foreign partnership, or foreign corporation which shall 
become bound by an obligation of the nature of an indemnity bond. 
(b) POLICY OF CASUALTY INSURANCE.—For the purpose of section 
4371 (1), the term "policy of casualty insurance" means any policy 
(other than life) or other instrument by whatever name called whereby 
a contract of insurance is made, continued, or renewed. 
(c) INDEMNITY BOND.—For the purpose of this subchapter, the 
term "indemnity bond" means any instrument by whatever name 
called whereby an obligation of the nature of an indemnity, fidelity, 
or surety bond is made, continued, or renewed. 
The term includes 
any bond for indemnifying any person who shall have become bound 
or engaged as surety, and any bond for the due execution or perform-
ance of any contract, obligation, or requirement, or the duties of any 
ofiice or position, and to account for money received by virtue thereof, 
where a premium is charged for the execution of such bond. 
(d) INSURED.—For the purpose of section 4371 (1), the term 
"insured" means— 
(1) a domestic corporation or partnership, or an individual 
resident of the United States, against, or with respect to, hazards, 
risks, losses, or liabilities wholly or partly within the United States, 
or 
§ 4372(d)(1) 
49012°—54 
36 
522 
INTERNAL REVENUE CODE 
OF 
1954 
(2) a foreign corporation, foreign partnership, or nonresident 
individual, engaged in a trade or business within the United States, 
with respect to hazards, risks, or liabilities within the United States. 
(e) POLICY OF LIFE, 
SICKNESS, OR ACCIDENT 
INSURANCE, OR 
ANNUITY CONTRACT.—For the purpose of section 4371 (2), the term 
"policy of life, sickness, or accident insurance, or annuity contract" 
means any policy or other instrument by whatever name called 
whereby a contract of insurance or an annuity contract is made, 
continued, or renewed with respect to the life or hazards to the 
person of a citizen or resident of the United States. 
(f) POLICY OF REINSURANCE.—For the purpose of section 4371 (3), 
the term "policy of reinsurance" means any policy or other instrument 
by whatever name called whereby a contract of reinsurance is made, 
continued, or renewed against, or with respect to, any of the hazards, 
risks, losses, or liabilities covered by contracts taxable under paragraph 
(1) or (2) of section 4371. 
SEC. 4373. EXEMPTIONS. 
The tax imposed by section 4371 shall not apply to— 
(1) DOMESTIC AGENT.—Any policy, indemnity bond, or annuity 
contract signed or countersigned by an officer or agent of the insurer 
in a State, Territory, or District of the United States within which 
such insurer is authorized to do business; or 
(2) INDEMNITY BOND.—Any indemnity bond required to be filed 
by any person to secure payment of any pension, allowance, allot-
ment, relief, or insurance by the United States, or to secure a 
duplicate for, or the payment of, any bond, note, certificate of 
indebtedness, war-saving certificate, warrant or check, issued by 
the United States. 
SEC. 4374. AFFIXING OF STAMPS. 
Any person to or for whom or in whose name any policy, indemnity 
bond, or annuity contract referred to in section 4371 is issued, or 
any solicitor or broker acting for or on behalf of such person in the 
procurement of any such instrument, shall affix the proper stamps to 
such instrument. 
SEC. 4375. CROSS REFERENCES. 
For penalties and other general and administrative provisions, see 
section 4383 and subtitle F. 
§ 4372(d)(2) 
)
,
& — !G—^tiooi-
CH. 34—DOCUMENTARY STAMP TAXES 
523 
Subchapter E—Miscellaneous Provisions Applicable to 
Documentary Stamp Taxes 
Sec. 4381. Definitions. 
Sec. 4382. Exemptions. 
' 
Sec. 4383. Liability for tax. 
. 
, 
SEC. 4381. DEFINITIONS. 
(a) CERTIFICATES OF INDEBTEDNESS.—For purposes of the taxes 
imposed by sections 4311 and 4331, the term "certificates of indebted-
ness" means bonds and debentures; and also includes all instruments, 
however termed, issued by a corporation with interest coupons or in 
registered form, known generally as corporate securities. 
(b) CORPORATION.—For purposes of the taxes imposed by sec-
tions 4301 and 4331, the term "corporation" includes any investment 
trust or similar organization (or any person acting in behalf of such 
investment trust or similar organization) holding or dealing in shares 
or certificates of stock, or in certificates of indebtedness. The defi-
nition herein shall not be construed to limit the effect of the definition 
of the term "corporation" provided in section 7701 (a) (3). 
(c) SHARES OR CERTIFICATES OF STOCK.—For purposes of the 
taxes imposed by sections 4301 and 4331, the term "shares or certifi-
cates of stock" includes shares or certificates of profits or of interest in 
property or accumulations. 
SEC. 4382. EXEMPTIONS. 
(a) The taxes imposed by this chapter shall not apply to— 
^
^ 
(1) GOVERNMENT AND STATE OBLIGATIONS.—Any certificate of 
indebtedness, note, or other instrument, issued by the United 
States, or by any foreign Government, or by any State, Territory, 
or the District of Columbia, or local subdivision thereof, or munici-
pal or other corporation exercising the taxing power; 
(2) DOMESTIC BUILDING AND LOAN ASSOCIATIONS AND MUTUAL 
DITCH OR IRRIGATION COMPANIES.—Shares or certificates of stock 
and certificates of indebtedness issued by domestic building and 
loan associations, savings and loan associations, cooperative banks, 
and homestead associations substantially all the business of which 
is confined to making loans to members, or by mutual ditch or 
irrigation companies; 
(3) FARMERS', FRUIT GROWERS', OR COOPERATIVE ASSOCIATIONS.— 
Shares or certificates of stock and certificates of indebtedness issued 
by any farmers' or fruit growers' or like associations organized 
and operated on a cooperative basis for the purposes, and subject 
to the conditions, prescribed in section 521. 
(b) The taxes imposed by sections 4301, 4311, 4321, 4331, and 4361 
shall not apply to— 
(1) CORPORATE AND RAILROAD REORGANIZATIONS.—The issuance, 
transfer, or exchange of securities, or the making, delivery, or filing 
of conveyances to make effective any plan of reorganization or 
adjustment confirmed or approved as indicated below, provided 
§ 4382(b)(1) 
524 
INTERNAL REVENUE CODE OF 1954 
that the issuance, transfer, or exchange of securities, or the making, 
deUvery or fihng of instruments of transfer or conveyances, occurs 
within 5 years from the date of such confirmation or approval— 
(A) confirmed under the Bankruptcy Act, as amended (30 
Stat. 544; U. S. C., title 11), 
(B) approved in an equity receivership proceeding in a court 
involving a railroad corporation, as defined in section 77 (m) of 
the Bankruptcy Act, as amended (49 Stat. 922; 11 U. S. C. 205 
(m)), or 
(C) approved in an equity receivership proceeding in a court 
involving a corporation, as defined in section 106 (3) of the 
Bankruptcy Act, as amended (52 Stat. 883; 11 U. S. C. 506); 
(2) OEDERS OF THE SECURITIES AND EXCHANGE COMMISSION.— 
The issuance, transfer, or exchange of securities, or making or 
delivery of conveyances, to make effective any order of the Securities 
and Exchange Commission as defined in section 1083 (a): Provided, 
That— 
(A) the order of the Securities and Exchange Commission in 
obedience to which such issuance, transfer, or exchange of securi-
ties or conveyances are made recites that such issuance, transfer, 
or exchange, or conveyances are necessary or appropriate to 
effectuate the provisions of section 11 (b) of the Public Utility 
Holding Company Act of 1935 (49 Stat. 820; 15 U. S. C. 
79k (b)), 
(B) such order specifies and itemizes the securities and other 
property which are ordered to be issued, transferred, exchanged, 
or conveyed, and 
(C) such issuance, transfer, or exchange, or conveyance is made 
in obedience to such order. 
SEC. 4383. LIABILITY FOR TAX. 
The tax imposed by this chapter shall be paid by any person who 
makes, signs, issues, or sells any of the documents and instruments 
subject to the taxes imposed by this chapter, or for whose use or 
benefit the same are made, signed, issued, or sold. 
The United States 
or any agency or instrumentality thereof shall not be liable for the 
tax with respect to an instrument to which it is a party, and affixing 
of stamps thereby shall not be deemed payment for the tax, which 
may be collected by assessment from any other party liable therefor. 
§ 4382(b)(1) 
CH. 35—TAXES ON WAGERING 
525 
CHAPTER 
35—TAXES 
ON WAGERING 
StTBCHAPTEB A. Tax on wagers. 
SUBCHAPTER B . Occupational tax. 
SUBCHAPTER C. Miscellaneous provisions. 
Subchapter A—Tax on Wagers 
Sec. 4401. Imposition of tax. 
Sec. 4402. Exemptions. 
. 
Sec. 4403. Record requirements. 
Sec. 4404. Territorial extent. 
Sec. 4405. Cross references. 
SEC. 4401. IMPOSITION OF TAX. 
(a) WAGERS.—There shall be imposed on wagers, as defined in 
section 4421, an excise tax equal to 10 percent of the amount 
thereof. 
(b) AMOUNT OF WAGER.—In determining the amount of any wager 
for the purposes of this subchapter, all charges incident to the placing 
of such wager shall be included; except that if the taxpayer establishes, 
in accordance with regulations prescribed by the Secretary or his 
delegate, that an amount equal to the tax imposed by this subchapter 
has been collected as a separate charge from the person placing such 
wager, the amount so collected shall be excluded. 
(c) PERSONS LIABLE FOR TAX.—Each person who is engaged in the 
business of accepting wagers shall be liable for and shall pay the tax 
under this subchapter on all wagers placed with him. 
Each person 
who conducts any wagering pool or lottery shall be liable for and 
shall pay the tax under this subchapter on all wagers placed in such 
pool or lottery. 
SEC. 4402. EXEMPTIONS. 
No tax shall be imposed by this subchapter— 
(1) PARIMUTUELS.—On any wager placed with, or on any wager 
placed in a wagering pool conducted by, a parimutuel wagering 
enterprise licensed under State law, and 
(2) COIN-OPERATED DEVICES.—On any wager placed in a coin-
operated device with respect to which an occupational tax is imposed 
by section 4461. 
SEC. 4403. RECORD 
REQUIREMENTS. 
Each person liable for tax under this subchapter shall keep a daily 
record showing the gross amount of all wagers on which he is so liable, 
in addition to all other records required pursuant to section 6001 (a). 
SEC. 4404. TERRITORIAL EXTENT. 
The tax imposed by this subchapter shall apply only to wagers 
(1) accepted in the United States, or 
(2) placed by a person who is in the United States 
(A) with a person who is a citizen or resident of the United States, 
or 
§4404(2) (A) 
526 
INTERNAL REVENUE CODE OF 1954 
(B) in a wagering pool or lottery conducted by a person who is a 
citizen or resident of the United States. 
SEC. 4405. CROSS REFERENCES. 
For penalties and other administrative provisions applicable to this 
subchapter, see sections 4421 to 4423, inclusive; and subtitle F. 
'sT- -A loteifsdfiB, 
T-^'^ririTWirTO^^i^i EJ-
•f;7/ iiofe'IOU' Si surv/ 
§ 4404(2) (B) 
CH. 35—TAXES ON WAGERING 
527 
Subchapter B—Occupational Tax 
Sec. 4411. Imposition of tax. 
Sec. 4412. Registration. 
Sec. 4413. Certain provisions made applicable. 
Sec. 4414. Cross references. 
SEC. 4411. IMPOSITION OF TAX. 
There shall be imposed a special tax of $50 per year to be paid 
by each person who is liable for tax under section 4401 or who is 
engaged in receiving wagers for or on behalf of any person so liable, 
SEC. 4412. REGISTRATION. 
(a) REQUIREMENT.—Each person required to pay a special tax 
under this subchapter shall register with the official in charge of the 
internal revenue district— 
(1) his name and place of residence; 
(2) if he is liable for tax under subchapter A, each place of 
business where the activity which makes him so liable is carried on, 
and the name and place of residence of each person who is engaged 
in receiving wagers for him or on his behalf; and 
(3) if he is engaged in receiving wagers for or on behalf of any 
person liable for tax under subchapter A, the name and place of 
residence of each such person. 
(b) FIRM OR COMPANY.—Where subsection (a) requires the name 
and place of residence of a firm or company to be registered, the 
names and places of residence of the several persons constituting 
the firm or company shall be registered. 
(c) SUPPLEMENTAL INFORMATION.—In accordance with regulations 
prescribed by the Secretary, he or his delegate may require from time 
to time such supplemental information from any person required to 
register under this section as may be needful to the enforcement of 
this chapter. 
SEC. 4413. CERTAIN PROVISIONS MADE APPLICABLE. 
Sections 4901, 4902, 4904, 4905, and 4906 shall extend to and apply 
to the special tax imposed by this subchapter and to the persons upon 
whom it is imposed, and for that purpose any activity which makes a 
person liable for special tax under this subchapter shall be considered 
to be a business or occupation referred to in such sections. 
No other 
provision of sections 4901 to 4907, inclusive, shall so extend or apply. 
SEC. 4414. CROSS REFERENCES. 
For penalties and other general and administrative 
provisions 
applicable to this subchapter, see sections 4421 to 4423, inclusive; and 
subtitle F. 
§4414 
528 
INTERNAL REVENUE CODE OF 1954 
Subchapter C—Miscellaneous Provisions 
Sec. 4421. Definitions. 
Sec. 4422. Applicability of federal and state laws. 
Sec. 4423. Inspection of books. 
SEC. 4421. DEFINITIONS. 
For purposes of this chapter— 
(1) WAGER.—The term "wager" means— 
(A) any wager with respect to a sports event or a contest 
placed with a person engaged in the business of accepting such 
wagers, 
(B) any wager placed in a wagering pool with respect to a 
sports event or a contest, if such pool is conducted for profit, and 
(C) any wager placed in a lottery conducted for profit. 
(2) LOTTERY.—The term "lottery" includes the numbers game, 
policy, and similar types of wagering. 
The term does not include— 
(A) any game of a type in which usually 
(i) the wagers are placed, 
(ii) the winners are determined, and 
(iii) the distribution of prizes or other property is made, in 
the presence of all persons placing wagers in such game, and 
(B) any drawing conducted by an organization exempt from 
tax under sections 501 and 521, if no part of the net proceeds 
derived from such drawing inures to the benefit of any private 
shareholder or individual. 
SEC. 4422. APPLICABILITY OF FEDERAL AND STATE LAWS. 
The payment of any tax imposed by this chapter with respect to 
any activity shall not exempt any person from any penalty provided 
by a law of the United States or of any State for engaging in the same 
activity, nor shall the payment of any such tax prohibit any State 
from placing a tax on the same activity for State or other purposes. 
SEC. 4423. INSPECTION OF BOOKS. 
Notwithstanding section 7605 (b), the books of account of any person 
liable for tax under this chapter may be examined and inspected as 
frequently as may be needful to the enforcement of this chapter. 
§4421 
CH. 36—CERTAIN OTHER EXCISE TAXES 
529 
CHAPTER 36—CERTAIN OTHER EXCISE TAXES 
^^''^'{-' 
StTBCHAPTER A. Playing cards. 
SUBCHAPTER B . Occupational tax on coin-operated devices. 
SUBCHAPTER C. Occupational tax on bowling alleys, billiard and 
pool tables. 
Subchapter A—Playing Cards 
Sec. 4451. Imposition of tax. 
Sec. 4452. Definition of manufacturer. 
Sec. 4453. Exemption in case of exportation. 
Sec. 4454. Liability for tax. 
Sec. 4455. Registration. 
, 
- Sec. 4456. Stamps. 
' 
. 
• 
Sec. 4457. Cross references. 
SEC. 4451. IMPOSITION OF TAX. 
There shall be imposed a tax of 13 cents per pack upon every pack 
of playing cards containing not more than 54 cards, manufactured or 
imported, and sold, or removed for consumption or sale, by a manu-
facturer. 
This tax shall be in addition to any import duties imposed 
on such articles of foreign manufacture. 
SEC. 4452. DEFINITION OF MANUFACTURER. 
Every person who offers or exposes for sale playing cards, whether 
the articles so offered or exposed are of foreign manufacture and 
imported or are of domestic manufacture, shall be deemed the manu-
facturer thereof, and subject to all the duties, liabilities, and penalties 
imposed by law in regard to the sale of domestic articles without the 
use of the proper stamps denoting the tax paid thereon. 
SEC. 4453. EXEMPTION IN CASE OF EXPORTATION. 
Playing cards may be removed from the place of manufacture for 
export to a foreign country or for shipment to a possession of the 
United States without payment of tax, or affixing stamps thereto, 
under such rules and regulations and the filing of such bonds as the 
Secretary or his delegate may prescribe. 
SEC. 4454. LIABILITY FOR TAX. 
The tax imposed by this subchapter shall be paid by any person 
who makes, sells, removes, consigns, or ships any playing cards, or for 
whose use or benefit the same are made, removed, consigned, or 
shipped. 
SEC. 4455. REGISTRATION. 
Every manufacturer of playing cards shall register with the official 
in charge of the collection district his name or style, place of residence, 
trade, or business, and the place where such business is to be carried on. 
SEC. 4456. STAMPS. 
(a) SALE.—The Secretary shall cause the stamps on playing cards 
to be sold only to those manufacturers as have registered as required 
§ 4456(a) 
530 
INTERNAL REVENUE CODE OF 1954 
by law, and to importers of playing cards, who are required to affix 
the stamps to imported playing cards. 
(b) ACCOUNTS.—The Secretary shall cause to be kept accounts of 
the number and denominate values of the stamps sold to each manu-
facturer and importer. 
SEC. 4457. CROSS REFERENCES. 
For penalties and other administrative provisions applicable to this 
subchapter, see subtitle F. 
§ 4456(a) 
CH. 36 
CERTAIN OTHER EXCISE TAXES 
531 
Subchapter B—Occupational Tax on Coin-Operated Devices 
Sec. 4461. Imposition of tax. 
Sec. 4462. Definition of coin-operated amusement or gaming device. 
Sec. 4463. Administrative provisions. 
SEC. 4461. IMPOSITION OF TAX. 
There shall be imposed a special tax to be paid by every person 
who maintains for use or permits the use of, on any place or premises 
occupied by him, a coin-operated amusement or gaming device at 
the following rates: 
(1) $10 a year, in the case of a device defined in paragraph (1) of 
section 4462 (a); 
(2) $250 a year, in the case of a device defined in paragraph (2) of 
section 4462 (a); and 
(3) $10 or $250 a year, as the case may be, for each additional 
device so maintained or the use of which is so permitted. 
If one 
such device is replaced by another, such other device shall not be 
considered an additional device. 
SEC. 4462. DEFINITION OF COIN-OPERATED AMUSEMENT OR GAM-
ING DEVICE. 
(a) I N GENERAL.—As used in sections 4461 to 4463, inclusive, the 
term ''coin-operated amusement or gaming device" means— 
(1) any amusement or music machine operated by means of the 
insertion of a coin, token, or similar object, and 
(2) so-called "slot" machines which operate by means of inser-
tion of a coin, token, or similar object and which, by application of 
the element of chance, may deliver, or entitle the person playing or 
operating the machine to receive cash, premiums, merchandise, or 
tokens. 
(b) EXCLUSION.—The term "coin-operated amusement or gaming 
device" does not include bona fide vending machines in which are 
not incorporated gaming or amusement features. 
(c) 1-CENT VENDING MACHINE.—For purposes of sections 4461 to 
4463, inclusive, a vending machine operated by means of the insertion 
of a 1-cent coin, which, when it dispenses a prize, never dispenses a 
prize of a retail value of, or entitles a person to receive a prize of a 
retail value of, more than 5 cents, and if the only prize dispensed is 
merchandise and not cash or tokens, shall be classified under para-
graph (1) and not under paragraph (2) of subsection (a). 
SEC. 4463. ADMINISTRATIVE 
PROVISIONS. 
(a) TRADE OR BUSINESS.—An operator of a place or premises who 
maintains for use or permits the use of any coin-operated device shall 
be considered, for purposes of chapter 40, to be engaged in a trade or 
business in respect of each such device. 
(b) CROSS REFERENCE.— 
For penalties and other administrative provisions applicable to this 
subchapter, see chapter 40 and subtitle F. 
§ 4463(b) 
532 
INTERNAL REVENUE CODE OF 1954 
Subchapter C—Occupational Tax on Bowling Alleys, Billiard 
and Pool Tables 
.1 •!•>* .•)0'1 
' ' ' " ' ' 
See. 4471. Imposition of tax. 
, ^ ^ . r/^, 
Sec. 4472. Definitions. 
' ' • ' '''^' 
Sec. 4473. Exemptions. 
Sec. 4474. Cross references. 
SEC. 4471. IMPOSITION OF TAX. 
There shall be imposed a special tax to be paid by every person who 
operates a bowling alley, billiard room, or pool room at the rate of $20 
a year for each bowling alley, billiard table, or pool table. 
SEC. 4472. DEFINITION. 
For the purpose of section 4471 every building or place where 
bowls are thrown or where games of billiards or pool are played, except 
in private homes, shall be regarded as a bowling alley, billiard room, 
or pool room, respectively. 
SEC. 4473. EXEMPTIONS. 
The tax imposed by section 4471 shall not apply with respect to— 
(1) HOSPITALS.—Any billiard table or pool table in a hospital 
if no charge is made for the use of such table; or 
(2) ARMED FORCES.—Any bowling alley, billiard table, or pool 
table maintained exclusively for the use of members of the Armed 
Forces on any property owned, reserved, or used by, or otherwise 
acquired for the use of, the United States if no charge is made 
for their use. 
SEC. 4474. CROSS REFERENCES. 
For penalties and administrative provisions applicable to this subchap-
ter, see chapter 40 and subtitle F. 
sMi ot aldaailqqs gnoialvotq avihiuJaiulmba ifj.Iio . 
. . 
^ 
§4471 
CH. 37—SUGAR, COCONUT AND PALM OIL 
- 
533 
CHAPTER 37—SUGAR, COCONUT AND PALM OIL 
SUBCHAPTER A. 
Sugar. 
SUBCHAPTER B. 
Coconut 
and 
palm 
o
i
l
. 
Subchapter A—Sugar 
J 
' , ' . 
• 
Sec. 4501. Imposition of tax. 
Sec. 4502. Definitions. 
Sec. 4503. Exemptions for sugar manufactured for home consump-
tion. 
Sec. 4504. Import tax imposed as tariff duty. 
SEC. 4501. IMPOSITION OF TAX. 
(a) GENERAL.—There is hereby imposed upon manufactured sugar 
manufactured in the United States, a tax, to be paid by the manu-
facturer at the following rates: 
(1) on all manufactured sugar testing by the polariscope 92 sugar 
degrees, 0.465 cent per pound, and, for each additional sugar degree 
shown by the polariscopic test, 0.00875 cent per pound additional, 
and fractions of a degree in proportion; 
(2) on all manufactured sugar testing by the polariscope less than 
92 sugar degrees, 0.5144 cent per pound of the total sugars therein. 
The manufacturer shall pay the tax with respect to manufactured 
sugar (1) which has been sold, or used in the production of other 
articles, by the manufacturer during the preceding month (if the tax 
has not already been paid) and (2) which has not been so sold or used 
within 12 months ending during the preceding calendar month, after 
it was manufactured (if the tax has not already been paid). 
For the 
purpose of determining whether sugar has been sold or used within 
12 months after it was manufactured, sugar shall be considered to 
have been sold or used in the order in which it was manufactured. 
(b) IMPORT TAX.—In addition to any other tax or duty imposed by 
law, there is hereby imposed, under such regulations as the Secretary 
or his delegate shall prescribe, a tax upon articles imported or brought 
into the United States as follows: 
(1) on all manufactured sugar testing by the polariscope 92 sugar 
degrees, 0.465 cent per pound, and, for each additional sugar degree 
shown by the polariscopic test, 0.00875 cent per pound additional, 
and fractions of a degree in proportion; 
(2) on all manufactured sugar testing by the polariscope less than 
92 sugar degrees, 0.5144 cent per pound of the total sugars therein; 
(3) on all articles composed in chief value of manufactured sugar, 
0.5144 cent per pound of the total sugars therein. 
(c) TERMINATION OF TAX.—No tax shall be imposed under this 
subchapter on the manufacture, use, or importation of sugar or articles 
composed in chief value of sugar after June 30, 1957. 
Notwithstand-
ing the provisions of subsection (a) or (b), no tax shall be imposed 
under this subchapter with respect to unsold sugar held by a manu-
facturer on June 30, 1957, or with respect to sugar or articles composed 
§4501(0) 
534 
" INTERNAL REVENUE CODE OF 1954 
in chief value of sugar held in customs custody or control on such date. 
With respect to any sugar or articles composed in chief value of sugar 
upon which tax imposed under subsection (b) has been paid and which, 
on June 30, 1957, are held by the importer and intended for sale or 
other disposition, there shall be refunded (without interest) to such 
importer, subject to such regulations as may be prescribed by the 
Secretary or his delegate, an amount equal to the tax paid with respect 
to such sugar or articles composed in chief value of sugar. 
SEC. 4502. DEFINITIONS. 
For the purposes of this subchapter.— 
(1) MANUFACTUEER.—Any person who acquires any sugar which 
is to be manufactured into manufactured sugar but who, without 
further refining or otherwise improving it in quality, sells such sugar 
as manufactured sugar or uses such sugar as manufactured sugar 
in the production of other articles for sale shall be considered, for 
the purposes of section 4501 (a), the manufacturer of manufactured 
sugar and, as such, liable for the tax under section 4501 (a) with 
respect thereto. 
(2) PERSON.—The term "person" means an individual, partner-
ship, corporation, or association. 
' (3) MANUFACTURED SUGAR.—The term "manufactured sugar" 
means any sugar derived from sugar beets or sugarcane, which is not 
to be, and which shall not be, further refined or otherwise improved 
in quality; except sugar in liquid form which contains nonsugar 
solids (excluding any foreign substance that may have been added 
or developed in the product) equal to more than 6 per centum of 
the total soluble solids and except also sirup of cane juice produced 
from sugarcane grown in continental United States. The grades 
or types of sugar within the meaning of this definition shall include, 
but shall not be limited to, granulated sugar, lump sugar, cube 
sugar, powdered sugar, sugar in the form of blocks, cones, or 
molded shapes, confectioners' sugar, washed sugar, 
centrifugal 
sugar, clarified sugar, turbinado sugar, plantation white sugar, 
muscovado sugar, refiners' soft sugar, invert sugar mush, raw 
sugar, sirups, molasses, and sugar mixtures. 
(4) TOTAL SUGARS.—The term "total sugars" means the total 
amount of the sucrose (Clerget) and of the reducing or invert sugars. 
The total sugars contained in any grade or type of manufactured 
sugar shall be ascertained in the manner prescribed in paragraphs 
758, 759, 762, and 763 of the United States Customs Kegulations 
(1931 edition). 
(5) UNITED STATES.—The term "United States" shall be deemed 
to include the States, the Territories of Hawaii and Alaska, the 
District of Columbia, and Puerto Rico. 
SEC. 4503. EXEMPTIONS FOR SUGAR MANUFACTURED FOR HOME 
CONSUMPTION. 
No tax shall be required to be paid under sec. 4501 (a) upon the 
manufacture of manufactured sugar by or for the producer of the 
sugar beets or sugarcane from which such manufactured sugar was 
derived, for consumption by the producer's own family, employees, 
or household. 
§ 4501(c) 
CH. 3 7—SUGAR, COCONUT AND PALM OIL 
535 
SEC. 4504. IMPORT TAX IMPOSED AS TARIFF DUTY. 
The tax imposed by section 4501 (b) shall be levied, assessed, 
collected, and paid in the same manner as a duty imposed by the 
Tariff Act of 1930 (46 Stat. 590; 19 U. S. C , chapter 4) and shall be 
treated for the purposes of all provisions of law relating to the customs 
revenue as a duty imposed by such act, except that for the purposes 
of sections 336 and 350 of such act (the so-called flexible tariff and 
trade agreements provisions; 46 Stat. 701; 48 Stat. 943; 19 U. S. C. 
1336, 1351) such tax shall not be considered a duty or import restric-
tion, and except that no preference with respect to such tax shall be 
accorded any articles imported or brought into the United States. 
U1-. 
n" 
§4504 
536 
INTERNAL REVENUE CODE OF 1954 
Subchapter B—Coconut and Palm Oil 
Sec. 4511. Imposition of tax. 
Sec. 4512. Definition of first domestic processing. 
Sec. 4513. Exemptions. 
Sec. 4514. Cross reference to general administrative provisions. 
SEC. 4511. IMPOSITION OF TAX. 
(a) GENERAL.—There is hereby imposed upon the first domestic 
processing of coconut oil, palm oil, palm-kernel oil, fatty 
acids 
derived from any of the foregoing oUs, salts of any of the foregoing 
(whether or not such oils, fatty acids, or salts have been refined, 
sulphonated, 
sulphated, 
hydrogenated, 
or otherwise 
processed), 
or any combination or mixture containing a substantial quantity of 
any one or more of such oUs, fatty acids, or salts, a tax of 3 cents per 
pound, to be paid by the processor. 
(b) ADDITIONAL KATE ON COCONUT OIL.—There is hereby imposed 
(in addition to the tax imposed by the preceding subsection) a tax 
of 2 cents per pound, to be paid by the processor, upon the first 
domestic processing of coconut oU or of any combination or mixture 
containing a substantial quantity of coconut oil with respect to 
which oil there has been no previous first domestic processing. 
(c) TERMINATION OF ADDITIONAL RATE.—The tax imposed by sub-
section (b) shall not apply to any domestic processing after July 3, 
1974. 
SEC. 4512. DEFINITION OF FIRST DOMESTIC PROCESSING. . 
For the purposes of this subchapter, the term "first domestic 
processing" means the first use in the United States, in the manufac-
ture or production of an article intended for sale, of the article with 
respect to which the tax is imposed, but does not include the use of 
palm oil in the manufacture of iron or steel products, or tin plate or 
terne plate, or any subsequent use of palm oil residue resulting from 
the manufacture of iron or steel products, or tin plate or terne plate. 
SEC. 4513. EXEMPTIONS. 
(a) ACIDS AND SALTS PREVIOUSLY TAXED.—The tax under section 
4511 shall not apply— 
(1) with respect to any fatty acid or salt resulting from a previous 
first domestic processing taxed under such section or upon which an 
import tax has been paid under subchapter E of chapter 38, or 
(2) with respect to any combination or mixture by reason of its 
containing an oil, fatty acid, or salt with respect to which there has 
been a previous first domestic processing or upon which an import 
tax has been paid under subchapter E of chapter 38. 
(b) FROM ADDITIONAL TAX ON COCONUT OIL.—The additional 
tax imposed by section 4511 (b) shall not apply when it is established, 
in accordance with regulations prescribed by the Secretary or his 
delegate, that the coconut oil (whether or not contained in a com-
bination or mixture)— 
§4511 
CH. 3 7—SUGAR, COCONUT AND PALM OIL 
537 
(1) is wholly the production of the Philippine Islands, any posses-
sion of the United States, or the Territory of the Pacific Islands 
(hereinafter in this paragraph referred to as the "Trust Territory"), 
or 
(2) was produced wholly from materials the growth or production 
of the Philippine Islands, any possessions of the United States, or 
the Trust Territory: 
Provided, however, That such additional tax shall apply in respect of 
coconut oil (whether or not contained in a combination or mixture) so 
derived from the Trust Territory, to such extent, and at such time after 
the date of the applicable proclamation, as the President, after taking 
into account the responsibilities of the United States with respect to 
the economy of the Trust Territory, shall hereafter determine and 
proclaim to be justified to prevent substantial injury or the threat 
thereof to the competitive trade of any country of the free world. 
(c) PROCESSED FOR EXPORTATION.—Upon the giving of bond satis-
factory to the Secretary or his delegate for the faithful observance of 
the provisions of this chapter requiring the payment of taxes, any 
person shall be entitled, without payment of the tax, to process for 
exportation any article wholly or in chief value of an article with 
respect to which a tax is imposed by section 4511. 
SEC. 4514. CROSS REFERENCE TO GENERAL ADMINISTRATIVE PRO-
VISIONS. 
See subtitle F for administrative provisions of general application to 
the taxes imposed under this chapter. 
« § 4514 
49012°—54——37 
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CH. 3 8—IMPORT TAXES 
539 
CHAPTER 38--IMPORT TAXES 
SUBCHAPTER A. Petroleum products. 
SUBCHAPTER B . Coal. 
SUBCHAPTER C . Copper. 
SUBCHAPTER D. Lumber. 
*'"•.!' .'-'lii 
,^ s 
SUBCHAPTER E . Animal and vegetable oils and seeds. 
•- 
' 
SUBCHAPTER F . Oleomargarine. 
SUBCHAPTER G . Special provisions applicable to import taxes. 
Subchapter A—Petroleum Products 
fe)i; 
Sec. 4521. Imposition of tax. 
• 
. 
,-, 
SEC. 4521. IMPOSITION OF TAX. 
In addition to any other tax or duty imposed by law, there is 
hereby imposed upon the following articles imported into the United 
States, unless treaty provisions of the United States otherwise pro-
vide, a tax at the rates specified. 
For the purposes of such tax, the 
term "United States" includes Puerto Rico. 
(1) CRUDE PETROLEUM, FUEL, AND GASOLINE.—Crude petroleum, 
fuel oil derived from petroleum, gas oil derived from petroleum, 
and all liquid derivatives of crude petroleum, except lubricating 
oil and gasoline or other motor fuel, one-half cent per gallon. 
(2) GASOLINE OR OTHER MOTOR FUEL.—Gasoline or other motor 
fuel, 2)^ cents per gallon. 
(3) LUBRICATING OIL.—Lubricating oil, 4 cents per gallon. 
(4) PARAFFIN AND OTHER WAX PRODUCTS.—Paraffin and other 
petroleum wax products, 1 cent per pound. 
§4521(4) 
540 
INTERNAL REVENUE CODE OF 1954 
Subchapter B—Coal 
} 
Sec. 4531. Imposition of tax. 
Sec. 4532. Exemption where exports exceed imports. 
SEC. 4531. IMPOSITION OF TAX. 
In addition to any other tax or duty imposed by law, there is hereby 
imposed a tax of 10 cents per 100 pounds on coal of all sizes, grades, 
and classifications (except culm and duff), coke manufactured there-
from, and coal or coke briquettes imported into the United States, 
unless treaty provisions of the United States otherwise provide. 
For the purpose of such tax, the term "United States" includes 
Puerto Rico. 
SEC. 4532. EXEMPTION WHERE EXPORTS EXCEED IMPORTS. 
The tax on the articles described in section 4531 shall not be imposed 
upon any such article if during the preceding calendar year the exports 
of the articles described in section 4531 from the United States to the 
country from which such article is imported have been greater in 
quantity than the imports into the United States from such country 
of the articles described in such section. 
§4631 
CH. 38—IMPORT TAXES 
541 
Subchapter C—Copper 
Sec. 4541. Imposition of tax. 
Sec. 4542. Exemptions. 
•yjr, 
- • 
SEC. 4541. IMPOSITION OF TAX. 
In addition to any other tax or duty imposed by law, there is hereby 
imposed upon the following articles, imported into the United States, 
unless treaty provisions of the United States otherwise provide, a tax 
at the rates specified. 
For the purposes of such tax, the term "United 
States" includes Puerto Rico. 
(1) GENERAL.—Copper-bearing ores and concentrates and arti-
" cles provided for in paragraph 316, 380, 381, 387, 1620, 1634, 1657, 
' 1658, or 1659 of the Tariff Act of 1930 (46 Stat. 613, 626, 627, 674, 
675, 676; 19 U. S. C. 1001, 1201), 4 cents per pound on the copper 
contained therein. 
(2) OTHER ARTICLES WHERE COPPER IS CHIEF COMPONENT.—All 
articles dutiable under the Tariff Act of 1930 (46 Stat. 590; 19 
U. S. C , chapter 4), not provided for heretofore in this section, 
• in which copper (including copper in alloys) is the component 
' material of chief value, 3 cents per pound. 
(3) OTHER ARTICLES CONTAINING 4 PERCENT OR MORE OF COP-
' PER.—All articles dutiable under the Tariff Act of 1930, not pro-
vided for heretofore in this section, containing 4 percent or more 
of copper by weight, 3 percent ad valorem or three-fourths of 1 
cent per pound, whichever is the lower. 
SEC. 4542. EXEMPTIONS. 
(a) COPPER LOST IN PROCESSING.—No tax shall be imposed under 
section 4541 on copper which is lost in metallurgical processes. 
(b) COPPER USABLE AS FLUX, ETC.—Ores or concentrates usable 
as a flux or sulphur reagent in copper smelting and/or converting and 
having a copper content of not more than 15 percent, when imported 
for fluxing purposes, shall be admitted free of the tax imposed by 
section 4541 in an aggregate amount of not to exceed in any one year 
15,000 tons of copper content. 
! •
• 1 1 ' 
§ 4542(b) 
542 
INTERNAL REVENUE CODE OF 1954 
Subchapter!)—Lumber 
Sec. 4551. Imposition of tax. 
Sec. 4552. Definitions. 
Sec. 4553. Exemption, 
SEC. 4551. IMPOSITION OF TAX. 
In addition to any other tax or duty imposed by law, there is 
hereby imposed upon the following articles imported into the United 
States, unless treaty provisions of the United States otherwise provide, 
a tax at the rates specified. 
For the purposes of such tax, the term 
"United States" includes Puerto Rico. 
(1) IN GENERAL.—Lumber, rough or planed or dressed on one or 
more sides, except flooring made of maple (other than Japanese 
maple), birch, or beech, $3 per 1,000 feet, board measure. 
(2) WOOD DOWELS.^— 
(A) Dowels made of fir, spruce, pine, hemlock, larch, or cedar 
(except cedar commercially known as Spanish cedar), 75 cents 
per 1,000 feet, board measure. 
(B) Dowels made of Japanese maple, Japanese white oak, 
teak, box, ebony, lancewood, or lignum vitae, $3 per 1,000 feet, 
board measure. 
(C) Dowels made of wood and for which no rate of tax is 
specified under subparagraph (A) or (B), $1.50 per 1,000 feet, 
board measure. 
SEC. 4552. DEFINITIONS. 
(a) BOARD MEASURE.—In determining board measure for the pur-
poses of this subchapter, no deduction shall be made on account of 
planing, tonguing, and grooving. 
(b) LUMBER.—As used in this subchapter "lumber" includes sawed 
timber. 
This section shall apply— 
(1) unless in conflict with any international obligation of the 
United States or 
(2) if so in conflict, then on the termination of such obligation 
otherwise than in connection with the undertaking by tHe United 
States of a new obligation which continues such conflict. 
SEC. 4553. EXEMPTION. 
The tax imposed by section 4551 shall not apply to lumber of 
Northern white pine (pinus strobus), Norway pine (pinus resinosa), 
Western white spruce, and Engelmann spruce. 
§4551 
CH. 3 8—IMPORT TAXES 
543 
^ Subchapter E—Animal and Vegetable Oils and Seeds 
Part 
I. Animal oils. 
•^-' 
Part II. Seeds and seed oils. 
'•'• 
|, - 
Part III. Manufactures and compounds. 
J r 
PART I—ANIMAL OILS 
Sec. 4561. Imposition of tax. 
'" 
Sec. 4562. Exemptions for United States vessels. 
SEC. 4561. IMPOSITION OF TAX. 
In addition to any other tax or duty imposed by law, there is hereby 
imposed upon the following articles imported into the United States, 
unless treaty provisions of the United States otherwise provide, a tax 
of 3 cents per pound, to be paid by the importer: 
Whale oil (except sperm oil). 
Fish oil (except cod oil, cod-liver oil, and halibut liver oil). 
Marine animal oil. 
Tallow. 
; 
Inedible animal oils. 
Inedible animal fats. 
Inedible animal greases. 
!. 
Fatty acids derived from any of the foregoing, and salts of any 
of the foregoing; all the foregoing, whether or not refined, sul-
phonated, sulphated, hydrogenated, or otherwise processed. 
SEC. 4562. EXEMPTIONS FOR UNITED STATES VESSELS. 
Whale oil (except sperm oil), fish oil, or marine animal oil of any 
kind (whether or not refined, sulphonated, sulphated, hydrogenated or 
otherwise processed), or fatty acids derived therefrom, shall be ad-
mitted to entry free from the tax provided in section 4561 provided 
that such oil was produced on vessels of the United States or in the 
United States or its possessions, from whales, fish, or marine animals 
or parts thereof taken and captured by vessels of the United States. 
PART II—SEEDS AND SEED OILS 
'•''"•' 
Sec. 4571. Imposition of tax. 
Sec. 4572. Exemption for certain uses of rapeseed oil, 
SEC. 4571. IMPOSITION OF TAX. 
In addition to any other tax or duty imposed by law, there shall be 
imposed upon the following articles imported into the United States, 
unless treaty provisions of the United States otherwise provide, a tax 
at the rates set forth to be paid by the importer. 
(1) OILS.—Sesame oil provided for in paragraph 1732 of the 
Tariff Act of 1930 (46 Stat., 680; 19 U. S. C. 1201), sunflower oil, 
rapeseed oil, kapok oil, hempseed oil, perilla oil, fatty acids derived 
from any of the foregoing or from linseed oil, and salts of any of 
the foregoing; all the foregoing, whether or not refined, sulpho-
§4571(1) 
544 
INTERNAL REVENUE CODE OF 1954 
nated, sulphated, hydrogenated, or otherwise processed, 4}^ cents 
per pound; 
(2) HEMPSEED.—Hempseed, 1.24 cents per pound; 
(3) PERILLA SEED.—Perilla seed, 1.38 cents per pound; 
(4) KAPOK AND RAPESEED.—Kapok seed and rapeseed, 2 cents 
per pound; 
(5) SESAME SEED.—Sesame seed, 1.18 cents per pound. 
SEC. 4572. EXEMPTION FOR CERTAIN USES OP RAPESEED OIL. 
The tax imposed under section 4571 (1) shall not apply to rapeseed 
on imported to be used in the manufacture of rubber substitutes or 
lubricating oil, and the Secretary or his delegate shall prescribe 
methods and regulations to carry out this section. 
PART III—MANUFACTURES AND COMPOUNDS 
Sec. 4581. Imposition of tax. 
Sec. 4582. Exemptions. 
SEC. 4581. IMPOSITION OF TAX. 
In addition to any other tax or duty imposed by law, there is hereby 
imposed upon the following articles imported into the United States, 
unless treaty provisions of the United States otherwise provide, a tax 
at the rates set forth, to be paid by the importer— 
Any article, merchandise, or combination (except oils specified 
in section 4511), 10 percent or more of the quantity by weight of 
which consists of, or is derived directly or indirectly from, one or 
more of the products specified in sections 4561 and 4571, or of the 
oils, fatty acids, or salts specified in section 4511, a tax at the rate or 
rates per pound equal to that proportion of the rate or rates pre-
scribed in sections 4561 and 4571 or section 4511 in respect of such 
product or products which the quantity by weight of the imported 
article, merchandise, or combination, consisting of or derived from 
such product or products, bears to the total weight of the imported 
article, merchandise, or combination; 
SEC. 4582. EXEMPTIONS. 
(a) CERTAIN NATURAL OILS.—There shall not be taxable under 
section 4581 any article, merchandise, or combination (other than 
an oil, fat, or grease, and other than products resulting from processing 
seeds without full commercial extraction of the oil content), by reason 
of the presence therein of an oil, fat, or grease which is a natural 
component of such article, merchandise, or combination and has 
never had a separate existence as an oil, fat, or grease. 
(b) CERTAIN COCONUT OIL.—The taxes imposed by this subchapter 
shall not apply to any article, merchandise, or combination, by reason 
of the presence therein of any coconut oil produced in Guam or 
American Samoa, or any direct or indirect derivative of such oil. 
(c) 
GLYCERIN, STEARINE PITCH AND CERTAIN COMPONENTS OF 
WASTES.—No tax shall be imposed under this subchapter on the 
importation of glycerin or stearine pitch or any article by reason of 
any component of such article derived directly or indirectly from a 
waste not named in sections 4561, 4571, or 4581. 
§4571(1) 
CH. 3 8—IMPORT TAXES 
&4| 
Subchapter F—Oleomargarine 
'V)i m '^ 
Sec. 4591. Imposition of tax. 
;'-' ,
^ 
" 
Sec. 4592. Definitions. 
iiBj.'n n 
gee. 4593. Exemption. 
Sec. 4594. Packing requirements for manufacturers. 
Sec. 4595. Wholesale and retail selling requirements. 
. , 
Sec. 4596. Bonds. 
; ' 
Sec. 4597. Books and returns. 
SEC. 4591. IMPOSITION OF TAX. 
(a) RATE.—There is hereby imposed on all oleomargarine imported 
from foreign countries, in addition to any import duty imposed on the 
same, an internal revenue tax of 15 cents per pound, such tax to be 
represented by coupon stamps. 
The Secretary or his delegate is 
authorized to decide what substances, extracts, mixtures, or com-
pounds which may be submitted for his inspection in contested cases 
are to be taxed under this subchapter; and his decision in matters of 
taxation under this subchapter shall be final. 
(b) AFFIXING OF STAMPS.^—-The stamps shall be affixed and canceled 
by the owner or importer of the oleomargarine while it is in the custody 
of the proper custom house officers; and the oleomargarine shall not 
pass out of the custody of said officers until the stamps have been so 
affixed and canceled, but shall be put up in wooden packages, each 
containing not less than 10 pounds, before the stamps are affixed. 
Whenever it is necessary to take any oleomargarine so imported to 
any place other than the public stores of the United States for the 
purpose of affixing and canceling such stamps, the collector of cus-
toms of the port where such oleomargarine is entered shall designate 
a bonded warehouse to which it shall be taken, under the control of 
such customs officer as such collector may direct. 
SEC. 4592. DEFINITIONS. 
(a) OLEOMARGARINE.—For the purposes of section 4591, certain 
manufactured substances, certain extracts, and certain mixtures and 
compounds, including such mixtures and compounds with butter, shall 
be known and designated as "oleomargarine," namely: All substances 
known prior to August 2, 1886, as oleomargarine, oleo, oleo margarine 
oil, butterine, lardine, suine, and neutral; all mixtures and compounds 
of oleomargarine, oleo, oleomargarine oil, butterine, lardine, suine, and 
neutral; all lard extracts and tallow extracts; and all mixtures and 
compounds of tallow, beef fat, suet, lard, lard oil, fish oil or fish fat, 
vegetable oil, annatto, and other coloring matter, intestinal fat, and 
offal fat;—if (1) made in imitation or semblance of butter, or (2) 
calculated or intended to be sold as butter or for butter, or (3) churned, 
emulsified, or mixed in cream, milk, water, of other liquid, and con-
taining moisture in excess of 1 per centum or common salt. 
(b) MANUFACTURER.—Every person who manufactures oleomar-
garine for sale shall be deemed a manufacturer of oleomargarine. 
And 
any person that sells, vends, or furnishes oleomargarine for the use and 
consumption of others, except to his own family table without com-
§ 4592(b) 
546 
INTERNAL REVENUE CODE 
OF 19 
54 
pensation, who shall add to or mix with such oleomargarine any sub-
stance which causes such oleomargarine to be yellow in color, shall 
also be held to be a manufacturer of oleomargarine within the meaning 
of this chapter. 
(c) WHOLESALE DEALER.^^Every person who sells or offers for sale 
oleomargarine in the original manufacturer's packages shall be deemed 
a wholesale dealer in oleomargarine. 
(d) EETAIL SALES.—Every person who sells oleomargarine in less 
quantities than ten pounds at one time shall be regarded as a retail 
dealer in oleomargarine. 
SEC. 4593. EXEMPTION. 
(a) SHORTENING OR CONDIMENTS.—Section 4591 shall not apply to 
puff-pastry shortening not churned or emulsified in milk or cream, 
and having a melting point of 118 degrees Fahrenheit or more, nor 
to any of the following containing condiments and spices: salad dress-
ings, mayonnaise dressings, or mayonnaise products, nor to liquid 
emulsion, pharmaceutical preparations, oil meals, liquid preservatives, 
illuminating oils, cleansing compounds, or flavoring compounds. 
(b) EXPORTS.—Oleomargarine may be removed from the place of 
manufacture for export to a foreign country without payment of tax 
or affixing stamps thereto, under such regulations and the filing of 
such bonds and other security as the Secretary or his delegate may 
prescribe. 
Every person who shall export oleomargarine shall brand 
upon every tub, firkin, or other package containing such article the 
word "Oleomargarine", in plain Roman letters not less than one-half 
inch square. 
SEC. 4594. PACKING REQUIREMENTS FOR MANUFACTURERS. 
(a) KIND AND WEIGHT OF PACKAGES.—All oleomargarine shall be 
packed by the manufacturer thereof in firkins, tubs, or other wooden, 
tin-plate, or paper packages, not before used for that purpose, con-
taining, or encased in a manufacturer's package made from any of 
such materials of, not less than ten pounds. 
(b) MARKS AND STAMPS.—The packages described in subsection 
(a) shall be marked, stamped, and branded as the Secretary or his 
delegate shall prescribe; and all sales made by manufacturers of 
oleomargarine shall be in original stamped packages. 
(c) CAUTION LABEL.—Every manufacturer of oleomargarine shall 
securely affix, by pasting, on each package containing oleomargarine 
manufactured by him, a label on which shall be printed, besides the 
number of the manufactory and the district and State in which it is 
situated, these words: "NOTICE.—The manufacturer of the oleo-
margarine herein contained has complied with all the requirements of 
law. 
Every person is cautioned not to use either this package again 
or the stamp thereon again, nor to remove the contents of this package 
without destroying said stamp, under the penalty provided by law 
in such cases." 
(d) FACTORY NUMBER AND SIGNS.—Every manufacturer of oleo-
margarine shall put up such signs and affix such number to his factory 
as the Secretary or his delegate may, by regulation, require. 
SEC. 4595. WHOLESALE AND RETAIL SELLING REQUIREMENTS. 
(a) WHOLESALE.—All sales made by wholesale dealers in oleo-
margarine shall be in original stamped packages. 
§ 4592(b) 
}lo 
CH. 38—IMPORT TAXES 
647 
(b) RETAIL.—Retail dealers in oleomargarine must sell only from 
original stamped packages, in quantities not exceeding ten pounds, 
and shall pack, or cause to be packed, the oleomargarine sold by them 
in suitable wooden, tin-plate, or paper packages which shall be marked 
and branded as the Secretary or his delegate shall prescribe. 
SEC. 4596. BONDS. 
Every manufacturer of oleomargarine shall file such bonds as the 
Secretary or his delegate, may, by regulation, require. 
But the bonds 
required of such manufacturer shall be with sureties satisfactory to 
the Secretary or his delegate, and in a penal sum of not less than 
$5,000; and the sum of said bond may be increased from time to time, 
and additional sureties required at the discretion of the Secretary or 
his delegate. 
SEC. 4597. BOOKS AND RETURNS. 
(a) WHOLESALE DEALERS.—Wholesale dealers in oleomargarine 
shall keep such books and render such returns in relation thereto as 
the Secretary or his delegate may, by regulation, require; and such 
books shall be open at all times to the inspection of any internal 
revenue officer or agent. 
(b) Manufacturers.— 
. 
t' 
See section 7641. 
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§ 4597(b) 
548 
INTERNAL REVENUE CODE OF 1954 
Subchapter G—Special Provisions Applicable to Import Taxes 
. 
- 
Sec. 4601. Applicability of tariff provisions. 
Sec. 4602. Certain taxes not to contravene trade agreements. 
Sec. 4603. Cross references. 
SEC. 4601. APPLICABILITY OF TARIFF PROVISIONS. 
The taxes imposed by this chapter (except subchapter F) shall be 
levied, assessed, collected and paid in the same manner as a duty-
imposed by the Tariff Act of 1930 (46 Stat. 590; 19 U. S. C , chapter 
4) and shall be treated for the purposes of all provisions of law re-
lating to the customs revenue as a duty imposed by such act, except 
that— 
(1) TAX BASE.—The value on which such tax shall be based shall 
be the sum of (1) the dutiable value (under section 503 of such act; 
46 Stat. 731; 19 U. S. C. 1503) of the article, plus (2) the customs 
duties, if any, imposed thereon under any provision of law; 
(2) ADDITIONAL DUTY AND FLEXIBLE TARIFF PROVISIONS.—For 
the purposes of section 489 of such act (relating to additional duties 
in certain cases of undervaluation; 46 Stat. 725; 19 U. S. C. 1489), 
such tax shall not be considered an ad valorem rate of duty or a 
duty based upon or regulated in any manner by the value of the 
article, and for the purposes of section 336 of such act (the so-called 
flexible tariff provision; 46 Stat. 701; 19 U. S. C. 1336) such tax 
shall not be considered a duty; and 
(3) The tax imposed under subchapter E except as specifically 
provided in section 4582 (b) with reference to certain products of 
Guam and American Samoa shall be imposed in full notwithstand-
ing any provision of law granting exemption from or reduction of 
duties to products of any possession of the United States. 
SEC. 4602. CERTAIN TAXES NOT TO CONTRAVENE TRADE AGREE-
MENTS. 
Nothing in subchapter E shall be construed as imposing a tax in 
contravention of an obligation undertaken in any trade agreement 
entered into prior to August 21, 1936, under the authority of section 
350 of the Tariff Act of 1930, as amended (c. 474, 48 Stat. 943; 19 
U. S. C. 1351). 
Each reference to any provision of the Internal Rev-
enue Code of 1939 in any agreement entered into, or in any proclama-
tion of the President made, under the authority of such section shall 
be deemed also to refer to the corresponding provision of this title-
SEC. 4603. CROSS REFERENCES. 
(1) See subtitle F for administrative provisions of general application 
to the taxes imposed under this chapter. 
(2) See section 4501 (b) for the import tax on sugar. 
§ 4601 
CH. 39—REGULATORY TAXES 
549 
CHAPTER 
39—REGULATORY 
TAXES 
SUBCHAPTER A, Narcotic drugs and marihuana. 
SUBCHAPTER B . White phosphorus matches. 
SUBCHAPTER C. Adulterated butter and filled cheese. 
SUBCHAPTER D . Cotton futures. 
SUBCHAPTER E . Circulation other than of national banks. 
SUBCHAPTER F . Silver bullion. 
? A 
Subchapter A—Narcotic Drugs and Marihuana 
Part 
I. Narcotic drugs. 
Part II. Marihuana. 
Part III. Miscellaneous provisions relating to narcotic drugs and 
. 
marihuana. 
PART I—NARCOTIC DRUGS 
• 
^ 
Subpart A. Tax on opium, isonipecaine, opiates, and coca leaves. 
.Hl'Vi- i. 
Subpart B. Tax on opium for smoking. 
Subpart C. Occupational tax. 
,, 
Subpart D. General provisions relating to narcotic drugs. 
Subpart A—^Tax on Opium, Isonipecaine, Opiates, and Coca Leaves 
Sec. 4701. Imposition of tax. 
Sec. 4702. Exemptions. 
Sec. 4703. Affixing of stamps. 
Sec. 4704. Packages. 
| 
Sec. 4705. Order forms. 
' • 
Sec. 4706. Forfeitures. 
% 
Sec. 4707. Cross references. 
n 
SEC. 4701. IMPOSITION OF TAX. 
(a) RATE.—There shall be imposed an internal revenue tax upon 
narcotic drugs, produced in or imported into the United States, and 
sold, or removed for consumption or sale, at the rate of 1 cent per 
ounce, and any fraction of an ounce in a package shall be taxed as 
an ounce. 
The tax imposed by this subsection shall be in addition 
to any import duty imposed on narcotic drugs. 
(b) B Y WHOM PAID.—The tax imposed by subsection (a) shall be 
paid by the importer, manufacturer, producer, or compounder. 
SEC. 4702. EXEMPTIONS. 
(a) PREPAEATIONS OF LIMITED NARCOTIC CONTENT.—The provi-
sions of this subpart and sections 4721 to 4726, inclusive, shall not be 
construed to apply to the manufacture, sale, distribution, giving away, 
dispensing, or possession of preparations and remedies which do not 
contain more than 2 grains of opium, or more than one-fourth of a 
grain of morphine, or more than one-eighth of a grain of heroin, or 
more than 1 grain of codeine, or any salt or derivative of any of them, 
in 1 fluid ounce, or, if a solid or semisolid preparation, in 1 avoirdupois 
ounce; or to liniments, ointments, or other preparations which are 
prepared for external use only^ except liniments, ointments, and other 
§ 4702(a) 
550 
INTERNAL REVENUE CODE OF 1954 
preparations which contain cocaine or any of its salts or alpha or beta 
eucaine or any of their salts or any synthetic substitute for them: 
Provided, That such remedies and preparations are manufactured, 
sold, distributed, given away, dispensed, or possessed as medicines 
and not for the purpose of evading the intentions and provisions of 
this subpart and sections 4721 to 4726, inclusive, Provided further, 
That any manufacturer, producer, compounder, or vendor (including 
dispensing physicians) of the preparations and remedies mentioned in 
this section, lawfully entitled to manufacture, produce, compound, or 
vend such preparations and remedies, shall keep a record of all sales, 
exchanges, or gifts of such preparations and remedies in such manner 
as the Secretary or his delegate shall direct. 
Such record shall be 
preserved for a period of 2 years in such a way as to be readily acces-
sible to inspection by any officer or employee of the Treasury Depart-
ment duly authorized for that purpose, and the State, Territorial, 
District, municipal, and insular officers named in section 4773, and 
every such person so possessing or disposing of such preparations and 
remedies shall register as required in section 4722 and, if he is not 
paying a tax under section 4721, he shall pay a special tax of $1 for 
each year, or fractional part thereof, in which he is engaged in such 
occupation, to the official in charge of the collection district in which 
he carries on such occupation as provided in sections 4721 to 4726, 
inclusive. 
(b) DECOCAINIZED COCA LEAVES.—The provisions of this subpart 
and sections 4721 to 4726, inclusive, shall not apply to decocainized 
coca leaves or preparations made therefrom, or to other preparations 
of coca leaves which do not contain cocaine, 
(c) GOVERNMENT AND STATE OFFICIALS.— 
(1) STAMPING DRUGS.—Ofiicials of the United States, Territorial, 
District of Columbia, or insular possessions, State or municipal 
governments, who in the exercise of their official duties engage 
in any of the business described in sections 4721 to 4726, inclusive, 
shall not be required to stamp narcotic drugs, as prescribed in this 
subpart, but their right to this exemption shall be evidenced in such 
manner as the Secretary or his delegate may by regulations prescribe. 
(2) REGISTRATION AND PAYMENT OF TAX.— 
For exemption of officials of the United States, Territorial, District of 
Columbia, or insular possessions, State or municipal governments 
from the requirements as to registration and the payment of special 
taxes, see section 4772 (b). 
SEC. 4703. AFFIXING OF STAMPS. 
The stamps provided in section 4771 (a) (1) for narcotic drugs shall 
be so affixed to the bottle or other container as to securely seal the 
stopper, covering, or wrapper thereof. 
SEC. 4704. PACKAGES. 
(a) GENERAL REQUIREMENT,—It shall be unlawful for any person 
to purchase, sell, dispense, or distribute narcotic drugs except in the 
original stamped package or from the original stamped package; 
and the absence of appropriate taxpaid stamps from narcotic drugs 
shall be prima facie evidence of a violation of this subsection by the 
person in whose possession the same may be found. 
§ 4702 (a) 
CH. 3 9—REGULATORY TAXES 
S6I-
(b) EXCEPTIONS IN CASE or REGISTERED PRACTITIONERS.—The 
provisions of subsection (a) shall not apply— 
(1) PRESCRIPTIONS.—To any person having in his or her posses-
sion narcotic drugs which have been obtained from a registered 
dealer in pursuance of a prescription, written for legitimate medical 
uses, issued by a physician, dentist, veterinary surgeon, or other 
practitioner registered under section 4722, and where the bottle 
or other container in which such drug may be put up by the dealer 
upon said prescription bears the name and registry number of the 
druggist, serial number of prescription, name and address of the 
patient, and name, address, and registry number of the person 
writing said prescription; or 
(2) DISPENSATIONS DIRECT TO PATIENTS.^—TO the dispensing, or 
administration, or giving away of narcotic drugs to a patient by a 
registered physician, dentist, veterinary surgeon, or other practi-
tioner in the course of his professional practice, and where said 
drugs are dispensed or administered to the patient for legitimate 
medical purposes, and the record kept as required by this subpart 
of the drugs so dispensed, administered, distributed, or given away. 
SEC. 4705. ORDER FORMS. 
(a) GENERAL REQUIREMENT.—It shall be unlawful for any person 
to sell, barter, exchange, or give away narcotic drugs except in pur-
suance of a written order of the person to whom such article is sold, 
bartered, exchanged, or given, on a form to be issued in blank for that 
purpose by the Secretary or his delegate. 
(b) EXCEPTION IN CASE OP VIRGIN ISLANDS.—The President is 
authorized and directed to issue such Executive orders as will permit 
those persons in the Virgin Islands of the United States, lawfully 
entitled to sell, deal in, dispense, prescribe, and distribute narcotic 
drugs, to obtain said drugs from persons registered under section 4722 
within the continental United States for legitimate medical purposes, 
without regard to the order forms described in this section. 
(c) OTHER EXCEPTIONS.—Nothing contained in this section, section 
4735, or section 4774 shall apply— 
(1) U S E OF DRUGS IN PROFESSIONAL PRACTICE.—To the dispens-
ing or distribution of narcotic drugs to a patient by a physician, 
dentist, or veterinary surgeon registered under section 4722 in the 
course of his professional practice only: Provided, That such physi-
cian, dentist, or veterinary surgeon shall keep a record of all such 
drugs dispensed or distributed, showing the amount dispensed or 
distributed, the date, and the name and address of the patient to 
whom such drugs are dispensed or distributed, except such as may 
be dispensed or distributed to a patient upon whom such physician, 
dentist, or veterinary surgeon shall personally attend; and such 
record shall be kept for a period of two years from the date of dis-
pensing or distributing such drugs, subject to inspection, as provided 
in section 4773. 
(2) PRESCRIPTIONS.—To the sale, dispensing, or distribution of 
narcotic drugs by a dealer to a consumer under and in pursuance 
of a written prescription issued by a physician, dentist, or veterinary 
surgeon registered under section 4722: Provided, however, That such 
prescription shall be dated as of the day on which signed and shall 
be signed by the physician, dentist, or veterinary surgeon who shall 
§ 4705(c)(2) 
552 
INTERNAL REVENUE CODE OF 1954 
have issued the same: And provided further, That such dealer shall 
preserve such prescription for a period of 2 years from the day on 
which such prescription is filled in such a way as to be readily 
accessible to inspection by the officers, employees, and officials 
mentioned in section 4773. 
(3) EXPORTATION.—To 
the sale, exportation, 
shipment, 
or 
delivery of narcotic drugs by any person within the United States 
or any Territory or the District of Columbia or any of the insular 
possessions of the United States to any person in any foreign 
country, regulating their entry in accordance with such regulations 
for importation thereof into such foreign country as are prescribed 
by said country, such regulations to be promulgated from time to 
time by the Secretary of State. 
(4) GOVERNMENT AND STATE OFFICIALS.—To the sale, barter, 
exchange, or giving away of narcotic drugs to any officer of the 
United States Government or of any State, Territorial, district, 
county, or municipal or insular government lawfully engaged in 
making purchases thereof for the various departments of the Army 
and Navy, the Public Health Service, and for Government, State, 
Territorial, district, county, or municipal or insular hospitals or 
prisons. 
(d) PRESERVATION.'—Every person who shall accept any order re-
quired under subsection (a), and in pursuance thereof shall sell, 
barter, exchange, or give away narcotic drugs, shall preserve such order 
for a period of 2 years in such a way as to be readily accessible to 
inspection by any officer or employee of the Treasury Department 
duly authorized for that purpose, and the State, Territorial, District, 
municipal, and insular officials named in section 4773. 
(e) DUPLICATES.—Every person who shall give an order as pro-
vided in this section to any other person for narcotic drugs shall, at 
or before the time of giving such order, make or cause to be made a 
duplicate thereof on a form to be issued in blank for that purpose by 
the Secretary or his delegate, and in case of the acceptance of such 
order shall preserve such duplicate for said period of 2 years in such a 
way as to be readily accessible to inspection by the officers, employees, 
and officials mentioned in section 4773. 
(f) SUPPLY,—The Secretary or his delegate shall cause suitable 
forms to be prepared for the purposes mentioned in this section, and 
shall cause the same to be distributed to each internal revenue district 
for sale to those persons who shall have registered and paid the special 
tax as required by sections 4722 and 4721; and he shall require that 
the same be sold only to persons who have registered and paid the 
special tax as required by said sections. 
The price at which such forms 
shall be sold shall be fixed by the Secretary or his delegate but shall not 
exceed the sum of $1 per hundred. 
The Secretary or his delegate 
shall cause to be kept accounts of the number of such forms sold, the 
names of the purchasers, and the number of such forms sold to each 
of such purchasers. 
Whenever any of such forms are sold, the Secre-
tary or his delegate shall cause the name of the purchaser thereof to 
be plainly written or stamped thereon before delivering the same; and 
no person other than such purchaser shall use any of said forms bear-
ing the name of such purchaser for the purpose of procuring narcotic 
drugs, or furnish any of the forms bearing the name of such purchaser 
§ 4705(c)(2) 
CH. 39—REGULATORY TAXES 
553 
to any person with intent thereby to procure the shipment or dehvery 
of narcotic drugs. 
(g) UNLAWFUL USE.—It shall be unlawful for any person to obtain 
by means of said order forms narcotic drugs for any purpose other 
than the use, sale, or distribution thereof by him in the conduct of a 
lawful business in said drugs or in the legitimate practice of his pro-
fession. 
(h) CROSS REFERENCE.— 
For issuance of order forms in Puerto Rico and the Trust Territory of 
the Pacific Islands, see section 4735 (a). 
SEC. 4706. FORFEITURES. 
(a) UNSTAMPED PACKAGES.—All unstamped packages of narcotic 
drugs found in the possession of any person, except as provided in 
this subpart, shall be subject to seizure and forfeiture, and all the 
provisions of internal revenue laws relating to searches, seizures, and 
forfeiture of unstamped articles shall be extended to and made to 
apply to the articles taxed under this subpart and the persons upon 
whom the taxes under this subpart or sections 4721 to 4726, inclusive, 
are imposed. 
(b) CROSS REFERENCES.— 
(1) CONFISCATION AND DISPOSAL OF SEIZED DRUGS.—For pro-
visions relating to the confiscation and disposal of seized drugs, see 
section 4733. 
(2) OTHER FORFEITURE PROVISIONS.— 
For other general forfeiture provisions, see subtitle F. 
SEC. 4707. CROSS REFERENCES. 
For penalties and other general and administrative provisions, see 
sections 4731 to 4736, inclusive; sections 4771 to 4776, inclusive; and 
subtitle F. 
Subpart B—Tax on Opium for Smoking 
Sec. 4711. Imposition of tax. 
. , ;, 
Sec. 4712. Stamps. 
^
i 
Sec. 4713. Manufacturers. 
. 
tii 
Sec. 4714. Forfeiture. 
Sec. 4715. Cross references. 
SEC. 4711. IMPOSITION OF TAX. 
• There shall be imposed an internal revenue tax of $300 per pound 
upon all opium manufactured in the United States for smoking 
purposes. 
SEC. 4712. STAMPS. 
(a) M E T H O D OF P A Y M E N T . — 
(1) STAMPS.-—All opium prepared for smoking manufactured in 
the United States shall be duly stamped in such a permanent 
manner as to denote the payment of the internal revenue tax 
thereon. 
(2) 
ASSESSMENT,— 
For assessment in case of omitted taxes payable by stamp, see sub-
title P. 
(b) CERTAIN STAMP PROVISIONS APPLICABLE.—The provisions of 
law covering the engraving, issue, sale, accountability, effacement, 
§ 4712(b) 
49012°—54 
38 
554 
INTERNAL REVENUE CODE OF 1954 
cancellation, and destruction of stamps relating to tobacco and snuff, 
as far as applicable, shall apply to stamps provided for by paragraph 
(1) of subsection (a). 
SEC. 4713. MANUFACTURERS. 
(a) DEFINITION.—Every person who prepares opium suitable for 
smoking purposes from crude gum opium, or from any preparation 
thereof, or from the residue of smoked or partially smoked opium, 
commonly known as yen shee, or from any mixture of the above, or any 
of them, shall be regarded as a manufacturer of smoking opium within 
the meaning of this subpart. 
(b) BOND.—Every manufacturer of opium suitable for smoking pur-
poses shall file with the official in charge of the internal revenue district 
in which his manufactory is located such bonds as the Secretary or his 
delegate may by regulation require. 
The bond required of such manu-
facturer shall be in a penal sum of not less than $100,000; and the sum 
of said bond may be increased from time to time and additional sureties 
required, at the discretion of the Secretary or his delegate. 
No per-
son shall engage in such manufacture who has not given the bond 
required by the Secretary or his delegate. 
(c) CITIZENSHIP.—No person shall engage in the manufacture of 
opium suitable for smoking purposes who is not a citizen of the United 
States. 
(d) SIGNS AND FACTORY NUMBER.—^Every manufacturer of opium 
suitable for smoking purposes shall put up such signs and affix such 
number to his factory as the Secretary or his delegate may by regula-
tion require. 
SEC. 4714. FORFEITURE. 
All opium prepared for smoking, whenever found within the United 
States without the stamps required by this subpart, shall be forfeited 
and destroyed. 
_ ., . . , , 
SEC. 4715. CROSS REFERENCES. 
For penalties and other general and administrative provisions 
applicable to this subpart, see sections 4731 to 4736, inclusive; sec-
tions 4771 to 4776, inclusive; and subtitle F. 
Subpart C—Occupational Tax 
Sec. 4721. Imposition of tax. 
. . 
Sec. 4722. Registration. 
i. • . 
• • 
Sec. 4723. Possession by person not registered. 
Sec. 4724. Unlawful acts in case of failure to register and pay 
Sec. 4725. Other laws applicable. 
."'"'/.'Ic: .P.IM' . ; % 
Sec. 4726. Cross references. 
, , < < -
^ 
' 
-..i 
SEC. 4721. IMPOSITION OF TAX. 
On or before July 1 of each year every person who imports, manu-
factures, produces, compounds, sells, deals in, dispenses, or gives 
away narcotic drugs shall pay the special taxes hereinafter provided. 
Every person upon first engaging in any of such activities shall imme-
diately pay the proportionate part of the tax for the period ending on 
the following June 30. 
(1) IMPORTERS, 
MANUFACTURERS, 
OR PRODUCERS.—Importers, 
manufacturers, producers, or compounders, lawfully entitled to im-
§ 4712(b) 
''S - t6;»srofli 
CH. 39—REGULATORY TAXES 
555 
port, manufacture, produce, or compound narcotic drugs, $24 a 
year; 
(2) W H O L E S A L E DEALERS.—Wholesale dealers, lawfully entitled 
to sell and deal in narcotic drugs, $12 a year; 
(3) R E T A I L DEALERS.—Retail dealers, lawfully entitled to sell 
and deal in narcotic drugs, $3 a year; 
(4) 
PHYSICIANS, 
DENTISTS, VETERINARY 
SURGEONS, AND OTHER 
PRACTITIONERS.—Physicians, dentists, 
veterinary 
surgeons, 
and 
other practitioners, lawfully entitled to distribute, dispense, give 
away, or administer narcotic drugs to patients upon whom they 
in the course of their professional practice are in attendance, $1 a 
year or fraction thereof during which they engage in any of such 
activities; 
(5) 
P E R S O N S ENGAGED IN RESEARCH, INSTRUCTION, 
OR ANALY-
SIS.—Persons not registered as an importer, manufacturer, 
pro-
ducer, or compounder and lawfully entitled to obtain and use in a 
laboratory narcotic drugs for the purpose of research, instruction, 
or analysis shall pay $1 a year, but such persons shall keep such 
special records relating to receipt, disposal, and stocks on hand of 
narcotic drugs as the Secretary or his delegate m a y by regulation 
require. 
Such special records shall be open at all times to the in-
spection of any duly authorized officer or employee of the Treasury 
Department. 
(6) 
P E R S O N S NOT OTHERWISE T A X E D . — 
For a tax of $1 a year on persons not otherwise taxed, dispensing 
preparations and remedies of limited narcotic content, see section 4702 
(a). 
(7) 
P E R S O N S I N CANAL ZONE. — 
For authority of the President to issue Executive orders providing for 
the imposition of a special tax upon all persons in the Canal Zone who 
produce, import, compound, deal in, dispense, distribute, sell, or give 
away narcotic drugs, see section 4735 (b). 
SEC. 4722. REGISTRATION. 
On or before July 1 of each year every person who engages in any 
of the activities enumerated in section 4721 shall register with the 
Secretary or his delegate his name or style, place of business and place 
or places where such business is to be carried on, and every person 
upon first engaging in any such activities shall immediately make like 
registration. 
SEC. 4723. POSSESSION BY PERSON NOT REGISTERED. 
T h e possession of any original stamped package containing narcotic 
drugs b y any person who has not registered and paid special taxes as 
required by sections 4721 and 4722 shall be prima facie evidence of 
liability to such special tax. 
SEC. 4724. UNLAWFUL ACTS IN CASE OF FAILURE TO REGISTER AND 
PAY SPECIAL TAX. 
(a) T R A F F I C K I N G . — I t shall be unlawful for any person required to 
register under the provisions of this subpart or section 4702 (a) to 
import, manufacture, produce, compound, sell, deal in, dispense, dis-
tribute, administer, or give away narcotic drugs without 
having 
registered and paid the special tax imposed b y this subpart or section 
4702 (a). 
§ 4724(a) 
556 
INTERNAL REVENUE CODE OF 19 
54 
-
(b) TRANSPORTATION.—Except as otherwise provided in this sub-
section, it shall be unlawful for any person to send, ship, carry, or 
deliver narcotic drugs from any State or Territory or the District of 
Columbia, or any insular possession of the United States, into any 
other State or Territory or the District of Columbia, or any insular 
possession of the United States. 
Nothing contained in this subsection 
shall apply— 
(1) to any person who shall have registered and paid the special 
tax as required by sections 4721 and 4722; 
(2) to common carriers engaged in transporting narcotic drugs; 
(3) to any employee acting within the scope of his employment 
for any person who shall have registered and paid the special tax 
as required by sections 4721 and 4722, or to any contract carrier 
or other agent acting within the scope of his agency for such 
registered person; 
(4) to any person who shall deliver any such drug which has 
been prescribed or dispensed by a physician, dentist, veterinarian, 
or other practitioner required to register under the terms of this 
subpart or section 4702 (a) and employed to prescribe for the 
particular patient receiving such drug; 
(5) to any person carrying any such drug which has been obtained 
by the person from a registered dealer in pursuance of a prescription, 
written for legitimate medical uses, issued by a physician, dentist, 
veterinarian, or other practitioner registered under section 4722 if 
the bottle or other container in which such drug is carried bears 
the name and registry number of the druggist, serial number of 
prescription, name and address of the patient, and name, address, 
and registry number of the person writing such prescription; 
(6) to any person carrying any such drug which has been ob-
tained by the person as a patient from a registered physician, 
dentist, or other practitioner in the course of his professional 
practice if such drug is dispensed to the patient for legitimate 
medical purposes; or 
(7) to any United States, State, county, municipal. District, 
Territorial, or insular officer or official acting within the scope 
of his official duties. 
(c) POSSESSION.—It shall be unlawful for any person who has not 
registered and paid the special tax provided for by this subpart or 
section 4702 (a) to have in his possession or under his control narcotic 
drugs; and such possession or control shall be presumptive evidence 
of a violation of this subsection and subsection (a), and also a viola-
tion of the provisions of sections 4721 and 4722: Provided, That this 
subsection shall not apply to any employee of a registered person, 
or to a nurse under the supervision of a physician, dentist, or veterinary 
surgeon registered under this subpart or section 4702 (a), having such 
possession or control by virtue of his employment or occupation and 
not on his own account; or to the possession of narcotic drugs which 
has or have been prescribed in good faith by a physician, dentist, or 
veterinary surgeon registered under this subpart or section 4702 (a); 
or to any United States, State, county, municipal, District, Territorial, 
or insular officer or official who has possession of any of said drugs, 
by reason of his official duties; or to a warehouseman holding posses-
sion for a person registered and who has paid the taxes under this 
§ 4724(b) 
\ 
CH. 39 
REGULATORY TAXES 
557 
subpart and sections 4701 to 4707, inclusive; or to common carriers 
engaged in transporting such drugs: Provided further, That it shall 
not be necessary to negative any of the aforesaid exemptions in any 
complaint, information, indictment, or other writ or proceeding laid 
or brought under this subpart or sections 4701 to 4707, inclusive; 
and the burden of proof of any such exemption shall be upon the 
defendant. 
SEC. 4725. OTHER LAWS APPLICABLE. 
All provisions of law relating to special taxes, as far as necessary, 
shall be extended and made applicable to the special tax imposed by 
this subpart. 
SEC. 4726. CROSS REFERENCES. 
For penalties and other general and administrative provisions appli-
cable to this subpart, see sections 4731 to 4736, inclusive; sections 4771 
to 4776, inclusive; chapter 40; and subtitle F. 
Subpart D—General Provisions Relating to Narcotic Drugs 
Sec. 4731. Definitions. 
See. 4732. Records, statements, and returns. 
Sec. 4733. Confiscation and disposal of seized drugs. 
Sec. 4734. Laws unaffected. 
Sec. 4735. Administration in Puerto Rico, the Trust Territory of 
the Pacific Islands, the Canal Zone, and the Virgin 
Islands. 
Sec. 4736. Other laws applicable. 
SEC. 4731. DEFINITIONS. 
(a) NARCOTIC DRUGS.—The words "narcotic drugs" as used in this 
part shall mean any of the following, whether produced directly or 
indirectly by extraction from substances of vegetable origin, or in-
dependently by means of chemical synthesis, or by a combination of 
extraction and chemical synthesis: 
(1) Opium, isonipecaine, coca leaves, and opiate; 
(2) Any compound, manufacture, salt, derivative, or preparation 
of opium, isonipecaine, coca leaves, or opiate; 
(3) Any substance (and any compound, manufacture, salt, de-
rivative, or preparation thereof) which is chemically identical with 
any of the substances referred to in clauses (1) and (2). 
(b) PERSON.—The word "person", as used in sections 4701 to 4707, 
inclusive, and sections 4721 to 4726, inclusive, shall be construed to 
mean and include a partnership, association, company, or corporation, 
as well as a natural person. 
(c) IMPORTER, MANUFACTURER, OR PRODUCER.—Every person who 
imports, manufactures, compounds, or otherwise produces for sale or 
distribution narcotic drugs shaU be deemed to be an importer, manu-
facturer, or producer. 
(d) WHOLESALE DEALER.—Every person who sells, or offers for 
sale, any of said drugs in the original stamped packages as provided 
in section 4704 (a) shall be deemed a wholesale dealer. 
(e) RETAIL DEALER.—Every person who sells or dispenses from 
original stamped packages as provided in section 4704 (a) shall be 
deemed a retail dealer: Provided, That the office, or if none, the 
residence, of &nj person shall be considered, for the purpose of this 
part, except sections 4711 to 4715, inclusive, his place of business. 
§ 4731(e) 
558 
INTERNAL REVENUE CODE OF 1954 
/ 
(f) IsoNiPECAiNE.—The word "isonipecaine", as used in this part 
shall mean any substance identified chemically as l-methyI-4-phenyl-
piperidine-4-carboxylic acid ethyl ester, or any salt thereof, by what-
ever trade name designated. 
(g) OPIATE.—The word "opiate", as used in this part shall mean 
any drug (as defined in the Federal Food, Drug, and Cosmetic Act; 
52 Stat. 1041, section 201 (g);21 U. S. C. 321) found by the Secretary 
or his delegate, after due notice and opportunity for public hearing, 
to have an addiction-forming or addiction-sustaining liability similar 
to morphine or cocaine, and proclaimed by the President to have 
been so found by the Secretary or his delegate. 
The Secretary or 
his delegate is authorized to issue necessary rules and regulations for 
carrying out the provisions of this subsection, and to confer or impose 
upon any officer or employee of the Treasury Department whom he 
shall designate or appoint, the duty of conducting any hearing author-
ized hereunder. 
(h) TERRITORY.—As used in this part— 
(1) the word "territory" shall include the Trust Territory of the 
Pacific Islands, and 
(2) the word "territorial" shall reflect such inclusion. 
SEC. 4732. RECORDS, STATEMENTS, AND RETURNS. 
(a) BOOKS AND MONTHLY RETURNS OF IMPORTERS, 
MANUFAC-
TURERS, AND WHOLESALE DEALERS.—Importers, manufacturers, and 
wholesale dealers shall keep such books and records and render such 
monthly returns in relation to the transactions in narcotic drugs as 
the Secretary or his delegate may by regulations require. 
(b) RETURNS BY REGISTRANTS OF DRUGS RECEIVED.—Any person 
who shaU be registered with the Secretary or his delegate under the 
provisions of section 4722 shall, whenever required so to do by the 
Secretary or his delegate, render to the official in charge of the internal 
revenue district a true and correct statement or return, verified by 
affidavit, setting forth the quantity of narcotic drugs received by him 
in said internal revenue district during such period immediately 
preceding the demand of the Secretary or his delegate, not exceeding 
3 months, as the Secretary or his delegate may fix and determine; 
the names of the persons from whom the said drugs were received; 
the quantity in each instance received from each of such persons; 
and the date when received. 
SEC. 4733. CONFISCATION AND DISPOSAL OF SEIZED DRUGS. 
All narcotic drugs seized by the United States Government from 
any person or persons charged with any violation of this part, or the 
act of February 9, 1909 (c. 100, 35 Stat. 614), as amended by the act 
of January 17, 1914 (c. 9, 38 Stat. 275), the act of May 26, 1922 (c. 
202, 42 Stat. 596), the act of June 7, 1924 (c. 352, 43 Stat. 657), the 
act of June 14, 1930 (c. 488, 46 Stat. 586), and the act of November 
2, 1951 (c. 666, 65 Stat. 767; 21 U. S. C. 171-185), shall upon convic-
tion of the person or persons from whom seized be confiscated by and 
forfeited to the United States; and the Secretary or his delegate is 
authorized to deliver for medical or scientific purposes to any depart-
ment, bureau, or other agency of the United States Government, 
upon proper application therefor under such regulation as may be 
prescribed by the Secretary or his delegate, any of the drugs so seized, 
confiscated, and forfeited to the United States. 
The provisions of 
§ 4731(f) 
, 
, 
CH. 39—REGULATORY TAXES 
559 
this section shall also apply to narcotic drugs seized or coming into 
the possession of the United States in the enforcement of this part or 
any of the above-mentioned acts, where the owner or owners thereof 
are unknown. 
No narcotic drugs coming into possession of the 
United States under the operation of said part or acts, or the provisions 
of this section, shall be destroyed without certification by a committee 
appointed by the Secretary or his delegate that they are of no value 
for medical or scientific purposes. 
SEC. 4734. LAWS UNAFFECTED. 
Nothing contained in sections 4701 to 4707, inclusive, or sections 
4721 to 4726, iuclusive, shall be construed to impair, alter, amend, 
or repeal any of the provisions of the act approved February 9, 1909, 
entitled "An Act to prohibit the importation and use of opium for 
other than medicinal purposes" (c. 100, 35 Stat. 614; 21 U. S. C. 171-
185), or of the Federal Food, Drug, and Cosmetic Act (June 25, 1938, 
c. 675, 52 Stat. 1040; 21 U. S. C. 301 et seq.), and any amendment 
thereof. 
SEC. 4735. ADMINISTRATION 
IN PUERTO RICO, THE TRUST TERRI-
TORY OF THE PACIFIC ISLANDS, THE CANAL 
ZONE, 
AND THE VIRGIN ISLANDS. 
(a) PUERTO RICO AND THE TRUST TERRITORY OP THE PACIFIC 
ISLANDS.—In Puerto Rico and the Trust Territory of the Pacific 
Islands, the administration of sections 4701 to 4707, inclusive, and 
sections 4721 to 4726, inclusive, the collection of the special tax 
imposed by section 4721, and the issuance of the order forms specified 
in section 4705 shall be performed by the appropriate internal revenue 
officers of those governments, and aU revenues collected thereunder in 
Puerto Rico and the Trust Territory of the Pacific Islands shall 
accrue intact to the general governments thereof, respectively. The 
highest court of original jurisdiction of the Trust Territory of the 
Pacific Islands shall possess and exercise jurisdiction in all cases 
arising in such Territory under sections 4701 to 4707, inclusive, and 
sections 4721 to 4726, inclusive. 
(b) CANAL ZONE.—The President is authorized and directed to 
issue such Executive orders as will carry into effect in the Canal Zone 
the intent and purpose of sections 4701 to 4707, inclusive, and sections 
4721 to 4726, inclusive, by providing for the registration and the im-
position of a special tax upon all persons in the Canal Zone who pro-
duce, import, compound, deal in, dispense, sell, distribute, or give 
away narcotic drugs. 
(c) VIRGIN ISLANDS.— 
For authority of the President to exempt persons in the Virgin Islands 
from the order form requirements, see section 4705 (b). 
SEC. 4736. OTHER LAWS APPLICABLE. 
All administrative, special, or stamp provisions of law, including the 
law relating to the assessment of taxes, so far as applicable, shall be 
extended to and made a part of sections 4701 to 4707, inclusive, sec-
tions 4721, 4722, and 4724 (a), and of section 4772 insofar as it relates 
to narcotic drugs. 
§4736 
560 
INTERNAL REVENUE CODE 
OF 
19 
54 
,
/ 
PART II—MARIHUANA 
:^--i- no-..•:•-r-h 
Subpart A. Tax on transfers. 
Subpart B. Occupational tax. 
Subpart C. General provisions relating to marihuana. 
Subpart A—Tax on Transfers 
Sec. 4741. Imposition of tax. 
: 
. . [ ' . ' • 
• r'.' 
Sec. 4742. Order forms. 
^
- 
,, ^ 
Sec. 4743. Affixing of stamps. 
Sec. 4744. Unlawful possession. 
Sec. 4745. Forfeitures. 
_ 
;. 
Sec. 4746. Cross references. 
SEC. 4741. IMPOSITION OF TAX. 
(a) RATE.—There shall be imposed upon all transfers of marihuana 
which are required by section 4742 to be carried out in pursuance of 
written order forms taxes at the following rates: 
(1) TRANSFERS TO SPECIAL TAXPAYERS.—Upon each transfer to 
any person who has paid the special tax and registered under sections 
4751 to 4753, inclusive, $1 per ounce of marihuana or fraction 
thereof. 
(2) TRANSFERS TO OTHERS.—Upon each transfer to any person 
who has not paid the special tax and registered under sections 4751 
to 4753, inclusive, $100 per ounce of marihuana or fraction thereof. 
(b) B Y WHOM PAID.—Such tax shall be paid by the transferee at 
the time of securing each order form and shall be in addition to the 
price of such form. 
Such transferee shall be liable for the tax imposed 
by this section but in the event that the transfer is made in violation 
of section 4742 without an order form and without payment of the 
transfer tax imposed by this section, the transferor shall also be liable 
for such tax. 
• 
SEC. 4742. ORDER FORMS. 
(a) GENERAL REQUIREMENT.—It shall be unlawful for any person, 
whether or not required to pay a special tax and register under 
sections 4751 to 4753, inclusive, to transfer marihuana, except in 
pursuance of a written order of the person to whom such marihuana 
is transferred, on a form to be issued in blank for that purpose by the 
Secretary or his delegate. 
(b) EXCEPTIONS.—Subject to such regulations as the Secretary or 
his delegate may prescribe, nothing contained in this section shall 
apply— 
(1) PROFESSIONAL PRACTICE.—To a transfer of marihuana to a 
patient by a physician, dentist, veterinary surgeon, or other prac-
titioner registered under section 4753, in the course of his pro-
fessional practice only: Provided, That such physician, dentist, 
veterinary surgeon, or other practitioner shall keep a record of all 
such marihuana transferred, showing the amount transferred and 
the name and address of the patient to whom such marihuana is 
transferred, and such record shall be kept for a period of 2 years 
from the date of the transfer of such marihuana, and subject to 
inspection as provided in section 4773. 
(2) PRESCRIPTIONS.—To a transfer of marihuana, made in good 
faith by a dealer to a consumer under and in pursuance of a written 
§4741 
/ 
-
CH. 3 9—REGULATORY TAXES 
561 
prescription issued by a physician, dentist, veterinary surgeon, or 
other practitioner registered under section 4753: Provided, That 
such prescription shall be dated as of the day on which signed and 
shall be signed by the physician, dentist, veterinary surgeon, or 
other practitioner who issues the same: Provided Jurther, That such 
dealer shall preserve such prescription for a period of 2 years from 
the day on which such prescription is filled, so as to be readily 
accessible for inspection by the officers, employees, and officials 
mentioned in section 4773. 
(3) EXPORTATION.—To the sale, exportation, shipment, or delivery 
of marihuana by any person within the United States, any Terri-
tory, the District of Columbia, or any of the insular possessions of 
the United States, to any person in any foreign country regulating 
the entry of marihuana, if such sale, shipment, or delivery of 
marihuana is made in accordance with such regulations for importa-
tion into such foreign country as are prescribed by such foreign 
country, such regulations to be promulgated from time to time by 
the Secretary of State of the United States. 
(4) GOVERNMENT AND STATE OFFICIALS.—To a transfer of mari-
huana to any ofiicer or employee of the United States Government 
or of any State, Territorial, District, county, or municipal or 
insular government lawfully engaged in making purchases thereof 
for the Department of Defense, the Public Health Service, and for 
Government, State, Territorial, District, county, or municipal or 
insular hospitals or prisons. 
(5) CERTAIN SEEDS.—To a transfer of any seeds of the plant 
Cannabis sativa L, to any person registered under section 4753. 
(c) SUPPLY.—The Secretary or his delegate shall cause suitable 
forms to be prepared for the purposes mentioned in this section and 
shall cause them to be distributed to each internal revenue district for 
sale. The price at which such forms shall be sold shall be fixed by the 
Secretary or his delegate, but shall not exceed 2 cents each. 
Whenever 
any of such forms are sold, the Secretary or his delegate shall cause the 
date of sale, the name and address of the proposed vendor, the name 
and address of the purchaser, and the amount of marihuana ordered 
to be plainly written or stamped thereon before delivering the same. 
(d) PRESERVATION.—Each such order form sold by the Secretary 
or his delegate shall be prepared to include an original and two copies, 
any one of which shall be admissible in evidence as an original. 
The 
original and one copy shall be given to the purchaser thereof. 
The 
original shall in turn be given by the purchaser thereof to any person 
who shall, in pursuance thereof, transfer marihuana to him and shall 
be preserved by such person for a period of 2 years so as to be readily 
accessible for inspection by an officer or employee mentioned in sec-
tion 4773. 
The copy given to the purchaser shall be retained by the 
purchaser and preserved for a period of 2 years so as to be readily 
accessible to inspection by any officer or employee mentioned in 
section 4773. 
The second copy shall be preserved in the records of 
the internal revenue district. 
(e) EXEMPTION OF CERTAIN TRANSFERS TO MILLERS.—Nothing in 
this section shall apply to a transfer of the plant Cannabis sativa L. 
or any parts thereof from any person registered under section 4753 
§ 4742(e) 
562 
INTERNAL REVENUE CODE OF 1954 
' 
to a person who is also registered under section 4753 as a taxpayer 
required to pay the tax imposed by paragraph (6) of section 4751. 
SEC. 4743. AFFIXING OF STAMPS. 
The stamps provided in section 4771 (a) (1) for marihuana shall be 
affixed by the Secretary or his delegate to the original order form, 
SEC. 4744. UNLAWFUL 
POSSESSION. 
(a) PERSONS IN GENERAL. —It shall be unlawful for any person who 
is a transferee required to pay the transfer tax imposed by section 
4741 (a) to acquire or otherwise obtain any marihuana without having 
paid such tax; and proof that any person shall have had in his posses-
sion any marihuana and shall have failed, after reasonable notice 
and demand by the Secretary or his delegate, to produce the order 
form required by section 4742 to be retained by him shall be presump-
tive evidence of guilt under this section and of liability for the tax 
imposed by section 4741 (a). 
(b) GOVERNMENT AND STATE OFFICIALS.—No liability shall be 
imposed by virtue of this section upon any duly authorized officer of 
the Treasury Department engaged in the enforcement of this part, or 
upon any duly authorized officer of any State, or Territory, or of any 
political subdivision thereof, or the District of Columbia, or of any 
insular possession of the United States, who shall be engaged in the 
enforcement of any law or municipal ordinance dealing with the 
production, sale, prescribing, dispensing, dealing in, or distributing 
of marihuana. 
SEC. 4745. FORFEITURES. 
; j; 
;i 
i ; ;
> / 
(a) OWNERSHIP BY VIOLATORS.—Any marihuana which may be 
seized by the United States Government from any person or persons 
charged with any violation of this part shall upon conviction of the 
person or persons from whom seized be confiscated by and forfeited 
to the United States. 
(b) UNKNOWN OWNERSHIP.—Any marihuana seized or coming into 
the possession of the United States in the enforcement of this part, 
the owner or owners of which are unknown, shall be confiscated by 
and forfeited to the United States. 
(c) DISPOSAL.—The Secretary or his delegate is hereby directed to 
destroy any marihuana confiscated by and forfeited to the United 
States under this section or to deliver such marihuana to any depart-
ment, bureau, or other agency of the United States Government, upon 
proper application therefor, under such regulations as may be pre-
scribed by the Secretary or his delegate. 
(d) OTHER LAWS APPLICABLE.—Except as inconsistent with the 
provisions of this part, all the provisions of internal revenue laws 
relating to searches, seizures, and forfeitures are extended to include 
marihuana. 
SEC. 4746. CROSS REFERENCES. 
For penalties and other general and administrative provisions appli-
cable to this subpart, see sections 4761 and 4762; sections 4771 to 4776, 
inclusive, and subtitle F. 
§ 4742(e) 
CH. 39—REGULATORY TAXES 
563 
Subpart B—Occupational Tax 
Sec. 4751, Imposition of tax. 
Sec. 4752. Computation and liability for tax. 
Sec, 4753, Registration. 
Sec. 4754. Returns. 
Sec. 4755. Unlawful acts in case of failure to register and pay 
special tax. 
• ' ' " - - 
Sec. 4756. Other laws applicable. 
Sec. 4757. Cross references. 
SEC. 4751. IMPOSITION OF TAX. 
Every person who imports, manufactures, produces, compounds, 
sells, deals in, dispenses, prescribes, administers, or gives away mari-
huana shall before engaging in any of the above-mentioned activities, 
and thereafter on or before July 1 of each year, pay the following 
special taxes respectively: 
(1) IMPORTERS, MANUFACTURERS, AND COMPOUNDERS;—Importers, 
manufacturers, and compounders of marihuana, $24 a year; 
(2) PRODUCERS.—Producers of marihuana (except those included 
within paragraph (4)), $1 a year, or fraction thereof, during which 
they engage in such activity; 
(3) PHYSICIANS, DENTISTS, VETERINARY SURGEONS, AND OTHER 
PRACTITIONERS.—Physiciaus, dentists, veterinary surgeons, and other 
practitioners who distribute, dispense, give away, administer, or 
prescribe marihuana to patients upon whom they in the course of 
their professional practice are in attendance, $1 a year, or fraction 
thereof, during which they engage in any of such activities; 
(4) PERSONS ENGAGED IN RESEARCH, INSTRUCTION, OR ANALY-
SIS.—Any person not registered as an importer, manufacturer, 
producer, or compounder who obtains and uses marihuana in a 
laboratory for the purpose of research, instruction, or analysis, or 
who produces marihuana for any such purpose, $1 a year, or fraction 
thereof, during which he engages in such activities; 
(5) PERSONS NOT OTHERWISE TAXED.—Any person who is not a 
physician, dentist, veterinary surgeon, or other practitioner and 
who deals in, dispenses, or gives away marihuana, $3 a year: Pro-
vided, That any person who has registered and paid the special tax 
as an importer, manufacturer, compounder, or producer, as required 
by paragraphs (1) and (2), may deal in, dispense, or give away 
marihuana imported, manufactured, compounded, or produced by 
him without further payment of the tax imposed by this section; 
(6) MILLERS.—Any person who at a mill manufactures or pro-
duces from the plant Cannabis sativa L. any fiber or fiber products, 
$1 a year, or fraction thereof, during which he engages in such 
activities. 
SEC. 4752. COMPUTATION AND LIABILITY FOR TAX. 
(a) COMPUTATION OP TAX.—Where a tax under paragraph (1) or 
(5) of section 4751 is payable on July 1 of any year it shall be computed 
for 1 year; where any such tax is payable on any other day it shaU be 
computed proportionately from the first day of the month in which 
the liability for the tax accrued to the following July 1. 
(b) LIABILITY IN CASE OF ACTIVITIES IN MORE THAN ONE PLACE.— 
In the event that any person subject to a tax imposed by section 4751 
engages in any of the activities enumerated in such section at more 
§ 4762(b) 
564 
INTERNAL REVENUE CODE OF 
1954 
than one place, such person shall pay the tax with respect to each 
such place. 
(c) LIABILITY IN CASE OF MORE THAN ONE ACTIVITY BY SAME 
PERSON AT SAME TIME.—Except as otherwise provided, whenever 
more than one of the activities enumerated in section 4751 is carried 
on by the same person at the same time, such person shall pay the tax 
for each such activity, according to the respective rates prescribed. 
SEC. 4753. REGISTRATION. 
(a) I N GENERAL.—Any person subject to the tax imposed by sec-
tion 4751 shall, upon payment of such tax, register his name or style 
and his place or places of business with the official in charge of the 
internal revenue district in which such place or places of business are 
located. 
(b) SPECIAL KEQUIREMENTS FOR MILLERS.—The Secretary or his 
delegate shall not permit the registration of any person under this 
section as a person required to pay the tax imposed by paragraph (6) 
of section 4751, unless in the opinion of the Secretary or his delegate 
such person (or if a corporation, each officer thereof) is a person of good 
moral character and unless in the opinion of the Secretary or his dele-
gate such person is a person of suitable financial standing, intends to 
engage in good faith in the business of manufacturing or producing 
fiber or fiber products from the plant Cannabis sativa L. on a com-
mercial basis, and is not seeking registration under this section for 
the purpose of facilitating the unlawful diversion of marihuana. 
Any person who is registered under this section and has paid the tax 
imposed by paragraph (6) of section 4751 shall afford officers and 
employees designated by the Secretary or his delegate ready access 
at all times to any part of the premises of the mill or other premises of 
such person and the right to inspect any and all books, papers, records, 
or documents connected with the activities of such person in dealing 
in, manufacturing, and processing Cannabis sativa L. and fiber or 
fiber products thereof, and the handling of marihuana. 
The Secre-
tary or his delegate may cancel or may refuse to renew, after notice 
and opportunity for hearing, the registration of any such person if he 
finds that such person has not complied or is not complying with the 
requirements of this subsection, or if he finds that grounds exist 
which would justify the refusal to permit the original registration of 
such person under this section. 
SEC. 4754. RETURNS. 
(a) REGISTRANTS.—Any person who shall be registered under the 
provisions of section 4753 with the Secretary or his delegate shall, 
whenever required to do so by the Secretary or his delegate, render 
a true and correct statement or return, verified by affidavits, setting 
forth the quantity of marihuana received or harvested by him during 
such period immediately preceding the demand of the Secretary or 
his delegate, not exceeding 3 months, as the Secretary or his delegate 
may fix and determine. 
If such person is not solely a producer, he 
shaU set forth in such statement or return the names of the persons 
from whom said marihuana was received, the quantity in each 
instance received from such persons, and the date when received. 
(b) CROSS REFERENCES.— 
For general requirement as to records, statements, and returns in 
the case of persons liablg for tax, see subtitle F. 
§ 4752(b) 
CH. 39—REGULATORY TAXES 
665 
SEC. 4755. 
UNLAWFUL ACTS IN CASE OF FAILURE TO 
REGISTER 
AND PAY SPECIAL TAX. 
(a) TRAFFICKING.— 
(1) LIABILITY.—It shall be unlawful for any person required to 
register and pay the special tax under the provisions of sections 
4751 to 4753, inclusive, to import, manufacture, produce, com-
pound, sell, deal in, dispense, distribute, prescribe, administer, or 
give away marihuana without having so registered and paid such 
tax. 
(2) ENFORCEMENT OF LIABILITY.—In any suit or proceeding to 
enforce the liability imposed by this section or sections 4751 to 
4753, inclusive, if proof is made that marihuana was at any time 
growing upon land under the control of the defendant, such proof 
shall be presumptive evidence that at such time the defendant was a 
producer and liable under this section as well as under sections 
4751 to 4753, inclusive. 
(b) TRANSPORTATION.—It shall be unlawful for any person who 
shall not have paid the special tax and registered, as required by sec-
tions 4751 to 4753, inclusive, to send, ship, carry, transport, or deliver 
any marihuana within any Territory, the District of Columbia, or any 
insular possession, or from any State, Territory, the District of Co-
lumbia, any insular possession of the United States, or the Canal 
Zone, into any other State, Territory, the District of Columbia, 
or insular possession of the United States: Provided, That nothing 
contained in this section shall apply to any common carrier engaged 
in transporting marihuana; or to any employee of any person who 
shall have registered and paid the special tax as required by sections 
4751 to 4753, inclusive, while acting within the scope of his employ-
ment; or to any person who shall deliver marihuana which has been 
prescribed or dispensed by a physician, dentist, veterinary surgeon, 
or other practitioner registered under section 4753, who has been 
employed to prescribe for the particular patient receiving such mari-
huana; or to any United States, State, county, municipal. District, 
Territorial, or insular officer or official acting within the scope of his 
official duties. 
SEC. 4756. OTHER LAWS APPLICABLE. 
All provisions of law (including penalties) applicable in respect of 
the taxes imposed by sections 4701 and 4721 shall, insofar as not in-
consistent with this part, be applicable in respect of the taxes imposed 
by this part. 
SEC. 4757. CROSS REFERENCES. 
For penalties and other general and administrative provisions appli-
cable to this subpart, see sections 4761 and 4762; sections 4771 to 4776, 
inclusive; chapter 40; and subtitle F. 
Subpart C—General Provisions Relating to Marihuana 
Sec. 4761. Definitions. 
Sec. 4762. Administration in insular possession. 
SEC. 4761. DEFINITIONS. 
When used in this part— 
(1) PERSON."—The term "person" means an individual, a partner-
ship, trust, association, company, or corporation, and includes an 
§4761(1) 
566 
^ 
INTERNAL REVENUE CODE OF 19 54 
' officer or employee of a trust, association, company, or corporation, 
or a member or employee of a partnership, who, as such officer, 
employee, or member, is under a duty to perform any act in respect 
of which any violation of this part occurs. 
(2) MARIHUANA.—The term "marihuana" means all parts of the 
plant Cannabis sativa L., whether growing or not; the seeds thereof; 
the resin extracted from any part of such plant; and every com-
pound, manufacture, salt, derivative, mixture, or preparation of 
such plant, its seeds, or resin; but shall not include the mature 
stalks of such plant, fiber produced from such stalks, oil or cake 
made from the seeds of such plant, any other compound, manu-
facture, salt, derivative, mixture, or preparation of such mature 
stalks (except the resin extracted therefrom), fiber, oil, or cake, or 
the sterilized seed of such plant which is incapable of germination. 
(3) PRODUCER.—The term "producer" means any person who (A) 
plants, cultivates, or in any way facilitates the natural growth of 
marihuana; or (B) harvests and transfers or makes use of mari-
huana. 
(4) TRANSFER OR TRANSFERRED.—The term "transfer" or "trans-
ferred" means any type of disposition resulting in a change of pos-
session, but shall not include a transfer to a common carrier for the 
purpose of transporting marihuana. 
SEC. 4762. ADMINISTRATION IN INSULAR 
POSSESSION. 
(a) PUERTO RICO.—In Puerto Rico the administration of this part, 
the collection of the special taxes and transfer taxes, and the issuance 
of the order forms provided for in section 4742 shall be performed by 
the appropriate internal revenue officers of the government of Puerto 
Rico, and all revenues collected under this part in Puerto Rico shall 
accrue intact to the general government thereof. 
(b) VIRGIN ISLANDS.—The President shall be authorized and di-
rected to issue such Executive orders as will carry into effect in the 
Virgin Islands the intent and purpose of this part by providing for the 
registration with appropriate officers and the imposition of the special 
and transfer taxes upon all persons in the Virgin Islands who import, 
manufacture, produce, compound, sell, deal in, dispense, prescribe, 
administer, or give away marihuana. 
i'.'ac, 
PART III—MISCELLANEOUS PROVISIONS RELATING TO 
NARCOTIC DRUGS AND MARIHUANA 
Sec. 4771. Stamps. 
i-
,5,^ ^ _ 
Sec. 4772. Exemption from tax and registration. 
~i^»? '*'*? 
Sec. 4773. Inspection of returns, order forms, and prescriptions. 
_,xi\ i f oj I 
ggp 4774 Territorial extent of law. 
Sec. 4775. List of special taxpayers. 
Sec. 4776. Cross references. 
ri {Bi»iif)i>- - ' ) J'iJiCicfii8 
SEC. 4771. STAMPS. 
' 
(a) M E T H O D OP P A Y M E N T . — 
!-n(vh-,if;.vr; .latl-.5:.>^ 
(1) STAMPS.—The taxes imposed by sections 4701 and 4741 shall 
be represented by appropriate stamps, to be provided by the Secre-
tary or his delegate. 
< •; 
-HI fri ; . ' [
• jr// 
(2) A S S E S S M E N T . — 
. . . ! - . - 
. . . . . . 
i,,.. 
For assessment in case of omitted taxes payable by stamp, see 
subtitle F. 
§4761(1) 
CH. 39 
REGULATORY TAXES 
567 
(b) OTHER LAWS APPLICABLE,—All the provisions of law relating 
to the engraving, issuance, sale, accountability, cancellation, and 
destruction of tax-paid stamps provided for in the internal revenue 
laws shall, insofar as apphcable and not inconsistent with sections 
4701 to 4707, inclusive, and sections 4741 to 4746, inclusive, be ex-
tended and made to apply to the stamps provided in subsection (a). 
SEC. 4772. EXEMPTION FROM TAX AND REGISTRATION. 
(a) EMPLOYEES.—No employee of any person who has registered 
and paid a special tax as required in sections 4721 to 4726, inclusive, 
or sections 4751 to 4757, inclusive, acting within the scope of his 
employment shall be required to register and pay such special taxes. 
(b) GOVERNMENT AND STATE OFFICIALS.—Officials of the United 
States, Territorial, District of Columbia, or insular possessions, State 
or municipal governments, who in the exercise of their official duties 
engage in any of the businesses described in section 4741 or activities 
enumerated in sections 4751 and 4752, shall not be required to register, 
nor pay special tax, but their right to this exemption shall be evidenced 
in such manner as the Secretary or his delegate may by regulations 
prescribe. 
(c) CROSS REFERENCES.— 
(1) C A N A L Z O N E . — 
For authority of the President to issue Executive orders providing for 
the registration of all persons in the Canal Zone who produce, import, 
compound, deal in, dispense, distribute, sell, or give away 
narcotic 
drugs, see section 4735 (b). 
(2) V I R G I N I S L A N D S . — 
For authority of the President to issue Executive orders providing for 
the registration and the imposition of special taxes relating to mari-
huana, on persons in the Virgin Islands, see section 4762 (b). 
SEC. 4773. INSPECTION 
OF RETURNS, 
ORDER 
FORMS, AND PRE-
SCRIPTIONS. 
The duplicate order forms and the prescriptions required to be 
preserved under the provisions of section 4705 (c) (2) and (e), and 
the order forms and copies thereof and the prescriptions and records 
required to be preserved under the provisions of section 4742, in 
addition to the statements or returns filed in the office of the official in 
charge of the internal revenue district under the provisions of sections 
4732 (b) or 4754, shall be open to inspection by officers and employees 
of the Treasury Department duly authorized for that purpose, and 
such officials of any State or Territory, or of any organized munici-
pality therein, or of the District of Columbia, or any insular possession 
of the United States, as shall be charged with the enforcement of any 
law or municipal ordinance regulating the production of marihuana 
or regulating the sale, prescribing, dispensing, dealing in, or distribu-
tion of narcotic drugs or marihuana. 
The Secretary or his delegate 
is authorized to furnish, upon written request, certified copies of 
any of the said statements or returns filed in the office of any official 
in charge of an internal revenue district to any of such officials of any 
State or Territory or organized municipality therein, or the District of 
Columbia, or any insular possession of the United States as shall be 
entitled to inspect the said statements or returns filed in the office of 
the official in charge of the internal revenue district, upon the pay-
§ 4773 
568 
• 
INTERNAL REVENUE CODE OF 1954 
ment of a fee of $1 for each 100 words or fraction thereof in the copy 
or copies so requested. 
SEC. 4774. TERRITORIAL EXTENT OF LAW. 
The provisions of sections 4701 to 4707, inclusive, and sections 
4721 to 4776, inclusive, shall apply to the several States, the District 
of Columbia, the Territory of Alaska, the Territory of Hawaii, and 
the insular possessions of the United States; and, in the case of narcotic 
drugs, shall also apply to the Trust Territory of the Pacific Islands 
and to the Canal Zone. 
SEC. 4775. LIST OF SPECIAL TAXPAYERS. 
The Secretary or any officer or employee designated by him is 
authorized to furnish upon written request, to any person, a cer-
tified copy of the names of any or all persons who may be listed in 
the respective internal revenue districts as special taxpayers under the 
provisions of sections 4721 to 4726, inclusive, section 4702 (a), section 
4751, or section 4752, upon payment of a fee of $1 for each 100 
names or fraction thereof in the copy so requested. ^
^ ,
^ , 
. ^ 
SEC. 4776. CROSS REFERENCES. 
' 
'" " 
': 
For penalties and other general and administrative provisions appli-
cable to this subchapter, see subtitle F. 
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§4773 
CH. 3 9 
REGULATORY TAXES 
569 
Subchapter B—White Phosphorus Matches 
-• 
Sec. 4801. Imposition of tax. 
Sec. 4802. Definition of white phosphorus. 
Sec. 4803. Stamps. 
;^ 
Sec. 4804. Requirements on manufacturers. 
Sec. 4805. Importation and exportation. 
Sec. 4806. Cross references. 
SEC. 4801. IMPOSITION OF TAX. 
(a) RATE.—There shall be imposed upon white phosphorus matches 
manufactured, sold, or removed a tax at the rate of 2 cents per one 
hundred matches. 
(b) B Y WHOM PAID.—The tax imposed by subsection (a) shall be 
paid by the manufacturer. 
SEC. 4802. DEFINITION OF WHITE PHOSPHORUS. 
For the purpose of this subchapter, the words "white phosphorus" 
shall be understood to mean the common poisonous white or yellow 
phosphorus used in the manufacture of matches and not to include 
the nonpoisonous forms or the nonpoisonous compounds of white or 
yellow phosphorus. 
SEC. 4803. STAMPS. 
(a) METHOD OF PAYMENT.— 
J 
(1) STAMPS.—The tax imposed by section 4801 shall be repre-
sented by adhesive stamps. 
(2) ASSESSMENT.— 
{3, 
For assessment in case of omitted taxes, see subtitle F. 
" (b) SALE.—The Secretary or his delegate shall require that stamps 
be sold only to duly qualified manufacturers, 
(c) ACCOUNTS.—The Secretary or his delegate shall cause to be kept 
accounts of the number and denominate values of the stamps sold to 
each manufacturer. 
(d) OTHER STAMP PROVISIONS.—All the provisions and penalties 
of law governing the engraving, issuing, sale, affixing, cancellation, 
accountability, effacement, destruction, and forgery of stamps pro-
vided for internal revenues shall apply to stamps provided for by this 
subchapter. 
SEC. 4804. REQUIREMENTS ON MANUFACTURERS. 
(a) PACKING.— 
(1) NUMBER IN PACKAGES.—All white phosphorus matches shall 
be packed by the manufactm-er thereof in packages containing 
100, 200, 500, 1,000, or 1,500 matches each, which shall then be 
packed by the manufactiu"er in packages containing not less than 
- 
14,400 matches. 
i 
(2) STAMPING.—The manufacturer shall affix to every package 
^^ning 100, 200, 500, 1,000, or 1,500 matches an adhesive stamp 
^nred value and shall place thereon the initials of his name 
"n which such stamp is affixed, so that the same may 
14804(a)(2) 
570 
INTERNAL REVENUE CODE OP 19 54 
(3) FACTORY NUMBER.—Every manufacturer of matches shall 
mark, brand, affix, stamp, or print, in such manner as the Secretary 
or his delegate shall prescribe, on every package of white phos-
- phorus matches manufactured, sold, or removed by him, the factory 
number required under subsection (b). 
(4) LABEL.—Every manufacturer of white phosphorus matches 
shall securely affix by pasting on each original package containing 
stamped packages of white phosphorus matches manufactured by 
him a label, on which shall be printed, besides the number of the 
manufactory and the district in which it is situated, these words: 
"NOTICE.—The manufacturer of the white phosphorus matches 
herein contained has complied with all the requirements of law. 
Every person is cautioned not to use again the stamps on the pack-
ages herein contained under the penalty provided by law in such 
cases," 
(b) FACTORY NUMBER AND SIGNS.—Every manufacturer of white 
phosphorus matches shall put up such signs and affix such number to 
his factory as the Secretary or his delegate may by regulation require. 
(c) BONDS.—Every manufacturer of white phosphorus matches 
shall file with the official in charge of the internal revenue district in 
which his manufactory is located such bonds as the Secretary or his 
delegate may by regulation require. 
The bond required of such manu-
facturer shall be in the penal sum of not less than $1,000; and the sum 
of said bond may be increased from time to time and additional 
sureties required at the discretion of the Secretary or his delegate. 
(d) REGISTRATION.—Every manufacturer 
of white 
phosphorus 
matches shall register with the official in charge of the internal revenue 
district his name or style, place of manufactory, and the place where 
such business is to be carried on. 
SEC. 4805. IMPORTATION AND EXPORTATION. 
(a) 
IMPORTATION.—White phosphorus 
matches, 
manufactured 
wholly or in part in any foreign country, shall not be entitled to entry 
at any of the ports of the United States, and the importation thereof 
is prohibited. All matches imported into the United States shall be 
accompanied by such certificate of official inspection by the govern-
ment of the country in which such matches were manufactured as shall 
satisfy the Secretary or his delegate that they are not white phos-
phorus matches. 
(b) EXPORTATION.—^It shall be unlawful to export from the United 
States any white phosphorus matches. 
, ., _ 
SEC. 4806. CROSS REFERENCES. 
For penalties and other general and administrative provisions appli-
cable to this subchapter, see subtitle F. 
•'•• • 
. b f t K i ] 
§ 4804(a) C3) 
CH. 39—REGULATORY TAXES 
571 
Subchapter C—Adulterated Butter and Filled Cheese 
Part 
I. Adulterated and process or renovated butter. 
Part II. Filled cheese. 
PART I—ADULTERATED AND PROCESS OR RENOVATED 
BUTTER 
Subpart A. Tax on products. 
Subpart B. Occupational tax 
„, ' 
Subpart C. Definitions. 
J 
Subpart A—Tax on Products 
Sec. 4811. Imposition of tax. 
Sec. 4812. Importation of adulterated butter. 
^^,.,. 
Sec. 4813. Stamps. 
<
- '•' 
Sec. 4814. Requirements applicable to manufacturers. 
Sec. 4815. Requirements applicable to dealers. 
Ilr; 
Sec. 4816. Exportation of adulterated butter. 
Sec. 4817. Inspection of process or renovated butter. 
Sec. 4818. Administrative decisions relating to adulterated butter. 
Sec. 4819. Cross references. 
SEC. 4811. IMPOSITION OF TAX. 
(a) RATE.— 
(1) ADULTERATED 
BUTTER.—There 
shall be imposed 
upon 
J adulterated butter, when manufactured or sold or removed for 
. consumption or use, a tax of 10 cents per pound, and any fractional 
[ part of a pound shall be taxed as a pound. 
(2) PROCESS OR RENOVATED BUTTER.—There shall be imposed 
'••j. upon process or renovated butter, when manufactured or sold or 
, removed for consumption or use, a tax of one-fourth of 1 cent per 
/^i pound, and any fractional part of a pound shall be taxed as a 
pound. 
(b) B Y WHOM PAID.—The tax imposed by subsection (a) shall be 
paid by the manufacturer. 
SEC. 4812. IMPORTATION OF ADULTERATED BUTTER. 
There shall be imposed upon adulterated butter imported from a 
foreign country, in addition to any import duty imposed on the same, 
an internal revenue tax of 15 cents per pound, such tax to be repre-
sented by coupon stamps as in the case of adulterated butter manu-
factured in the United States. 
The stamps shall be affixed and 
canceled by the owner or importer of the adulterated butter while 
it is in the custody of the officers or employees designated by the 
Secretary or his delegate; and the adulterated butter shall not pass 
out of the custody of said officers or employees until the stamps have 
been so affixed and canceled, but shall be put up in wooden packages, 
each containing not less than 10 pounds, as prescribed in this sub-
part for adulterated butter manufactured in the United States, before 
the stamps are affixed; and the owner or importer of such adulterated 
butter shall be liable to all the penal provisions of this subpart pre-
§ 4812 
572 
INTERNAL REVENUE CODE 
OF 
1954 
scribed for manufacturers of adulterated butter manufactured in the 
United States. 
Whenever it is necessary to take any adulterated 
butter so imported to any place other than the public stores of the 
United States for the purpose of affixing and canceling such stamps, 
the Secretary or his delegate shall designate a bonded warehouse to 
which it shall be taken, under the control of such officer or employee 
as the Secretary or his delegate may direct. 
SEC. 4813. STAMPS. 
(a) METHOD OF PAYMENT.— 
(1) STAMPS.—The tax imposed by section 4811 shall be repre-
sented by coupon stamps. 
(2) ASSESSMENT.— 
For assessment in case of omitted taxes, see subtitle F. 
(b) EMPTIED PACKAGES.—Whenever any stamped package contain-
ing adulterated butter is emptied, it shall be the duty of the person in 
whose hands the same is to destroy utterly the stamps thereon. The 
Secretary or his delegate may destroy any emptied package of adulter-
ated butter upon which the tax-paid stamp is found. 
(c) OTHER STAMP PROVISIONS.—The provisions of law governing 
the engraving, issuing, sale, accountability, eflacement, and destruc-
tion of stamps relating to tobacco and snujff, as far as applicable, shall 
apply to the stamps provided in paragraph (1) of subsection (a). 
SEC. 4814. REQUIREMENTS APPLICABLE TO MANUFACTURERS. 
(a) PACKING, STAMPING, AND SELLING REQUIREMENTS.— 
(1) ADULTERATED 
BUTTER.—All adulterated butter shall be 
packed by the manufacturer thereof in firkins, tubs, or other 
wooden, tin-plate, or paper packages not before used for that pur-
pose, containing, or encased in a manufacturer's package made from 
any of such materials of, not less than ten pounds, and marked, 
stamped, and branded as the Secretary or his delegate shall pre-
scribe, and all sales made by manufacturers of adulterated butter 
shall be in original, stamped packages. 
Every manufacturer of 
adulterated butter shall securely afiix, by pasting, on each package 
containing adulterated butter manufactured by him a label on which 
shall be printed, besides the number of the manufactory and the 
district and State in which it is situated, these words: "Notice.— 
The manufacturer of the adulterated butter herein contained has 
complied with all the requirements of law. Every person is cau-
tioned not to use either this package again or the stamp thereon, 
nor to remove the contents of this package without destroying said 
stamp, imder the penalty provided by law in such cases." 
(2) PROCESS OR RENOVATED BUTTER.— 
For marking process or renovated butter, see section 4817. 
(b) FACTORY NUMBER AND SIGNS.—Every manufacturer of process 
or renovated butter or adulterated butter shall put up such signs and 
afl&x such number to his factory as the Secretary or his delegate may 
by regulation require. 
(c) BONDS.—Every manufacturer of process or renovated butter or 
adulterated butter shall file with the official in charge of the internal 
revenue district in which his manufactory is located such bonds as the 
Secretary or his delegate may by regulation require. The bond re-
quired of such manufacturer shall be in a penal sum of not less than 
§4812 
CH. 39—REGULATORY TAXES 
573 
$500; and the sum of said bond may be increased from time to time 
and additional sureties required at the discretion of the Secretary or 
his delegate. 
SEC. 4815. REQUIREMENTS APPLICABLE TO DEALERS. 
(a) SELLING KEQUIREMENTS.—Dealers in adulterated butter must 
sell only original or from original stamped packages, and when such 
original stamped packages are broken the adulterated butter sold 
from same shall be placed in suitable wooden, tin-plate, or paper 
packages, which shall be marked and branded as the Secretary or 
his delegate shall prescribe. 
(b) BOOKS OF WHOLESALE DEALERS.—Books required by section 
6001 to be kept by wholesale dealers in process, renovated, or 
adulterated butter shall be open at all times to the inspection of any 
officer or employee designated by the Secretary or his delegate. 
SEC. 4816. EXPORTATION OF ADULTERATED BUTTER. 
Adulterated butter may be removed from the place of manufacture 
for export to a foreign country without payment of tax or affixing 
stamps thereto, under such regulations and the ffiing of such bonds 
and other security as the Secretary or his delegate may prescribe. 
Every person who shall export adulterated butter shall brand upon 
every tub, firkin, or other package containing such article the words 
"Adulterated Butter", in plain Roman letters not less than one-half 
inch square. 
SEC. 4817. INSPECTION OF PROCESS OR RENOVATED BUTTER. 
For the purpose of protecting interstate and foreign commerce from 
process or renovated butter which is unclean, unwholesome, unhealth-
ful, or otherwise unfit for human food— 
(1) INGREDIENTS.—The Secretary of Agriculture shall, through 
' inspectors appointed by him, cause inspections to be made of all 
• milk, butter, butter oil, and other ingredients intended for use in the 
' manufacture of process or renovated butter. 
All ingredients which 
' are found to be putrid or decomposed or which contain organic or 
• inorganic substances which are foreign to such ingredients when 
' properly made, manufactured, produced, collected, stored, trans-
'
^
' ported, or handled, and which organic or inorganic substances can-
i not be removed by processing, shall be deemed unfit for use in the 
manufacture of process or renovated butter, shall be marked "U. S. 
Inspected and Condemned", and shall be denatured or destroyed 
under the supervision of the inspector. 
All other ingredients shall 
be marked "U. S, Inspected and Passed", and shall be deemed fit 
i for use in the manufacture of process or renovated butter. 
- 
(2) FINISHED PRODUCT.—The Secretary of Agriculture shall cause 
inspections to be made of all process or renovated butter. 
If such 
butter is found to be clean, wholesome, healthful, and otherwise fit 
for human food, it shall be marked "U. S. Inspected and Passed". 
Process or renovated butter that is found to be unclean, unwhole-
some, unhealthful, or otherwise unfit for human food shall be de-
natured or destroyed under the supervision of the inspector. 
(3) FACTORIES.—The Secretary of Agriculture shall cause inspec-
tions to be made of all factories wherein process or renovated butter 
is manufactured to determine the sanitary conditions thereof, and if 
it is found that the conditions existing in any such factory do not 
§ 4817(3) 
574 
INTERNAL REVENUE CODE 
OF 
1954 
meet the standards prescribed by the Secretary in his regulations, 
he shall cause inspection to be withdrawn therefrom. 
(4) COMPLIANCE BY MANUPACTUEER.—The Secretary of Agricul-
ture is authorized to withdraw inspection from any factory wherein 
process or renovated butter is made, if the manufacturer shall fail 
to comply with any of the provisions of this section or with any of 
the rules and regulations prescribed hereunder. 
(5) RULES AND REGULATIONS.—The Secretary of Agriculture is 
authorized to make such rules and regulations as he deems necessary 
for the efficient administration of the provisions of this section, and 
all inspections hereimder shall be made in such manner as may be 
prescribed in such regulations. 
The Secretary of Agriculture may, 
from time to time, by regulations define the foreign substances and 
the extent thereof that render the ingredients imfit for use in manu-
facturing process or renovated butter. 
(6) STATISTICS.—The Secretary of Agricultiu-e shall cause to be 
ascertained, and he shall report, from time to time, the quantity and 
quality of all process or renovated butter manufactured and the 
character and condition of the materials from which it is made. 
(7) FORGERY, ETC., OF STAMPS, ETC.—No person, firm, or corpora-
tion shall forge, counterfeit, simulate, falsely represent, detach, or, 
knowingly alter, deface, or destroy, or use without proper authority 
any of the marks, stamps, labels, or tabs provided for in this section 
or in any regulations prescribed hereunder by the Secretary of Agri-
culture for use on process or renovated butter or on wrappers, pack-
ages, containers, or cases in which the product is contained, or any 
certificate in relation thereto. 
(8) LABELS ON CONTAINERS.—^AU process or renovated butter and 
the packages or containers thereof shall be marked with the words 
"Process Butter" and by such other marks, labels, or brands, and in 
such manner, as may be prescribed by the Secretary of Agriculture. 
(9) FALSE OR MISLEADING LABELS.—No statement that is false 
or misleading in any particular shall be placed on or affixed to any 
wrapper, label, carton, or container of process or renovated butter. 
(10) UNAPPROVED PRODUCT IN INTERSTATE OR FOREIGN COM-
MERCE.—No person, firm, or corporation shall transport, or offer 
for transportation, or sell or offer for sale, in interstate or foreign 
commerce, or in commerce affecting commerce among the States, 
any process or renovated butter that has not been inspected and 
passed and marked, labeled, and branded in accordance with this 
section and the regulations issued hereunder. 
(11) ADMINISTRATION.—The administration and enforcement of 
the provisions of this section, other than its provisions relatiag to 
revenue, but including the seizure and denaturing or destruction of 
ingredients intended to be used in the manufacture of process or 
renovated butter and the denaturing or destruction of process or 
renovated butter, are committed exclusively to the Secretary of 
Agriculture: Provided, That any powers and duties of the Food 
and Drug Administration of the Department of Health, Education, 
and Welfare under the Federal Food, Drug, and Cosmetic Act, as 
amended (52 Stat. 1040; 21 U. S. C , chapter 9), as regards such 
ingredients before they come into the possession of the manufac-
turers of process or renovated butter, or as regards such powers and 
§ 4817(3) 
CH. 39 
REGULATORY TAXES 
575 
duties in connection with process or renovated butter after it leaves 
such manufacturers and comes into the hands of wholesale or retail 
dealers, or others, shall not be affected by this section. 
SEC. 4818. ADMINISTRATIVE DECISIONS RELATING TO ADULTERATED 
BUTTER. 
(a) TAXABILITY.—The Secretary or his delegate is authorized to 
decide what substances, extracts, mixtures, or compounds which may 
be submitted for his inspection in contested cases are to be taxed as 
adulterated butter under this subpart; and his decision in such matters 
of taxation under this subpart shall be final. 
(b) DELETERIOUS INGREDIENTS.—The Secretary or his delegate 
may also decide whether any substance made in imitation or sem-
blance of butter, and intended for human consumption, contains 
ingredients deleterious to the public health. 
(c) APPEAL.—In case of doubt or contest, the decisions of the 
Secretary or his delegate in the class of cases under subsection (b) 
may be appealed to a board constituted for the purpose and composed 
of the Surgeon General of the Department of the Army, the Surgeon 
General of the Department of the Navy, and the Secretary of Agri-
culture; and the decisions of this board shall be final in the premises. 
SEC. 4819. CROSS REFERENCES. 
(a) 
DEFINITIONS.— 
^ 
For definitions applicable to this subpart, see section 4826. 
i (b) OTHER PROVISIONS.— 
For penalties and other general and administrative provisions appli-
cable to this subpart see subtitle F. 
' 
Subpart B—Occupational Tax 
0-- ' 
Sec. 4821. Imposition of tax. 
Sec. 4822. Cross references. 
SEC. 4821. IMPOSITION OF TAX. 
(a) 
MANUFACTURERS.— 
(1) PROCESS OR RENOVATED BUTTER.—Manufacturers of process 
or renovated butter shall pay a special tax of $50 a year. 
(2) ADULTERATED BUTTER.—Manufacturers of adulterated butter 
shall pay a special tax of $600 a year. 
(b) WHOLESALE DEALERS IN ADULTERATED BUTTER.—Wholesale 
dealers in adulterated butter shall pay a special tax of $480 a year. 
(c^ RETAIL DEALERS IN ADULTERATED BUTTER.—Retail dealers in 
adulterated butter shall pay a special tax of $48 a year. 
SEC. 4822. CROSS REFERENCES. 
(a) 
DEFINITIONS.— 
For definitions applicable to this subpart, see section 4826. 
(b) 
OTHER 
PROVISIONS.— 
For penalties and other general and administrative provisions 
applicable to this subpart, see chapter 40 and subtitle F. 
V 
§ 4822(b) 
576 
INTERNAL REVENUE CODE 
OF 
1954 
Subpart C—Definitions 
Sec. 4826. Definitions. 
SEC. 4826. DEFINITIONS. 
(a) BUTTER.—For the purpose of this part, the word "butter" shall 
be understood to mean the food product usually known as butter, and 
made exclusively from milk or cream, or both, with or without common 
salt, and with or without additional coloring matter. 
(b) ADULTERATED BUTTER.—"Adulterated 
butter" is defined to 
mean a grade of butter produced by mixing, reworking, rechurning in 
milk or cream, refining, or in any way producing a uniform, purified, or 
improved product from different lots or parcels of melted or unmelted 
butter or butter fat, in which any acid, alkali, chemical, or any sub-
stance whatever is introduced or used for the purpose or with the 
effect of deodorizing or removing therefrom rancidity, or any butter 
or butter fat with which there is mixed any substance foreign to 
butter as defined in subsection (a), with intent or effect of cheapen-
ing in cost the product, or any butter in the manufacture or manipula-
tion of which any process or material is used with intent or effect of 
causing the absorption of abnormal quantities of water, milk, or 
cream. 
(c) PROCESS OR RENOVATED BUTTER.—"Process butter" or "ren-
ovated butter" is defined to mean butter which has been subjected to 
any process by which it is melted, clarified, or refined and made to 
resemble genuine butter, always excepting "adulterated butter" as 
defined by subsection (b). 
(d) MANUFACTURER.—Every person who engages in the production 
of process or renovated butter or adulterated butter as a business shall 
be considered to be a manufacturer thereof. 
(e) DEALER.—Every person who sells adulterated butter shall be 
regarded as a dealer in adulterated butter. 
(f) RETAIL DEALER.—Every person who sells adulterated butter 
in less quantities than 10 pounds at one time shall be regarded as a 
retail dealer in adulterated butter. 
PART II—FILLED CHEESE 
Subpart A. Tax on products. 
Subpart B. Occupational tax. 
Subpart C. Definitions. 
Subpart A—Tax on Products 
Sec. 4831. Imposition of tax. 
Sec. 4832. Stamps. 
Sec. 4833. Requirements applicable to manufacturers. 
Sec. 4834. Requirements applicable to wholesale and retail dealers. 
Sec. 4835. Administrative decisions. 
Sec. 4836. Cross references. 
SEC. 4831. IMPOSITION OF TAX. 
(a) DOMESTIC.—There shall be imposed upon all filled cheese which 
shall be manufactured a tax of 1 cent per pound payable by the manu-
facturer thereof; and any fractional part of a pound in a package shall 
be taxed as a pound. 
^ 
§4826 
CH. 39—REGULATORY TAXES 
577 
(b) IMPORTED.—There shall be imposed upon all filled cheese 
imported from a foreign country, in addition to any import duty 
imposed on the same, an internal revenue tax of 8 cents per pound; 
and such imported filled cheese and the packages containing the same 
shall be stamped, marked, and branded, as in the case of filled cheese 
manufactured in the United States. 
SEC. 4832. STAMPS. 
(a) M E T H O D OF P A Y M E N T . — 
(1) STAMPS.—The taxes imposed by section 4831 shall be repre-
sented by coupon stamps. 
; 
(2) ASSESSMENT.— 
For assessment in case of omitted taxes, see subtitle F. 
(b) EMPTIED PACKAGES.—Whenever any stamped package con-
taining filled cheese is emptied, it shall be the duty of the person in 
whose hands the same is to destroy the stamps thereon. 
(c) OTHER STAMP PROVISIONS.—The provisions of law governing 
the engraving, issue, sale, accountability, effacement, and destruction 
of stamps relating to tobacco and snuff, as far as applicable, shall apply 
to stamps provided for by paragraph (1) of subsection (a). 
SEC. 4833. REQUIREMENTS APPLICABLE TO MANUFACTURERS. 
i 
(a) PACKING 
REQUIREMENTS.— 
(1) MARKS, STAMPS, AND PACKAGES.—Filled cheese shall be packed 
by the manufacturers in wooden packages only, not before used for 
that purpose, and marked, stamped, and branded with the words 
"filled cheese" in black-faced letters not less than two inches in 
length, in a circle in the center of the top and bottom of the cheese; 
and in black-faced letters not less than two inches in length in line 
from the top to the bottom of the cheese, on the side in four places 
equidistant from each other; and the package containing such 
cheese shall be marked in the same manner, and in the same number 
of places, and in the same description of letters as above provided 
for the marking of the cheese; and all sales or consignments made 
by manufacturers of filled cheese to wholesale dealers in filled cheese 
J, or to exporters of filled cheese shall be in original stamped packages. 
(2) LABEL.—Every manufacturer of filled cheese shall securely 
affix, by pasting on each package containing filled cheese manu-
factured by him, a label on which shall be printed, besides the 
number of the manufactory and the district and State in which it 
• is situated, these words: "NOTICE.—The manufacturer of the filled 
cheese herein contained has complied with all the requirements of 
the law. 
Every person is cautioned not to use either this package 
again or the stamp thereon again, nor to remove the contents of this 
package without destroying said stamp, under the penalty provided 
by law in such cases." 
(b) FACTORY NUMBER AND SIGNS.—Every manufacturer of filled 
cheese shall put up such signs and affix such number to his factory as 
the Secretary or his delegate may by regulation require. 
(c) BONDS,—Every manufacturer of filled cheese shall file with the 
official in charge of the internal revenue district in which his manu-
factory is located such bonds as the Secretary or his delegate may by 
regulation require. The bond required of such manufacturer shall be 
in a penal sum of not less than $5,000; and the amount of said bond 
§ 4833(c) 
578 
INTERNAL REVENUE CODE OF 1954 
. 
may be increased from time to time, and additional sm*eties required, 
at the discretion of the Secretary or his delegate, 
SEC. 4834. REQUIREMENTS APPLICABLE TO WHOLESALE AND RETAIL 
DEALERS. 
(a) SIGNS.—Every wholesale dealer and every retail dealer in 
filled cheese shall display in a conspicuous place in his salesroom a sign 
bearing the words "Filled cheese sold here" in black-faced letters not 
less than six inches in length, upon a white ground, with the name and 
number of the revenue district in which his business is conducted. 
(b) SELLING REQUIREMENTS.—Retail dealers in filled cheese shall 
sell only from original stamped packages, and shall pack the filled 
cheese when sold in suitable wooden or paper packages, which shall 
be marked and branded in accordance with rules and regulations to be 
prescribed by the Secretary or his delegate. 
SEC. 4835. ADMINISTRATIVE DECISIONS. 
(a) DELETERIOUS INGREDIENTS.—The Secretary or his delegate is 
authorized to have applied scientific tests, and to decide whether any 
substances used in the manufacture of filled cheese contain ingredients 
deleterious to health. 
(b) APPEAL.—In case of doubt or contest the decision of the Secre-
tary or his delegate in the class of cases referred to in subsection (a) 
may be appealed to a board constituted for the purpose, and com-
posed of the Surgeon General of the Department of the Army, the 
Surgeon General of the Department of the Navy, and the Secretary of 
Agriculture; and the decision of this board shall be final in the premises. 
SEC. 4836. CROSS REFERENCES. 
For definitions, penalties, and other general and administrative pro-
visions, see section 4846 and subtitle F. 
Subpart B—Occupational Tax 
Sec. 4841. Imposition of tax. 
Sec. 4842. Cross references. 
SEC. 4841. IMPOSITION OF TAX. 
(a) MANUFACTURERS.—Manufacturers of filled cheese shall pay a 
special tax of $400 a year for each and every factory. 
(b) WHOLESALE DEALERS.— 
(1) I N GENERAL.—Wholesale dealers in filled cheese shall pay a 
special tax of $250 a year. 
(2) MANUFACTURERS SELLING AT WHOLESALE.—Any manufacturer 
of filled cheese who has given the required bond and paid the 
required special tax, and who sells only filled cheese of his own 
production, at the place of manufacture, in the original packages, 
to which the tax-paid stamps are affixed, shall not be required to 
pay the special tax of a wholesale dealer in filled cheese on account 
of such sales. 
(c) RETAIL DEALERS.—Retail dealers in filled cheese shall pay a 
special tax of $12 a year. 
§ 4833(c) 
CH. 3 9—REGULATORY TAXES 
579 
SEC. 4842. CROSS REFERENCES. 
(a) 
DEFINITIONS.— 
For definitions applicable to this subpart, see section 4846. 
(b) OTHER PROVISIONS.— 
For penalties and other general and administrative provisions appli-
cable to this subpart, see chapter 40 and subtitle F. 
Subpart C—Definitions 
Sec. 4846. Definitions. 
SEC. 4846. DEFINITIONS. 
For the purposes of this part— 
(1) CHEESE.—The word ''cheese" shall be understood to mean 
the food product known as cheese, and made from milk or cream and 
without the addition of butter, or any animal, vegetable, or other 
oils or fats foreign to such milk or cream, with or without additional 
coloring matter. 
(2) FILLED CHEESE.—Certain substances and compounds shall be 
known and designated as "filled cheese," namely: All substances 
made of milk or skimmed milk, with the admixture of butter, animal 
oils or fats, vegetable or any other oils, or compounds foreign to 
such milk, and made in imitation or semblance of cheese. 
Sub-
stances and compounds, consisting principally of cheese with 
added edible oils, which are not sold as cheese or as substitutes 
for cheese but are primarily useful for imparting a natural cheese 
flavor to other foods shall not be considered ''filled cheese" within 
the meaning of this part. 
(3) MANUFACTURER.—Every person, firm, or corporation who 
manufactures filled cheese for sale shall be deemed a manufacturer 
of filled cheese. 
(4) WHOLESALE DEALER.—Every person, firm, or corporation 
who sells or offers for sale filled cheese, in the original manufac-
turer's packages for resale, or to retail dealers as defined in para-
graph (5) shall be deemed a wholesale dealer in filled cheese. 
(5) RETAIL DEALER.—^Every person who sells filled cheese at 
retail, not for resale, and for actual consumption, shall be regarded 
, as a retail dealer in filled cheese. 
§ 4846(5) 
580 
INTERNAL REVENUE CODE 
OF 
1954 
Subchapter D—Cotton Futures 
„ 
Part 
I. General provisions. 
Part II. Exemptions. 
Part III. Administrative provisions. 
PART I—GENERAL PROVISIONS 
Sec. 4851. Imposition of tax. 
Sec. 4852. Definition. 
Sec. 4853. Form and validity of contracts. 
Sec. 4854. Cotton standards. 
SEC. 4851. IMPOSITION OF TAX, 
(a) RATE.—Upon each contract of sale of any cotton for future 
delivery made at, on, or in any exchange, board of trade, or similar 
institution or place of business, there shall be imposed a tax in the 
nature of an excise of 2 cents for each pound of the cotton involved in 
any such contract. 
(b) B Y WHOM PAID.—The tax imposed by subsection (a) shall be 
paid by the seller of the cotton involved in the contract of sale. 
SEC. 4852. DEFINITION. 
For the purpose of this subchapter, the term "contract of sale" 
shall be held to include sales, agreements of sale, and agreements to 
seU. 
SEC. 4853. FORM AND VALIDITY OF CONTRACTS. 
(a) FORM.—Each contract of sale of cotton for future delivery 
mentioned in section 4851 (a) shall be in writing plainly stating, or 
evidenced by written memorandum showing, the terms of such con-
tract, including the quantity of the cotton involved and the names 
and addresses of the seller and buyer in such contract, and shall be 
signed by the party to be charged, or by his agent in his behalf. If 
the contract or memorandum specify in bales the quantity of the 
cotton involved, without giving the weight, each bale shall, for the 
purpose of this subchapter, be deemed to weigh 500 pounds. 
(b) VALIDITY.—No contract of sale of cotton for future delivery 
mentioned in section 4851 (a), which does not conform to the require-
ments of subsection (a) of this section and has not the necessary 
stamps affixed thereto as required by section 4871, shall be enforceable 
in any court of the United States by, or on behalf of, any party to 
such contract or his privies. 
SEC. 4854. COTTON 
STANDARDS. 
(a) SOURCE AND DESCRIPTION.—Subject to the provisions of sec-
tion 6 of the Act of March 4, 1923 (42 Stat. 1518; 7 U. S. C. 56), the 
Secretary of Agriculture is authorized, from time to time, to establish 
and promulgate standards of cotton by which its quality or value 
may be judged or determined, including its grade, length of staple, 
strength of staple, color, and such other qualities, properties, and 
conditions as may be standardized in practical form, which, for the 
§4851 
CH. 39—REGULATORY TAXES 
581 
purpose of this subchapter, shall be known as the "Official cotton 
standards of the United States": Provided, That any standard of any 
cotton established and promulgated under this subchapter by the 
Secretary of Agriculture shall not be changed or replaced within a 
period less than one year from and after the date of the promulgation 
thereof by the Secretary of Agriculture: Provided further, That no 
change or replacement of any standard of any cotton established and 
promulgated under this subchapter by the Secretary of Agriculture 
shall become effective until after one year's public notice thereof, 
which notice shall specify the date when same is to become effective, 
(b) PRACTICAL FORMS.— 
(1) PREPARATION, CERTIFICATION, AND DISTRIBUTION.—The Sec-
retary of Agriculture is authorized and directed to prepare practical 
forms of the official cotton standards which shall be established by 
him, and to furnish such practical forms from time to time, upon 
request, to any person, the cost thereof, as determined by the 
Secretary of Agriculture, to be paid by the person requesting the 
same, and to certify such practical forms under the seal of the 
Department of Agriculture and under the signature of the said 
Secretary, thereto affixed by himself or by some official or employee 
of the Department of Agriculture thereunto duly authorized by the 
said Secretary. 
(2) DISPOSITION OF RECEIPTS FROM SALES.—All sums collected 
by the Secretary of Agriculture for furnishing practical forms under 
paragraph (1) shall be deposited and covered into the Treasury as 
miscellaneous receipts. 
PART II—EXEMPTIONS 
Sec. 4861. Spot cotton. 
Sec. 4862. Definition of bona fide spot markets. 
Sec. 4863. Basis grade contracts. 
Sec. 4864. Tendered grade contracts. 
Sec. 4865. Specific grade contracts. 
SEC. 4861. SPOT COTTON. 
This subchapter shall not be construed to impose a tax on any sale 
of spot cotton. 
SEC. 4862. DEFINITION OF BONA FIDE SPOT MARKETS. 
(a) DEFINITION.—For the purpose of this subchapter, the only 
markets which shall be considered bona fide spot markets shall be 
those which the Secretary of Agriculture shall, from time to time, 
after investigation, determine and designate to be such, and of which 
he shall give public notice. 
(b) DETERMINATION.—In determining, pursuant to the provisions 
of this subchapter, what markets are bona fide spot markets, the 
Secretary of Agriculture is directed to consider only markets in which 
spot cotton is sold in such volume and under such conditions as 
customarily to reflect accurately the value of middling cotton and 
the differences between the prices or values of middling cotton and 
of other grades of cotton for which standards shall have been estab-
lished by the Secretary of Agriculture: 
Provided, That if there be 
not sufficient places, in the markets of which are made bona fide 
sales of spot cotton of grades for which standards are established by 
§ 4862(b) 
582 
INTERNAL REVENUE CODE 
OF 
1954 
the Secretary of Agriculture, to enable him to designate at least five 
spot markets in accordance with section 4863 (c), he shall, from data 
as to spot sales collected by him, make rules and regulations for 
determining the actual commercial differences in the value of spot 
cotton of the grades established by him as reflected by bona fide 
sales of spot cotton, of the same or different grades, in the markets 
selected and designated by him, from time to time, for that purpose, 
and in that event differences in value of cotton of various grades 
involved in contracts made pursuant to section 4863 (a) and (b) shall 
be determined in compliance with such rules and regulations: Provided 
further, That it shall be the duty of any person engaged in the business 
of dealing in cotton, when requested by the Secretary of Agriculture or 
any agent acting under his instructions, to answer correctly to the 
best of his knowledge, under oath or otherwise, all questions touching 
his knowledge of the number of bales, the classification, the price or 
bona fide price offered, and other terms of purchase or sale, of any 
cotton involved in any transaction participated in by him, or to 
produce all books, letters, papers, or documents in his possession or 
under his control relating to such matter. 
SEC. 4863. BASIS GRADE CONTRACTS. 
(a) CONDITIONS.—No tax shall be imposed under this subchapter 
on any contract of sale mentioned in section 4851 (a) if the contract 
comply with each of the following conditions: 
(1) CONFORMITY WITH SECTION 4853 (a) AND REGULATIONS.— 
Conform to the requirements in section 4853 (a) and the rules and 
regulations made pursuant to this subchapter. 
(2) SPECIFICATION OF GRADE, PRICE, AND DATES OF SALE AND 
SETTLEMENT.—Specify the basis grade for the cotton involved in the 
contract, which shall be one of the grades for which standards are 
established by the Secretary of Agriculture, except grades prohib-
ited from being delivered on a contract made under this section by 
the fifth paragraph of this subsection, the price per pound at which 
the cotton of such basis grade is contracted to be bought or sold, 
the date when the purchase or sale was made, and the month or 
months in which the contract is to be fulfilled or settled: Provided, 
That middling shall be deemed the basis grade incorporated into 
the contract if no other basis grade be specified either in the contract 
or in the memorandum evidencing the same. 
(3) PROVISION FOR DELIVERY OF STANDARD GRADES ONLY.— 
Provide that the cotton dealt with therein or delivered thereunder 
shall be of or within the grades for which standards are established 
by the Secretary of Agriculture except grades prohibited from 
being delivered on a contract made under this section by paragraph 
(5) and no other grade or grades. 
(4) PROVISION FOR SETTLEMENT ON BASIS OF ACTUAL COMMER-
CIAL DIFFERENCES.—Provide that in case cotton of grade other 
than the basis grade be tendered or delivered in settlement of such 
contract, the differences above or below the contract price which 
the receiver shall pay for such grades other than the basis grade 
shall be the actual commercial differences, determined as herein-
after provided. 
(5) PROHIBITION OP DELIVERY OF INFERIOR COTTON.—Provide 
that cotton that, because of the presence of extraneous matter of 
§ 4862(b) 
CH. 39—REGULATORY TAXES 
583 
any character, or irregularities or defects, is reduced in value 
below that of low middling, or cotton that is below the grade of 
low middling, or, if tinged, cotton that is below the grade of strict 
middling, or, if yellow stained, cotton that is below the grade of 
good middling, the grades mentioned being of the official cotton 
standards of the United States, or cotton that is less than seven-
eighths of an inch in length of staple, or cotton of perished staple, 
or of immature staple, or cotton that is "gin cut" or reginned, or 
cotton that is "repacked" or "false packed" or "mixed packed" or 
"water packed," shall not be delivered on, under, or in settlement 
of such contract. 
(6) 
PROVISIONS FOR TENDER IN FULL, NOTICE OF DELIVERY DATE, 
AND CERTIFICATE OF GRADE.—Providc that all tenders of cotton 
under such contract shall be the full number of bales involved 
therein, except that such variations of the number of bales may be 
permitted as is necessary to bring the total weight of the cotton 
tendered within the provisions of the contract as to weight; that, 
on the fifth business day prior to delivery, the person making the 
tender shall give to the person receiving the same written notice of 
the date of delivery, and that, on or prior to the date so fixed for 
delivery, and in advance of final settlement of the contract, the 
person making the tender shall furnish to the person receiving the 
same a written notice or certificate stating the grade of each indi-
vidual bale to be delivered and, by means of marks or numbers, 
identifying each bale with its grade. 
(7) PROVISION FOR TENDER AND SETTLEMENT IN ACCORDANCE 
WITH GOVERNMENT CLASSIFICATION.—Providc that all tenders of 
cotton and settlements therefor under such contract shall be in 
accordance with the classification thereof made under the regula-
tions of the Secretary of Agriculture by such officer or officers of 
the Government as shall be designated for the purpose, and the 
costs of such classification shall be fixed, assessed, collected, and 
paid as provided in such regulations. 
All moneys collected as 
such costs may be used as a revolving fund for carrying out the 
purposes of this paragraph. 
The Secretary of Agriculture is 
authorized to prescribe regulations for carrying out the purposes 
of this paragraph, and the certificates of the officers of the Govern-
ment as to the classification of any cotton for the purposes of this 
paragraph shall be accepted in the courts of the United States in 
all suits between the parties to such contract, or their privies, as 
prima facie evidence of the true classification of the cotton involved. 
(b) INCORPORATION OF CONDITIONS IN CONTRACTS.—The provisions 
of subsection (a) (3), (4), (5), (6), and (7) shall be deemed fully incor-
porated into any such contract if there be written or printed thereon, 
or on the memoranda evidencing the same, at or prior to the time the 
same is signed, the phrase "Subject to Internal Revenue Code, section 
4863." 
(c) DELIVERY ALLOWANCES.—For the purpose of this section, the 
differences above or below the contract price which the receiver shall 
pay for cotton of grades above or below the basis grade in the settle-
ment of a contract of sale for the future delivery of cotton shall be 
determined by the actual commercial differences in value thereof upon 
the sixth business day prior to the day fixed, in accordance with sub-
14863(c) 
584 
INTERNAL REVENUE CODE OF 1954 
section (a) (6), for the delivery of cotton on the contract, established 
by the sale of spot cotton in the spot markets of not less than five 
places designated for the purpose from time to time by the Secretary 
of Agricultm-e, as such values were established by the sales of spot 
cotton, in such designated five or more markets: Provided, That for 
the purpose of this subsection such values in the said spot markets be 
based upon the standards for grades of cotton established by the 
Secretary of Agriculture: And provided further, That whenever the 
value of one grade is to be determined from the sale or sales of spot 
cotton of another grade or grades, such value shall be fixed in accord-
ance with rules and regulations which shall be prescribed for the 
purpose by the Secretary of Agriculture. 
SEC. 4864. TENDERED GRADE CONTRACTS. 
(a) CONDITIONS.—No tax shall be imposed under this subchapter on 
any contract of sale mentioned in section 4851 (a) if the contract— 
(1) COMPLIANCE WITH SECTION 4863.—Comply with all the terms 
and conditions of section 4863 not inconsistent with this section; 
and 
(2) PROVISION FOR CONTINGENT SPECIFIC PERFORMANCE.—Pro-
vide that, in case cotton of grade or grades other than the basis 
grade specified in the contract shall be tendered in performance of 
the contract, the parties to such contract may agree, at the time of 
the tender, as to the price of the grade or grades so tendered, and 
that if they shall not then agree as to such price, then, and in that 
event, the buyer of said contract shall have the right to demand the 
specific fulfillment of such contract by the actual delivery of cotton 
of the basis grade named therein and at the price specified for such 
basis grade in said contract. 
(b) INCORPORATION OF CONDITIONS IN CONTRACT.—Contracts made 
in compliance with this section shall be known as "Section 4864 Con-
tracts." 
The provisions of this section shall be deemed fully incor-
porated into any such contract if there be written or printed thereon, 
or on the memorandum evidencing the same, at or prior to the time 
the same is signed, the phrase "Subject to Internal Revenue Code, 
section 4864." 
(c) APPLICATION OF SECTION.—Nothing in this section shall be so 
construed as to relieve from the tax imposed by section 4851 (a) any 
contract in which, or in the settlement of or in respect to which, any 
device or arrangement whatever is resorted to, or any agreement is 
made, for the determination or adjustment of the price of the grade 
or grades tendered other than the basis grade specified in the con-
tract by any "fixed difference" system, or by arbitration, or by any 
other method not provided for by this subchapter. 
SEC. 4865. SPECIFIC GRADE CONTRACTS. 
(a) CONDITIONS.—No tax shall be imposed under this subchapter 
on any contract of sale mentioned in section 4851 (a) if the contract 
comply with each of the following conditions: 
(1) CONFORMITY WITH RULES AND REGULATIONS.—Conform 
to 
the rules and regulations made pursuant to this subchapter. 
(2) SPECIFICATION OF GRADE, PRICE, DATES OF SALE AND DE-
LIVERY.—Specify the grade, type, sample, or description of the 
cotton involved in the contract, the price per pound at which such 
§ 4863(c) 
. 
' 
CH. 39—^REGULATORY TAXES 
585 
cotton is contracted to be bought or sold, the date of the purchase 
or sale, and the time when shipment or dehvery of such cotton is 
to be made. 
(3) PROHIBITION 
OF DELIVERY 
OF OTHER 
THAN 
SPECIFIED 
GRADE.—Provide that cotton of or within the grade or of the type, 
or according to the sample or description, specified in the contract 
shall be delivered thereunder, and that no cotton which does not 
conform to the type, sample, or description, or which is not of or 
within the grade specified in the contract shall be tendered or 
delivered thereunder. 
(4) PROVISION FOR SPECIFIC PERFORMANCE.—Provide that the 
delivery of cotton under the contract shall not be effected by means 
of "set-off" or "ring" settlement, but only by the actual transfer 
- of the specified cotton mentioned in the contract. 
(b) INCORPORATION OF CONDITIONS IN CONTRACT.—The provisions 
of subsection (a) (1), (3), and (4) shall be deemed fully incorporated 
into any such contract if there be written or printed thereon, or on 
the document or memorandum evidencing the same, at or prior to the 
time the same is entered into, the words "Subject to Internal Revenue 
Code, section 4865." 
(c) APPLICATION OF SECTION.—This section shall not be construed 
to apply to any contract of sale made in compliance with section 4863 
or 4864. 
PART III—ADMINISTRATIVE PROVISIONS 
Sec. 4871. Method of payment. 
^' 
Sec. 4872. Collection and enforcement. 
Sec. 4873. Liability of principal for acts of agent. 
Sec. 4874. Immunity of witnesses. 
Sec. 4875. Operation of State laws. 
^ 
Sec. 4876. Reports of Secretary of Agriculture. 
Sec. 4877. Cross references. 
SEC. 4871. METHOD OF PAYMENT. 
The tax imposed by section 4851 (a) shall be paid by means of 
stamps which shall be affixed to such contracts, or to the memoranda 
evidencing the same, and canceled in compliance with rules and regu-
lations which shall be prescribed by the Secretary or his delegate. 
SEC. 4872. COLLECTION AND ENFORCEMENT. 
(a) RULES AND REGULATIONS.—The Secretary or his delegate is 
authorized to make and promulgate such rules and regulations as he 
may deem necessary to collect the tax imposed by this subchapter and 
otherwise to enforce its provisions. 
(b) RECORDS AND RETURNS.—Further to effect the purpose of 
subsection (a), the Secretary or his delegate shall require all persons 
coming within its provisions to keep such records and statements of 
account, and may require such persons to make such returns verified 
under oath or otherwise, as will fully and correctly disclose all trans-
actions mentioned in section 4851 (a), including the making, execu-
tion, settlement, and fulfillment thereof; he may require all persons 
who act in the capacity of a clearing house, clearing association, or 
similar institution for the purpose of clearing, settling, or adjusting 
transactions mentioned in section 4851 (a) to keep such records and 
to make such returns as will fully and correctly disclose all facts in 
their possession relating to such transactions. 
§ 4872(b) 
49012°—54 
40 
586 
INTERNAL REVENUE CODE OF 1954 
• 
(c) EMPLOYMENT OF OPFICERS AND EMPLOYEES.—The Secretary or 
his delegate may appoint officers and employees to conduct the inspec-
tion necessary to collect said tax and otherwise to enforce this sub-
chapter and all rules and regulations made by him in pursuance hereof. 
SEC. 4873. LIABILITY OF PRINCIPAL FOR ACTS OF AGENT. 
When construing and enforckig the provisions of this subchapter, 
the act, omission, or failure of any official, agent, or other person acting 
for or employed by any association, partnership, or corporation within 
the scope of his employment or office shall, in every case, also be 
deemed the act, omission, or failure of such association, partnership, 
or corporation, as well as that of the person. 
SEC. 4874. IMMUNITY OF WITNESSES. 
No person whose evidence is deemed material by the officer prose-
cuting on behalf of the United States in any case brought under any 
provision of this subchapter shall withhold his testimony because of 
complicity by him in any violation of this subchapter or of any regu-
lation made pursuant to this subchapter, but any such person called 
by such officer who testifies in such case shall be exempt from prosecu-
tion for any offense to which his testimony relates. 
SEC. 4875. OPERATION OF STATE LAWS. 
The payment of any tax imposed by this subchapter shall not 
exempt any person from any penalty or punishment now or hereafter 
provided by the laws of any State for entering into contracts of sale 
of cotton for future delivery, nor shall the payment of any tax imposed 
by this subchapter be held to prohibit any State or municipality from 
imposing a tax on the same transaction. 
SEC. 4876. REPORTS OF SECRETARY OF AGRICULTURE. 
The Secretary of Agriculture is directed to publish from time to 
time the results of investigations made in pursuance of this subchapter. 
SEC. 4877. CROSS REFERENCES. 
For penalties and other general and administrative provisions appli* 
cable to this subchapter, see subtitle F. 
'Vii,- ^">i'v.).:-ijjo:).,£s^'^' -..^aa 
14872(c) 
Of- • i-fi- ^i^iufl! 
CH. 3 9 
REGULATORY TAXES 
587 
Subchapter E—Circulation Other Than of National Banks 
Sec. 4881. Imposition of tax. 
Sec. 4882. Definition of bank or banker. 
Sec. 4883. Exemptions. 
Sec. 4884. Returns and payment of tax. 
Sec. 4885. Estimation 
of outstanding 
circulation 
in default of 
: 
return. 
Sec. 4886. Cross references. 
SEC. 4881. IMPOSITION OF TAX. 
(a) AVERAGE CIRCULATION OUTSTANDING.—There shall be im-
posed— 
(1) ENTIRE CIRCULATION.—A tax of one-twelfth of 1 percent 
: each month upon the average amount of ckculation issued by any 
bank, association, corporation, company, or person, including as 
circulation all certified checks and all notes and other obligations 
calculated or intended to circulate or to be used as money, but 
not including that in the vault of the bank, or redeemed and on 
deposit for said bank; and 
(2) CIRCULATION EXCEEDING 90 PERCENT OF CAPITAL.—An addi-
tional tax of one-sixth of 1 percent each month upon the average 
*
; amount of such circulation, issued as aforesaid, beyond the amount 
of 90 percent of the capital of any such bank, association, corpora-
tion, company, or person. 
In the case of banks with branches, the tax herein provided shall 
be assessed upon the circulation of each branch severally, and the 
amount of capital of each branch shall be considered to be the amount 
allotted to it. 
(b) CIRCULATION PAID OUT.— 
(1) OWN CIRCULATION.—Every person, firm, association other 
, than national bank associations, and every corporation, State 
. bank, or State banking association, shall pay a tax of 10 percent 
f on the amount of their own notes used for circulation and paid out 
; by them. 
(2) OTHER CIRCULATION.—Every such person, firm, association, 
corporation, State bank, or State banking association, and also 
every national banking association, shall pay a like tax of 10 per 
cent on the amount of notes of any person, firm, association 
other than a national banking association, or of any corporation, 
. State bank, or State banking association, or of any town, city, or 
municipal corporation, used for circidation and paid out by them. 
SEC. 4882. DEFINITION OP BANK OR BANKER. 
Every incorporated or other bank, and every person, firm, or com-
pany having a place of business where credits are opened by the 
deposit or collection of money or currency, subject to be paid or 
remitted upon draft, check, or order, or where money is advanced or 
loaned on stocks, bonds, bullion, bills of exchange, or promissory 
notes, or where stocks, bonds, bullion, bills of exchange, or promissory 
§4882 
588 
INTERNAL REVENUE CODE OF 1954 
notes are received for discount or for sale, shall be regarded as a bank 
or as a banker. 
SEC. 4883. EXEMPTIONS. 
~ 
(a) CIRCULATION REDUCED TO N O T OVER 5 PERCENT OF CAPITAL.— 
Whenever the outstanding circulation of any bank, association, cor-
poration, company, or person is reduced to an amount not exceeding 
5 percent of the chartered or declared capital existing at the time the 
same was issued, said circulation shall be free from taxation. 
(b) 
CIRCULATION UNDER REDEMPTION IN WHOLE.—Whenever any 
bank which has ceased to issue notes for circulation deposits in the 
Treasury of the United States, in lawful money, the amount of its 
outstanding circulation, to be redeemed at par, under such regulations 
as the Secretary or his delegate shall prescribe, it shall be exempt from 
any tax upon such circulation. 
(c) NATIONAL BANKS.—The provisions of this subchapter, relating 
to the tax on the circulation of banks, and to their returns, except as 
contained in sections 4881 (b) (2), 4883 (a) and (b), 4884 (a) (3), 
and such parts of sections 4884 (a) (1) and (2) and (b), 4885, and 
4886, as relate to the tax of 10 percent on certain notes, shall not 
apply to associations which are taxed as national banks. 
(d) 
CIRCULATION OF INSOLVENT BANKS.— 
For exemption in case of insolvent banks, see subtitle F. 
;, 
SEC. 4884. RETURNS AND PAYMENT OF TAX. 
(a) CIRCULATION O U T S T A N D I N G . — 
' 
(1) TIME FOR MAKING RETURN.—A true and complete return of 
the monthly amount of circulation as aforesaid for the previous 
six months shall be made and rendered in duplicate on the first day 
of December, and the first day of June, by each of such banks, asso-
ciations, corporations, companies, or persons. 
(2) CALCULATION OF TAX.—The tax imposed by section 4881 (a) 
shall be calculated at the rate per month prescribed by said section, 
so that the tax for six months shall not be less than the aggregate 
would be if such taxes were collected monthly. 
(3) RETURN AND PAYMENT WHEN STATE BANK CONVERTED INTO 
NATIONAL BANK.—Whenever any State bank or banking associa-
tion has been converted into a national banking association, and 
such national banking association has assumed the liabilities of 
such State bank or banking association, including the redemption 
of its bills, by any agreement or understanding whatever with the 
representatives of such State bank or banking association, such 
national banking association shall be held to make the required 
return and payment on the circulation outstanding, so long as 
such circulation shall exceed 5 per centum of the capital before 
such conversion of such State bank or banking association. 
(b) CIRCULATION PAID OUT.—The amount of circulating notes re-
ferred to in section 4881 (b), and of the tax due thereon, shall be re-
turned, and the tax paid at the same time, and in the same manner, 
and with like penalties for failure to return and pay the same, as 
provided by law for the return and payment of taxes on circulation 
imposed by section 4881 (a). 
§4882 
CH. 3 9—REGULATORY TAXES 
589 
SEC. 4885. ESTIMATION OF OUTSTANDING CIRCULATION IN DEFAULT 
OF RETURN. 
In default of the returns provided in section 4884, the amount of 
circulation and notes of persons, town, city, and municipal corpora-
tions, State banks, and State banking associations paid out, as afore-
said, shall be estimated by the Secretary or his delegate, upon the 
best information he can obtain. 
SEC. 4886. CROSS REFERENCES. 
For penalties and other general and administrative provisions applica-
ble to this subchapter, see subtitle F. 
}a 
590 
INTERNAL REVENUE CODE OF 1954 
Subchapter F—Silver Bullion 
Sec. 4891. Imposition of tax. 
Sec. 4892. Definitions. 
^^ •->-'>' 
Sec. 4893. Liability for tax. 
Sec. 4894. Abatement or refund. 
,i>j^Kft:.'uu.3 KHU ui •*y 
Sec. 4895. Stamps. 
. 
Sec. 4896. Applicability. 
' \ 
Sec. 4897. Cross references. 
SEC. 4891. IMPOSITION OF TAX. 
There shall be imposed on all transfers of any interest in silver bul-
lion, if the price for which such interest is or is to be transferred ex-
ceeds the total of the cost thereof and allowed expenses, a tax of 50 
percent of the amount of such excess. 
SEC. 4892. DEFINITIONS. 
For the purpose of this subchapter— 
(1) COST.—The term "cost" means the cost of the interest in 
silver bullion to the transferor, except that— 
(A) in case of silver bullion produced from materials contain-
ing silver which has not previously entered into industrial, com-
mercial, or monetary use, the cost to a transferor who is the pro-
ducer shall be deemed to be the market price at the time of pro-
duction determined in accordance with regulations issued here-
under; 
(B) in the case of an interest in silver bullion acquired by the 
transferor otherwise than for valuable consideration, the cost 
shall be deemed to be the cost thereof to the last previous trans-
feror by whom it was acquired for a valuable consideration; and 
(C) in the case of any interest in silver bullion acquired by the 
transferor in a wash sale, the cost shall be deemed to be the cost 
to him of the interest transferred by him in such wash sale, but 
with proper adjustment, in accordance with regulations under 
this subchapter, when such interests are in silver bullion for 
delivery at different times. 
(2) TRANSFER.—The term "transfer" means a sale, agreement of 
sale, agreement to sell, memorandum of sale or delivery of, or trans-
fer, whether made by assignment in blank or by any delivery, or 
by any paper or agreement or memorandum or any other evidence 
of transfer or sale; or means to make a transfer as so defined. 
(3) INTEREST IN SILVER BULLION.—The term "interest in silver 
bullion" means any title or claim to, or interest in, any silver 
bullion or contract therefor. 
(4) ALLOWED EXPENSES.—The term "allowed expenses" means 
usual and necessary expenses actually incurred in holding, process-
ing, or transporting the interest in silver bullion as to which an 
interest is transferred (including storage, insurance, and transpor-
tation charges but not including interest, taxes, or charges in the 
nature of overhead), determined in accordance with regulations 
issued hereunder. 
§ 4891 
. 
, . 
. 
. 
CH. 3 9—REGULATORY TAXES 
591 
(5) MEMORANDUM.—The term "memorandum" means a bill, 
memorandum, agreement, or other evidence of a transfer. 
(6) WASH SALE.—The term "wash sale" means a transaction 
involving the transfer of an interest in silver bullion and, within 
30 days before or after such transfer, the acquisition by the same 
person of an interest in silver bullion. 
Only so much of the interest 
so acquired as does not exceed the interest so transferred, and only 
so much of the interest so transferred as does not exceed the interest 
so acquired, shall be deemed to be included in the wash sale. 
(7) SILVER BULLION.—The term "silver bullion" means silver 
which has been melted, smelted, or refined and is in such state or 
condition that its value depends primarily upon the silver content 
and not upon its form. 
SEC. 4893. LIABILITY FOR TAX. 
This tax imposed by this subchapter shall be paid by any person who 
makes, signs, issues, or sells any of the documents and instruments 
subject to the tax imposed by this subchapter, or for whose use or 
benefit the same are made, signed, issued, or sold. 
The United States 
or any agency or instrumentality thereof shall not be liable for the 
tax with respect to an instrument to which it is a party, and aflSxing 
of stamps thereby shall not be deemed payment for the tax, which may 
be collected by assessment from any other party liable therefor. 
SEC. 4894. ABATEMENT OR REFUND. 
The Secretary or his delegate shall abate or refund, in accordance 
with regulations issued under this subchapter, such portion of any 
tax imposed by section 4891 as he finds to be attributable to profits— 
(1) COURSE OF REGULAR BUSINESS.—Realized in the course of 
the transferor's regular business of furnishing silver bullion for 
industrial, professional, or artistic use and— 
(A) not resulting from a change in the market price of silver 
bullion, or 
(B) offset by contemporaneous losses incurred in transactions 
in interests in silver bullion determined, in accordance with such 
regulations, to have been specifically related hedging transac-
tions; or 
(2) SILVER 
FOREIGN EXCHANGE.—Offset by contemporaneous 
losses attributable to changes in the market price of silver bullion 
and incurred in transactions in silver foreign exchange determined, 
in accordance with such regulations, to have been hedged specifically 
by the interest in silver bullion transferred. 
SEC. 4895. STAMPS. 
(a) AFFIXING OF STAMPS.—On every transfer subject to the tax 
imposed by section 4891, there shall be made and delivered by the 
transferor to the transferee a memorandum to which there shall be 
affixed lawful stamps in value equal to the tax thereon. 
(b) MEMORANDUM,—Every such memorandum shall show the date 
thereof, the names and addresses of the transferor and transferee, the 
interest in silver bullion to which it refers, the price for which such 
interest is or is to be transferred, and the cost thereof and the allowed 
expenses. 
(c) CANCELLATION OF STAMPS.—Stamps aflEixed under this section 
shall be canceled (in lieu of the manner provided in subtitle F) by 
§ 4895(c) 
592 
INTERNAL REVENUE CODE OF 19 
54 
such oflEicers and in such manner as regulations under this subchapter 
shall prescribe. 
Such officers shall cancel such stamps only if it 
appears that the proper tax is being paid, and, when stamps with 
respect to any transfer are so canceled, the transferor and not the 
transferee shall be liable for any additional tax found due or penalty 
with respect to such transfer. 
SEC. 4896. APPLICABILITY. 
(a) TERRITORIAL EXTENT.—The provisions of this subchapter shall 
extend to all transfers in the United States of any interest in silver 
bullion, and to all such transfers outside the United States if either 
party thereto is a resident of the United States or is a citizen of the 
United States who has been a resident thereof within 3 months 
before the date of the transfer or if such silver bullion or interest 
therein is situated in the United States. 
(b) TRANSFERS TO THE UNITED STATES GOVERNMENT.—The pro-
visions of this subchapter shall extend to transfers to the United States 
Government (the tax in such cases to be payable by the transferor), 
but shall not extend to transfers of silver bullion by deposit or delivery 
at a United States mint under proclamation by the President or in 
compliance with any Executive order issued pursuant to section 7 of 
the Silver Purchase Act of 1934 (48 Stat. 1179; 31 U. S. C. 316a). 
SEC. 4897. CROSS REFERENCES. 
For penalties and other general and administrative provisions appli-
cable to this subchapter, see subtitle F. 
i J injiUU\l 
I'.i '/ 1.-^ if: 
liO—.ft'lj/:AT8 'iO 
iiEcnnj- '30 oj af 
4895(c) 
CH. 40—GENERAL OCCUPATIONAL TAX PROVISIONS 
593 
CHAPTER 40—GENERAL PROVISIONS RELATING TO 
OCCUPATIONAL TAXES 
Sec. 4901. Payment of tax. 
Sec. 4902. Liability of partners. 
Sec. 4903. Liability in case of business in more than one location. 
Sec. 4904. Liability in case of different businesses of same ownership 
and location. 
Sec. 4905. Liability in case of death or change of location. 
Sec. 4906. Application of state laws. 
Sec. 4907. Federal agencies or instrumentalities. 
SEC. 4901. PAYMENT OF TAX. 
(a) CONDITION PRECEDENT TO CARRYING ON CERTAIN BUSINESS.— 
No person shall be engaged in or carry on any trade or business subject 
to the tax imposed by section 4411 (wagering), 4461 (2) (coin-operated 
gaming devices), 4721 (narcotic drugs), or 4751 (marihuana) until he 
has paid the special tax therefor. 
(b) COMPUTATION.—All special taxes shall be imposed as of on the 
first day of July in each year, or on commencing any trade or«business 
on which such tax is imposed. 
In the former case the tax shall be 
reckoned for 1 year, aud in the latter case it shall be reckoned pro-
portionately, from the first day of the month in which the liability 
to a special tax commenced, to and including the 30th day of June 
following. 
(c) How PAID.— 
(1) STAMP.—All special taxes imposed by law shall be paid by 
stamps denoting the tax. 
(2) ASSESSMENT.— 
For authority of the Secretary or his delegate to make assessments 
where the special taxes have not been duly paid by stamp at the time 
and in the manner provided by law, see subtitle F. 
SEC. 4902. LIABILITY OF PARTNERS. 
Any number of persons doing business in copartnership at any one 
place shall be required to pay but one special tax. 
SEC. 4903. LIABILITY IN CASE OF BUSINESS IN MORE THAN ONE 
LOCATION. 
The payment of the special tax imposed, other than the tax imposed 
by section 4411, shall not exempt from an additional special tax the 
person carrying on a trade or business in any other place than that 
stated in the register kept in the office of the official in charge of the 
internal revenue district; but nothing herein contained shall require a 
special tax for the storage of goods, wares, or merchandise in other 
places than the place of business, nor, except as provided in this 
subtitle, for the sale by manufacturers or producers of their own goods, 
wares, and merchandise, at the place of production or manufacture, 
and at their principal office or place of business, provided no goods, 
wares, or merchandise shall be kept except as samples at said office 
or place of business. 
4903 
594 
INTERNAL REVENUE CODE OF 19 54 
*
^ ill'J 
SEC. 4904. LIABILITY IN CASE OF DIFFERENT BUSINESSES OF SAME 
OWNERSHIP AND LOCATION. 
Whenever more than one of the pursuits or occupations described in 
this subtitle are carried on in the same place by the same person at 
the same time, except as otherwise provided in this subtitle, the tax 
shall be paid for each according to the rates severally prescribed. 
SEC. 4905. LIABILITY IN CASE OF DEATH OR CHANGE OF LOCATION. 
(a) REQUIEEMENTS.—When any person who has paid the special 
tax for any trade or business dies, his wife or child, or executors or 
administrators or other legal representatives, may occupy the house 
or premises, and in like manner carry on, for the residue of the term 
for which the tax is paid, the same trade or business as the deceased 
before carried on, in the same house and upon the same premises, 
without the payment of any additional tax. 
When any person re-
moves from the house or premises for which any trade or business was 
taxed to any other place, he may carry on the trade or business speci-
fied in the register kept in the ofiice of the official in charge of the 
internal revenue district at the place to which he removes, without the 
payment of any additional tax: Provided, That all cases of death, 
change, or removal, as aforesaid, with the name of the successor to any 
person deceased, or of the person making such change or removal, shall 
be registered with the Secretary or his delegate, under regulations to 
be prescribed by the Secretary or his delegate. 
(b) 
REGISTRATION.— 
(1) For registration in case of wagering, playing cards, narcotics, 
marihuana, and white phosphorus matches, see sections 4412, 4455, 
4722, 4753, and 4804 (d), respectively. 
(2) For other provisions relating to registration, see subtitle F. 
SEC. 4906. APPLICATION OF STATE LAWS. 
The payment of any special tax imposed by this subtitle for carrying 
on any trade or business shall not be held to exempt any person from 
any penalty or punishment provided by the laws of any State for carry-
ing on the same within such State, or in any manner to authorize the 
commencement or continuance of such trade or business contrary to 
the laws of such State or in places prohibited by municipal law; nor 
shall the payment of any such tax be held to prohibit any State from 
placing a duty or tax on the same trade or business, for State or other 
purposes. 
SEC. 4907. FEDERAL AGENCIES OR 
INSTRUMENTALITIES. 
Any special tax imposed by this subtitle, except the tax imposed 
by section 4411, shall apply to any agency or instrumentality of the 
United States unless such agency or instrumentality is granted by 
statute a specific exemption from such tax. 
§ 4904 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
595 
Subtitle E—Alcohol, Tobacco, and Certain Other 
Excise Taxes 
CHAPTER 51. Distilled spirits, wines, and beer. 
CHAPTER 52. Tobacco, cigars, cigarettes, and cigarette papers and 
tubes. 
CHAPTER 63. Machine guns and certain other firearms. 
CHAPTER 51—DISTILLED SPIRITS, WINES, AND BEER 
SUBCHAPTER A. Gallonage and occupational taxes. 
SUBCHAPTER B . Distilleries. 
SUBCHAPTER C. Internal Revenue bonded warehouses. 
1' 
SUBCHAPTER D . Rectifying plants. 
SUBCHAPTER E . Industrial alcohol plants, bonded warehouses, 
denaturing plants, and denaturation. 
SUBCHAPTER F . Bonded and taxpaid wine premises. 
'•*' • 
SUBCHAPTER G. Breweries. 
SUBCHAPTER H . Miscellaneous plants and warehouses. 
SUBCHAPTER I. Miscellaneous general provisions. 
SUBCHAPTER J. Penalties, seizures, and forfeitures relating to 
liquors. 
Subchapter A—Gallonage and Occupational Taxes 
Part I. Gallonage taxes. 
Part II. Occupational tax. 
PART I—GALLONAGE TAXES 
Subpart A. Distilled spirits. 
Subpart B. Rectification. 
Subpart C. Wines. 
Subpart D. Beer. 
Subpart E. General provisions. 
Subpart A—Distilled Spirits 
Sec. 6001. Imposition, rate, and attachment of tax. 
Sec. 5002. Definitions. 
Sec. 5003. Exemptions. 
Sec. 5004. Lien for tax. 
Sec. 5006. Persons liable for tax. 
Sec. 5006. Determination of tax. 
Sec. 5007. Collection of tax on distilled spirits. 
Sec. 6008. Strip stamps for distilled spirits. 
Sec. 6009. Stamps for distilled spirits withdrawn for exportation. 
Sec. 5010. Miscellaneous stamp provisions. 
Sec. 5011. Abatement, remission, refund, and allowance for loss or 
destruction of distilled spirits. 
Sec. 6012. Drawback. 
SEC. 5001. IMPOSITION, RATE AND ATTACHMENT OF TAX. 
(a) RATE OF T A X — 
(1) I N GENEKAL.—There is hereby imposed on all distilled 
spirits in bond or produced in or imported into the United States 
§ 6001(a)(1) 
596 
INTERNAL REVENUE CODE OF 1954 
.H:> 
an internal revenue tax at the rate of $10.50 on each proof gallon or 
wine gallon when below proof and a proportionate tax at a like rate 
on all fractional parts of such proof or wine gallon. 
On and after 
April 1, 1955, the rate of tax imposed by this paragraph shall be $9 
in lieu of $10.50. 
(2) PRODUCTS CONTAINING DISTILLED SPIRITS.—All products of 
distillation, by whatever name known, which contain distilled 
spirits or alcohol, on which the tax imposed by law has not been 
paid, shall be considered and taxed as distilled spirits. 
(3) IMPORTED PERFUMES CONTAINING DISTILLED SPIRITS.—There 
is hereby imposed on all perfumes imported into the United States 
containing distilled spirits a tax of $10.50 per wine gallon, and a 
proportionate tax at a like rate on all fractional parts of such wine 
gallon. 
On and after April 1, 1955, the rate of tax imposed by 
this paragraph shall be $9 in lieu of $10.50. 
(4) ALCOHOLIC 
COMPOUNDS 
FROM 
PUERTO 
RICO 
AND 
VIRGIN 
ISLANDS.— 
(A) PUERTO RICO.—Except as provided in section 5318, upon 
bay rum, or any article containing alcohol, brought from Puerto 
Rico into the United States for consumption or sale there is 
hereby imposed a tax on the spirits contained therein at the rate 
imposed on distilled spirits produced in the United States. 
(B) 
VIRGIN ISLANDS.— 
For provisions relating to tax on alcoholic compounds from the Virgin 
Islands, see section 7652 (b) (1). 
(5) WINES CONTAINING MORE THAN 24 PERCENT ABSOLUTE ALCO-
HOL.—Wines containing more than 24 percent of absolute alcohol 
by volume shall be taxed as distilled spirits. 
(6) DENATURED ALCOHOL, DENATURED RUM OR ARTICLES.—Any 
person who produces, withdraws, sells, transports, or uses, denatured 
alcohol, denatured rum, or articles in violation of laws or regulations 
now or hereafter in force pertaining thereto, and all such denatured 
alcohol, denatured rum, or articles shall be subject to all provisions 
of law pertaining to alcohol that is not denatured, including those 
requiring the payment of tax thereon; and the person so producing, 
withdrawing, selling, transporting, or using the denatured alcohol, 
denatured rum, or articles shall be required to pay such tax. 
(7) FRUIT FLAVOR CONCENTRATES.—If any volatile fruit-flavor 
concentrate (or any fruit mash or juice from which such concentrate 
is produced) containing one-half of 1 percent or more of alcohol 
by volume, which is manufactured free from tax under section 
5511, is sold, transported, or used by any person in violation of 
the provisions of this chapter or regulations promulgated there-
under, such person and such concentrate, mash, or juice shall 
be subject to all provisions of this chapter pertaining to distilled 
spirits and wines, including those requiring the payment of tax 
thereon; and the person so selling, transporting, or using such 
concentrate, mash, or juice shall be required to pay such tax. 
(8) IMPORTED ALCOHOL WITHDRAWN FOR BEVERAGE PURPOSES.— 
On all alcohol imported under section 5311 without payment of 
the internal revenue tax, and withdrawn for beverage purposes, 
there shall be paid on such withdrawal an additional tax equal to 
§ 5001(a)(1) 
CH. 51 
DISTILLED SPIRITS, WINES, AND BEER 
597 
the duty which would have been paid had such spirits been im-
ported for beverage purposes, less the duty already paid thereon. 
(9) IMPORTED LIQUEURS AND CORDIALS.^—Imported liqueurs and 
cordials, or similar compounds, containing distilled spirits, shall be 
taxed as distilled spirits. 
(b) TIME OP ATTACHMENT ON DISTILLED SPIRITS.—The tax shall 
attach to distilled spirits, spirits, alcohol, or alcoholic spirits, within 
the meaning of section 5002 (b), as soon as this substance is in 
existence as such, whether it be subsequently separated as pure or 
impure spirits, or be immediately, or at any subsequent time, 
transferred into any other substance, either in the process of 
original production or by any subsequent process. 
(c) CROSS REFERENCE.— 
For penalty for tampering with a stamp macliine, see section 5689. 
SEC. 5002. DEFINITIONS. 
(a) DISTILLER.—Every person who produces distilled spirits from 
any source or substance, or who brews or makes mash, wort, or 
wash, fit for distillation or for the production of spirits, or who, by 
any process of evaporization, separates alcoholic spirits from any 
fermented substance, or who, making or keeping mash, wort, or wash, 
has also in his possession or use a stiU, shall be regarded as a distiller. 
(b) DISTILLED SPIRITS.— 
(1) GENERAL DEFINITION.—For purposes of this chapter, distilled 
spirits, spirits, alcohol, and alcoholic spirits are that substance 
known as ethyl alcohol, hydrated oxide of ethyl, or spirits of wine, 
which is commonly produced by the fermentation of grain, starch, 
molasses, or sugar, including all dilutions and mixtures of this 
substance. 
(2) PRODUCTS OP RECTIFICATION.—As used in section 5008 (b) 
the term "distilled spirits" includes products produced in such 
manner that the person producing them is a rectifier within the 
meaning of section 5082. 
(c) PROOF SPIRITS.—For purposes of this chapter, the term "proof 
spirits" means that alcoholic liquor which contains one-half its volume 
of alcohol of a specific gravity of seven thousand nine hundred and 
thirty-nine ten-thousandths (.7939) at 60 degrees Fahrenheit. 
(d) PROOF GALLON.—For purposes of this chapter, the term "proof 
gallon" means a gallon of proof spirits, according to the standard 
prescribed in subsection (c), set forth and declared for the inspection 
and gauging of spirits throughout the United States. 
SEC. 5003. EXEMPTIONS. 
(1) For provisions authorizing the withdrawal of alcohol free of tax 
for use by Federal or State agencies, see section 5310 (b). 
(2) For provisions authorizing the withdrawal of alcohol free of tax 
for use in research, hospitals, or charitable clinics, see section 5310 (c). 
(3) For provisions authorizing the importation of alcohol for industrial 
purposes without payment of tax, see section 5311. 
(4) For provisions authorizing the withdrawal and denaturation of 
alcohol without payment of tax, see sections 5310 (a) and 5331 (a). 
(5) For provisions authorizing the withdrawal and denaturation of 
rum without payment of tax, see section 5331 (c). 
(6) For provisions authorizing the removal for denaturation 
or 
destruction without payment of tax of distillates containing aldehydes 
or fusel oil, see section 5194 (b). 
§ 5003(6) 
598 
INTERNAL REVENUE CODE 
OF 1954 
;
{
n 
(7) For provisions exempting distilled vinegar produced by the 
vaporizing process from tax, see section 5216. 
(8) For provisions exempting from tax wine spirits withdrawn for the 
production of wine, see section 5373. 
(9) For provisions exempting from tax volatile fruit-flavor 
concen-
trates, see section 5511. 
(10) For provisions authorizing the withdrawal of distilled spirits in 
original casks or packages for export without payment of tax, see section 
5247. 
(11) For provisions authorizing the withdrawal of distilled spirits by 
distiller into metallic cans in wooden packages for exportation without 
payment of tax, see section 5193 (b). 
(12) For provisions authorizing the transfer of distilled 
spirits 
into tanks, or tank cars for export without payment of tax, see section 
5247 (d). 
(13) For provisions authorizing withdrawal of distilled spirits to 
customs manufacturing bonded warehouses for export without payment 
of tax, see section 5522 (a). 
(14) For provisions authorizing exportation of distilled spirits bottled 
in bond without payment of tax, see section 5243. 
(15) For provisions relating to withdrawal of distilled spirits without 
payment of tax as supplies for certain vessels and aircraft, see 19 U. S. C. 
1309. 
(16) For provisions authorizing regulations for withdrawal of distilled 
spirits for use of United States free of tax, see section 7510. 
(17) For provisions relating to withdrawal of distilled spirits without 
payment of tax to foreign trade zones, see 19 U. S. C. 81c. 
SEC. 5004. LIEN FOR TAX. 
> 
(a) LIEN APPLICABLE TO DISTILLED SPIRITS.— 
(1) PROPERTY SUBJECT TO LIEN.—The tax imposed by section 
5001 (a) (1) shall be a first lien on the spirits distilled, the distillery-
used for distilling the same, the stills, vessels, fixtures, and tools 
therein, the lot or tract of land on which such distillery is situated, 
and on any building thereon, from the time such spirits are in exist-
ence as such until (except as provided in paragraph (3)) such tax 
is paid. 
(2) EXCEPTION DURING TERM OF BONDS.—No lien shall attach to 
any lot or tract of land, distillery, building, or distilling apparatus, 
under this subsection, by reason of distilling done during any 
period included within the term of any bond taken under section 
5177 (b) (3). 
(3) EXTINGUISHMENT OF LIEN.—Any lien under paragraph (1) 
on any land or any building thereon shall be held to be extinguished 
if (A) such land and building are no longer used for distillery pur-
poses, (B) there is no outstanding liability for taxes or penalties 
imposed by law on the distilled spirits produced therein, and (C) no 
litigation is pending in respect of any such tax or penalty. 
(4) CERTIFICATE 
OF DISCHARGE.—Any person claiming 
any 
interest in any such land or building may apply to the Secretary or 
his delegate for a duly acknowledged certificate to the effect that 
such lien is discharged and, if the Secretary or his delegate de-
termines that such lien is extinguished, the Secretary or his delegate 
shall issue such certificate, and any such certificate may be recorded. 
(b) LIEN APPLICABLE TO ALCOHOL.—The tax imposed by law on 
alcohol shall be a first lien on such alcohol and the premises and plant 
in which such alcohol is produced or stored, together with all improve-
ments and appurtenances thereunto belonging or in any wise apper-
taining. 
§5003(7) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
599 
(c) 
C R O S S R E F E R E N C E S . — 
(1) For provisions relating to transfer of lien to redistiller in case of 
redistillation, see section 5194 (f). 
(2) For transfer of lien in cases of national emergency transfers, see 
section 5217 (a). 
SEC. 5005. PERSONS LIABLE FOR TAX. 
(a) GENERAL.—The internal revenue tax imposed by section 5001 
(a) (1) on distilled spirits shall be paid by the distUler or importer. 
(b) DOMESTIC DISTILLED SPIRITS.—Every proprietor or possessor 
of, and every person in any manner interested in the use of, any still, 
distillery, or distUling apparatus, shall be jointly and severally liable 
for the taxes imposed by law on the distUled spirits produced therefrom, 
(c) ALCOHOL.—All proprietors of industrial alcohol plants and 
alcohol bonded warehouses shall be jointly and severally liable for 
any and all taxes on any and all alcohol produced thereat or stored 
therein. 
(d) CROSS REFERENCES.— 
(1) For provisions conditioning warehousing bonds on the payment 
of the tax as specified in the entry, and within 8 years from the date of 
original entry, see section 5232 (a). 
(2) For provisions relating to transfer of tax liability to redistiller in 
case of redistillation, see section 5194 (f) and for transfer of liability 
in case of national emergency transfers, see section 5217 (a). 
(3) For liability for tax on denatured alcohol, denatured rum, articles 
and volatile fruit-flavor concentrates, see section 5001 (a) (6) and (7). 
(4) For liability of wine producer for unlawfully using wine spirits 
withdrawn for the production of wine, see section 5373. 
SEC. 5006. DETERMINATION OF TAX. 
(a) 
REQUIREMENTS.— 
(1) I N GENERAL,—The internal revenue tax on distilled spirits 
shall be determined when the spirits are withdrawn from bond. 
Such tax shall be determined by such means as the Secretary or his 
delegate shall by regulations prescribe, and with the use of such 
devices and apparatus (including but not limited to storage, gauging, 
and bottling tanks and pipelines) as the Secretary or his delegate 
may require. 
(2) DISTILLED SPIRITS DEPOSITED IN INTERNAL REVENUE BONDED 
WAREHOUSES.—The tax on distilled spirits entered for deposit in 
internal revenue bonded warehouses shall be determined at the 
time the same are withdrawn therefrom and within 8 years from 
the date of original entry for deposit therein (except that distilled 
spirits which on July 26, 1936, were 8 years of age or older and which 
were in bonded warehouses on that date, may remain therein). 
(b) EXCESSIVE Loss.—If it appears at any time that there has been 
a loss of distilled spirits from any cask or other package deposited 
in an internal revenue bonded warehouse, other than the loss pro-
vided for in section 5011 (a), which, in the opinion of the Secretary 
or his delegate, is excessive, he may require the withdrawal from the 
warehouse of such distilled spirits, and direct the oflEicer designated 
by him to collect the tax accrued on the origuial quantity of dis-
tilled spirits entered into the warehouse in such cask or package, 
notwithstanding that the time specified in any bond given for the 
withdrawal of the spirits entered into warehouse in such cask or pack-
age has not expired. 
If such tax is not paid on demand it shall be 
assessed and collected as other taxes are assessed and collected. 
§ 50G6(b) 
600 
INTERNAL REVENUE CODE OF 
1954 
(c) DISTILLED SPIRITS NOT BONDED.—The tax on any distilled 
spirits, removed from the place where they were distilled and (except as 
otherwise provided bylaw) not deposited in a bonded warehouse, shall, 
at any time within the period of limitation provided in section 6501, 
when knowledge of such fact is obtained by the Secretary or his dele-
gate, be assessed on the distiller of such distilled spirits, and payment 
of such tax immediately demanded and, on the neglect or refusal of 
payment by the distiller, the Secretary or his delegate shall proceed 
to collect the same by distraint. 
This subsection shall not exclude 
any other remedy or proceeding provided by law. 
(d) UNLAWFULLY IMPORTED DISTILLED SPIRITS.—Distilled spirits 
smuggled or brought into the United States unlawfully shall, for pur-
poses of this chapter, be held to be imported into the United States, 
and the internal revenue tax shall be due and payable at the time of 
such importation. 
(e) CROSS REFERENCES.— 
(1) For provisions relating to removals of distilled spirits from a dis-
tillery for redistillation, denaturation, or on determination of tax, see 
section 5194. 
(2) For provisions relating to removals of distilled spirits from a dis-
tillery as national emergency transfers, see section 5217 (a). 
(3) For provisions relating to removals of distilled spirits from a dis-
tillery for exportation, see section 5247 (d). 
(4) For provisions relating to removals of wine spirits from a distillery 
for fortification of wine, see section 5373 (b). 
SEC. 5007. COLLECTION OF TAX ON DISTILLED SPIRITS. 
(a) TAX ON DOMESTIC DISTILLED SPIRITS.—The tax on domestic 
distilled spirits shall be paid in accordance with section 5061. 
(b) COLLECTION OF TAX ON IMPORTED DISTILLED SPIRITS AND 
PERFUMES CONTAINING DISTILLED SPIRITS.— 
(1) DISTILLED SPIRITS.—The internal revenue tax imposed by 
section 5001 (a) (1) and (2) upon imported distilled spirits shall be 
collected by the Secretary or his delegate and deposited as internal 
revenue collections, under such regulations as the Secretary or his 
delegate may prescribe. 
Such tax shall be in addition to any cus-
toms duty imposed under the Tariff Act of 1930 (46 Stat. 590; 19 
U. S. C , chapter 4), or any subsequent act. Section 5688 shall be 
applicable to the disposition of imported spirits. 
(2) PERFUMES 
CONTAINING 
DISTILLED 
SPIRITS.—The internal 
revenue tax imposed by section 5001 (a) (3) upon imported per-
fumes containing distilled spirits shall be collected by the Secretary 
or his delegate and deposited as internal revenue collections, under 
such regulations as the Secretary or his delegate may prescribe. 
(c) PAYMENT OF T A X ON ALCOHOLIC COMPOUNDS FROM PUERTO 
RICO AND VIRGIN ISLANDS,—The tax imposed by section 5001 (a) (4) 
shall be collected, under regulations prescribed by the Secretary or 
his delegate. 
(d) PAYMENT OF TAX ON ALCOHOL.—The provisions of section 
5061 relating to the taxpayment of distilled spirits and the penalty 
and forfeiture provisions applicable thereto shall, so far as applicable, 
extend to and include the taxpayment of alcohol produced in the 
United States, or imported under section 5311. 
§ 5006(c) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
601 
(e) ASSESSMENT FOR DEFICIENCIES IN PRODUCTION AND EXCESS 
OP M A T E R I A L S U S E D . — 
(1) REQUIREMENT,—On the receipt of the distiller's return in 
each month, the Secretary or his delegate shall inquire and deter-
mine whether the distiller has accounted for all the grain or molasses 
used, and all the spirits produced by him in the preceding month. 
If he is satisfied that the distiller has reported all the spirits produced 
by him, and the quantity so reported is found to be less than 80 
percent of the producing capacity of the distillery as estimated 
according to law, he shall make an assessment for such deficiency 
at the rate of tax imposed by law for every proof gallon. 
In 
determining the quantity of grain used, 56 pounds shall be accounted 
as a bushel; and if the Secretary or his delegate finds that the 
distiller has used any grain or molasses in excess of the capacity of 
his distillery as estimated according to law, he shall make an assess-
ment against the distiller at the rate imposed by law for every 
proof gallon of spirits that should have been produced from the 
grain or molasses so used in excess, which assessment shall be made 
whether the quantity of spirits reported is equal to or exceeds 80 
percent of the producing capacity of the distillery. 
If the Secretary 
or his delegate finds that the distiller has not accounted for all 
the spirits produced by him, he shall, from all the evidence he 
can obtain, determine what quantity of spirits was actually pro-
duced by such distiller, and an assessment shall be made for the 
difference between the quantity reported and the quantity shown 
to have been actually produced, at the rate of tax imposed by law 
for every proof gallon: Provided, That the actual product shall be 
assumed to be in no case less than 80 percent of the producing 
capacity of the distillery as estimated according to law. 
All 
assessments made under this subsection shall be a lien on all distilled 
spirits on the distillery premises, the distillery used for distilling 
the same, the stills, vessels, fixtures, and tools therein, the tract of 
land whereon the said distillery is located, and any building thereon, 
from the time such assessment is made until the same shall have 
been paid. 
(2) R E L I E F FROM ASSESSMENT.—Whenever, under the provisions 
of this subsection, an assessment shall have been made against a dis-
tiller for a deficiency in not producing 80 percent of the producing 
capacity of his distillery as established by law, or for the tax upon 
the spirits that should have been produced from the grain or fruit 
or molasses found to have been used in excess of the capacity of 
his distillery for any month, as estimated according to law, such 
excessive use of grain or fruit or molasses having arisen from a fail-
ure on the part of the distiller to maintain the capacity required by 
law to enable him to use such grain or fruit or molasses without 
incurring liability to such assessment, and it shall be made to appear 
to the satisfaction of the Secretary or his delegate that said defi-
ciency, or said failure, whereby such excessive use of grain, molasses, 
or fruit arose, was not occasioned by any want of diligence or by 
any fraudulent purpose on the part of the distiller, but from mis-
understanding as to the requirements of the law and regulations in 
that respect or by reason of unavoidable accidents, then, and in 
such case, the Secretary or his delegate, subject to regulations pre-
§ 6007(e)(2) 
49012°—54 
41 
602 
INTERNAL REVENUE CODE OF 1954 
scribed by him, is authorized, on appeal made to him, to remit or 
refund such tax, or such part thereof as shall appear to him to be 
equitable and just in the premises. 
And the Secretary or his dele-
gate, upon the production to him of satisfactory proof of the actual 
destruction, by accidental fire or other casualty, and without any 
fraud, collusion, or negligence of the distiller, of any spirits in process 
of manufacture or distillation, or before removal to the internal 
revenue bonded warehouse, shall not assess the distiller for a defi-
ciency in not producing 80 percent of the producing capacity of 
his distillery as established by law when the deficiency is occasioned 
by such destruction, nor shall he, in such case, assess the tax on 
the spirits so destroyed: Provided, That no assessment shall be 
charged against any distiller of fruit for any failure to maintain the 
required capacity, unless the Secretary or his delegate shall, within 
6 months after his receipt of each monthly report, notify such 
distiller of such failure to maintain the required capacity, 
(f) 
CROSS REFERENCES.— 
(1) For authority of the Secretary or his delegate to make determina-
tions and assessments of internal revenue taxes and penalties, see section 
6201 (a). 
(2) For authority to assess tax on distilled spirits not bonded, see 
section 5006 (c). 
(3) For provisions relating to payment of tax on denatured alcohol, 
denatured rum, articles and volatile fruit-flavor concentrates, see sec-
tions 5001 (a) (6) and (7). 
(4) For authority of the Secretary or his delegate to waive provisions 
of law relating or incidental to survey requirements, see section 5179 (b). 
SEC. 5008. STRIP STAMPS FOR DISTILLED SPIRITS. 
(a) 
STAMPS FOR CONTAINERS OP DISTILLED SPIRITS BOTTLED IN 
BOND.— 
(1) REQUIREMENTS.—Every bottle of distUled spirits bottled in 
bond in an internal revenue bonded warehouse when filled shall 
have affixed thereto in such manner as to be broken on opening 
the bottle, a stamp evidencing the bottling in bond of such spirits 
under the provisions of this subsection and section 5243, and of 
regulations prescribed thereunder. 
(2) STAMP REGULATIONS.—The Secretary or his delegate shall 
prescribe regulations with respect to the supplying of stamps re-
quired under this subsection, the time and manner of applying for, 
issuing, affixing, and destroying such stamps, the form of such 
stamps and the information to be shown thereon, applications for 
the stamps, proof that applicants are entitled to such stamps, and 
the method of accounting for such stamps, and such other regula-
tions as he may deem necessary for the enforcement of this sub-
section and section 5243. 
(b) 
STAMPS FOR CONTAINERS OF OTHER DISTILLED SPIRITS.— 
(1) REQUIREMENTS.—No person shall transport, possess, buy, 
sell, or transfer any distilled spirits, unless the immediate container 
thereof has affixed thereto in such manner as to be broken on 
opening the container, a stamp evidencing the tax or indicating 
compliance with the provisions of this chapter. 
The provisions of 
this subsection shall not apply to— 
(A) distilled spirits placed in containers for immediate con-
sumption on the premises or for preparation for such consumption; 
§ 5007(e)(2) 
I-
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
603 
(B) distilled spirits in bond or in customs custody; 
(C) distilled spirits in immediate container required to be 
stamped under subsection (a) or under other provisions of internal 
revenue or customs law and regulations; 
(D) distilled spirits in actual process of rectification, blending, 
or bottling, or in actual use in processes of manufacture; 
(E) distilled spirits on which no internal revenue tax is re-
quired to be paid or which are bottled especially for export with 
benefit of drawback; 
(F) distilled spirits not intended for sale; or for use in the 
manufacture or production of any article intended for sale; or 
(G) any regularly 
established 
common 
carrier 
receiving, 
transporting, delivering, or holding for transportation or de-
Hvery distilled spirits in the ordinary course of its business as a 
common carrier. 
(2) STAMP REGULATIONS.—The Secretary or his delegate shall 
prescribe regulations with respect to the supplying of stamps re-
quired under this subsection, the time and manner of applying for, 
issuing, affixing, and destroying such stamps, the form of such 
stamps and the information to be shown thereon, applications for 
the stamps, proof that applicants are entitled to such stamps, and 
the method of accounting for such stamps, and such other regula-
I tions as he may deem necessary for the enforcement of this sub-
section, 
(3) DESTRUCTION OF STAMPS ON EMPTIED CONTAINERS.—Every 
person emptying any container stamped under the provisions of 
this subsection shall at the time of emptying such container destroy 
.. the stamp thereon. 
SEC. 5009. STAMPS FOR DISTILLED SPIRITS WITHDRAWN FOR EXPOR-
TATION. 
(a) REQUIREMENTS.—All distilled spirits intended for export in the 
original casks or packages or in packages filled from the original 
packages, shall, before being removed from the internal revenue 
bonded warehouse, be marked as the Secretary or his delegate may 
by regulations prescribe, and shall have affixed to each cask or pack-
age a stamp indicative of such intention. 
Such stamps shall be used 
and accounted for, under regulations to be prescribed by the Secre-
tary or his delegate. 
(b) 
CROSS REFERENCES.— 
^' 
(1) For applicability of this section to distilled spirits transferred into 
n 
tanks or tank cars for export, see section 5247 (d). 
•/ 
(2) For authority of the Secretary or his delegate to prescribe regula-
tions regarding stamps for distilled spirits withdrawn to manufacturing 
bonded warehouses, see section 5522 (a). 
SEC. 5010. MISCELLANEOUS STAMP PROVISIONS. 
(a) ISSUE FOR RESTAMPING.—The Secretary or his delegate, under 
regulations prescribed by him, may issue stamps for restamping 
packages of distilled spirits, which have been duly stamped but from 
which the stamps have been lost or destroyed by unavoidable accident. 
(b) ACCOUNTABILITY.—All stamps relating to distUled spirits, shall 
be charged to the principal collection ofiicer in each internal revenue 
district; and shall be used and accounted for under such regulations 
as the Secretary or his delegate may prescribe. 
§ 5010(b) 
604 
INTERNAL REVENUE CODE OF 1954 
(c) EFFACEMENT OF STAMPS AND BRANDS ON EMPTIED PACKAGES.— 
Every person who empties or draws off, or causes to be emptied or 
drawn off, any distilled spirits from a cask or package bearing any 
mark, brand, or stamp, required by law, shall, at the time of emptying 
such cask or package, efface and obliterate said mark, stamp, or brand. 
(d) CROSS REFERENCES.— 
(1) For authority of the Secretary or his delegate to prescribe regula-
tions relating to the stamping of packages of distilled spirits, see section 
5194 (g). 
(2) For general authority of the Secretary or his delegate to prescribe 
regulations relating to the establishment and alteration of stamps, 
marks, and brands, see section 6801. 
(3) For provisions relating to stamping of distilled spirits removed 
from warehouses, see section 5250. 
SEC. 5011. ABATEMENT, REMISSION, REFUND AND ALLOWANCE FOR 
LOSS OR DESTRUCTION OF DISTILLED SPIRITS. 
(a) DISTILLED SPIRITS LOST OR DESTROYED IN BOND.— 
(1) EXTENT OF LOSS ALLOWANCE.—No tax shall be collected in 
respect of distilled spirits lost or destroyed while in bond, except 
that such tax shall be collected— 
(A) THEFT.—In the case of loss by theft, unless the Secretary 
or his delegate finds that the theft occurred without conniv-
ance, collusion, fraud, or negligence on the part of the distiller, 
warehouseman, owner, consignor, consignee, bailee, or carrier, 
or the employees of any of them; and 
(B) VOLUNTARY 
DESTRUCTION.—In the case of voluntary 
destruction, unless such destruction is carried out under sub-
section (b). 
(2) PROOF OF LOSS.—In any case in which spirits are lost or 
destroyed, whether by theft or otherwise, the Secretary or his 
delegate may require the distiller or warehouseman or other person 
responsible for the tax to file a claim for relief from the tax and 
submit proof as to the cause of such loss. 
In every case where 
it appears that the loss was by theft, the burden shall be upon the 
distiller or warehouseman or other person responsible for the tax to 
establish to the satisfaction of the Secretary or his delegate that 
such loss did not occur as the result of connivance, collusion, fraud, 
or negligence on the part of the distiller, warehouseman, owner, 
consignor, consignee, bailee, or carrier, or the employees of any of 
them. 
(3) REFUND OF TAX.—IQ any case where the tax would not be 
collectible by virtue of subsection (a) (1), but such tax has been 
paid, the Secretary or his delegate shall refund such tax. 
No tax 
shall be remitted or refunded under this subsection where the loss 
occurred after the tax was determined (as provided in section 
5006 (a)), and the spirits withdrawn from bond. 
(4) INSURANCE COVERAGE.^—The abatement or refund of taxes 
provided for by subsections (a) (1) and (3) in the case of loss of 
distilled spirits by theft shall only be allowed to the extent that 
the claimant is not indemnified against or recompensed for such loss. 
(b) VOLUNTARY DESTRUCTION.—The distiller, warehouseman, or 
other person responsible for the tax imposed by this chapter with 
respect to any distilled spirits in bond may voluntarily destroy such 
§ 5010(c) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
605 
spirits, but only if such destruction is under such supervision, and 
under such regulations, as the Secretary or his delegate may prescribe. 
(c) Loss OR DESTRUCTION OF ALCOHOL.—Whenever any alcohol 
(produced at an industrial alcohol plant or imported under section 
5311), is lost by evaporation or other shrinkage, leakage, casualty, or 
unavoidable cause during distillation, redistillation, 
denaturation, 
withdrawal, piping, shipment, warehousing, storage, packing, trans-
fer, or recovery of any such alcohol, the Secretary or his delegate may 
remit or refund any tax incurred on such alcohol: Provided, That he 
is satisfied that the alcohol has not been diverted to any illegal use: 
Provided further, That such allowance shall not be granted if the person 
claiming same is indemnified against such loss by a valid claim of 
insurance. 
(d) CROSS REFERENCES.— 
(1) For provisions relating to losses of fruit brandies before blending 
in internal revenue bonded warehouse, see section 5023. 
(2) For allowance of loss in case of national emergency transfers, 
see section 5217 (a). 
SEC. 5012. DRAWBACK. 
(a) DRAWBACK ON EXPORTATION OF DISTILLED SPIRITS IN D I S -
TILLERS' ORIGINAL PACKAGES.^—Distilled spirits on which all taxes 
have been paid may be exported, with the privilege of drawback, 
in distillers' original casks or packages containing not less than 20 
wine gallons each, on application of the owner thereof to the Secretary 
or his delegate, under such regulations and on the filing of such bonds, 
reports, returns and applications and the keeping of such records as 
the Secretary or his delegate may prescribe. 
A drawback shall be 
allowed upon distilled spirits on which the tax has been paid and which 
have been exported to foreign countries under this section and shall 
include the taxes levied and paid on the distilled spirits exported. 
The rate of drawback shall be equal to the rate of the internal revenue 
tax paid in respect of the distilled spirits exported, as per gauge of 
such spirits as the Secretary or his delegate may require to be made 
before exportation. 
Such drawback shall be due and payable only 
after all requirements of law and regulations have been complied with 
and on filing with the Secretary or his delegate a proper claim and 
satisfactory evidence that the tax on the distilled spirits has been 
paid and that such distilled spirits have been exported; and the 
Secretary or his delegate shall prescribe such regulations in relation 
thereto as may be necessary to secure the Government against frauds. 
(b) CROSS REFERENCES.— 
(1) For provisions relating to drawback on distilled spirits packaged 
or bottled especially for export, see section 5062 (b). 
(2) For provisions relating to drawback on designated non-beverage 
products, see section 5131 through 5134. 
(3) For drawback on domestic alcohol used in flavoring extracts and 
medicinal toilet preparations exported, see sections 313 (d) of the 
Tariff Act of 1930 (46 Stat. 694; 19 U. S. C. 1313). 
(4) For drawback on articles removed to foreign trade zones, see 
19 U. S. C. 81c. 
§ 5012(b) 
606' 
INTERNAL REVENUE CODE OF 1954 
Subpart B—Rectification 
Sec. 5021. Imposition and rate of tax. 
Sec. 5022. Tax on cordials and liqueurs containing wine. 
Sec. 5023. Tax on blending of beverage brandies. 
Sec. 5024. Definitions. 
Sec. 5025. Exemption from rectification tax. 
Sec. 5026. Determination and collection of rectification tax. 
Sec. 5027. Stamp provisions applicable to rectifiers. 
Sec. 5028. Cross references. 
SEG. 5021. IMPOSITION AND RATE OF TAX. 
(a) RECTIFIED SPIRITS AND WINES.—In addition to the tax imposed 
by this chapter on distilled spirits and wines, there is hereby imposed 
(except as otherwise provided in this chapter) a tax of 30 cents on each 
proof gallon and a proportionate tax at a like rate on all fractional 
parts of such proof gallon on all distilled spirits or wines rectified, 
purified, or refined in such manner, and on all mixtures produced in 
such maimer, that the person so rectifying, purifying, refining, or mix-
ing the same is a rectifier (as defined in section 5082). 
(b) CHANGE IN PROOF OR VOLUME.—When the process of rectifi-
cation is completed and the taxes prescribed by this section have 
been determined, it shall be unlawful for the rectifier or other dealer 
to reduce in proof or increase in volume such spirits or wine by the 
addition of water or other substance. 
Nothing in this subsection shall 
prevent a rectifier from using again in the process of rectification 
spirits already rectified and on which the taxes have theretofore been 
determined. 
SEC. 5022. TAX ON CORDIALS AND LIQUEURS CONTAINING WINE. 
On all liqueurs, cordials, or similar compounds produced in the 
United States and not sold as wine, which contain more than 2K 
percent by volume of wine of an alcoholic content in excess of 14 
percent by volume (other than bottled cocktails), there shall be 
paid, in lieu of the tax imposed by section 5021, a tax at the rate 
of $1.92 per wine gallon and a proportionate tax at a like rate on 
all fractional parts of such wine gallon until April 1, 1955, and on 
or after April 1, 1955, at the rate of $1.60 per wine gallon and a pro-
portionate tax at a like rate on all fractional parts of such wine gallon. 
All other provisions of law applicable to rectification shall apply to 
the products subject to tax under this section. 
SEC. 5023. TAX ON BLENDING OF BEVERAGE BRANDIES. 
Fruit brandies distilled from the same kind of fruit at not more 
than 170 degrees proof may, for the sole purpose of perfecting such 
brandies according to commercial standards, be mixed or blended with 
each other, or with any such mixture or blend, by the distiller thereof 
in any internal revenue bonded warehouse operated by him exclusively 
for the storage of brandy or wine spirits, and sections 5021, 5081, and 
5082 relating to rectification or other internal revenue laws of the 
United States shall not be held to apply to or prohibit such mixing 
or blending, and brandies so mixed or blended may be packaged, 
stored, transported, transferred in bond, withdrawn from bond 
taxpaid or tax-free, or be otherwise disposed of, in the same man-
ner as such brandies not so mixed or blended: Provided, That, in addi-
tion to the tax imposed by this chapter on the production of distilled 
spirits, there shall be paid a tax of 30 cents as to each proof gallon 
§5021 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
^07 
(and a proportionate tax at a like rate on all fractional parts of such 
proof gallon) of brandy so mixed or blended (except when withdrawn 
tax-free and accounted for or when lost and allowance is made there-
for), such tax to be determined at the time of withdrawal and paid 
under such regulations as the Secretary or his delegate shall prescribe. 
The Secretary or his delegate, under regulations prescribed by him, 
on the presentation of proof to his satisfaction of the loss by leakage, 
evaporation, theft, or otherwise, of fruit brandies so blended or 
mixed, not occurring as the result of any negligence, connivance, 
collusion, or fraud on the part of the warehouseman or his agents, 
is hereby authorized to remit or refund the taxes assessed or paid 
upon such lost brandies: Provided, however, That such remission or 
refund shall be allowed only to the extent that the warehouseman 
is not indemnified or recompensed for such tax, and that losses 
of fruit brandies occurring before any such mixing or blending 
shall be allowable in accordance with section 5011 (a). The term 
"distiller" as used in this section shall include any one or more 
distillers associated as members of any farm cooperative, or any one 
or more distillers affiliated within the meaning of section 17 (a) (5) 
of the Federal Alcohol Admiuistration Act, as amended (49 Stat. 
990; 27 U. S. C. 211), or any fruit distiller for whose account, recorded 
with the Secretary or his delegate at the time of production, the 
brandy to be blended was produced. 
The Secretary or his delegate 
may make such rules or regulations as he may deem necessary to 
carry this section into effect. 
SEC. 5024. DEFINITIONS. 
(1) For definition of "rectifier", see section 5082. 
(2) For definition of "products of rectification" as "distilled spirits" 
for certain purposes, see section 5002 (b) (2). 
SEC. 5025. EXEMPTION FROM RECTIFICATION TAX. 
(a) ABSOLUTE ALCOHOL.—The process of extraction of water from 
high-proof spirits for the production of absolute alcohol shall not be 
deemed to be rectification within the meaning of sections 5081 and 
5082, and absolute alcohol shall not be subject to the tax imposed 
by section 5021, but the production of such absolute alcohol shall be 
under such regulations as the Secretary or his delegate may prescribe. 
(b) PRODUCTION OF GIN AND VODKA.^—The tax imposed by section 
5021 shall not apply to gin produced by the redistillation of a pure 
spirit over juniper berries and other aromatics or to vodka produced 
from pure spirits in the manner authorized at registered distilleries. 
(c) REFINING SPIRITS IN COURSE OF ORIGINAL DISTILLATION.— 
The purifying or refining of spirits in the course of original and con-
tinuous distillation through any material which will not remain in-
corporated with such spirits when the manufacture thereof is complete 
shall not be held to be rectification within the meaning of sections 
5021, 5081, or 5082, nor shall these sections be held to prohibit such 
purifying or refining. 
(d) REDISTILLATION OF SPIRITS BY DISTILLERY.—Sections 5021, 
5081 and 5082 shall not apply to the redistillation of spirits removed 
under the provisions of section 5194 (f). 
(e) BLENDING STRAIGHT WHISKIES, FRUIT BRANDIES OR WINES.— 
The taxes imposed by this subpart shall not attach to blends made 
exclusively of two or more pure straight whiskies aged in wood for 
§ 5025(e) 
608 
INTERNAL REVENUE CODE OF 1964 
a period not less than 4 years and without the addition of coloring 
or flavoring matter or any other substance than pure water and if 
not reduced below 80 proof; nor to blends made exclusively of two or 
more pure fruit brandies distilled from the same kind of fruit, aged in 
wood for a period not less than 2 years and without the addition 
of coloring or flavoring matter (other than caramel) or any other 
substance than pure water and if not reduced below 80 proof. 
Such 
blended whiskies and blended fruit brandies shall be exempt from 
tax under this subpart only when compounded under the immediate 
supervision of a revenue officer, in such tanks and under such condi-
tions and supervision as the Secretary or his delegate may prescribe. 
Such tax shall not attach to the mixing and blending of wines, where 
such blending is for the sole purpose of perfecting such wines according 
to commercial standards. 
(f) ADDITION OF CARAMEL TO BRANDY.—The addition of caramel 
to commercial brandy at the distillery where produced, or in the 
internal revenue bonded warehouse where stored, pursuant to regula-
tions prescribed by the Secretary or his delegate, shall not be deemed 
to be rectification within the meaning of sections 5021, 5081, and 
5082. 
(g) APOTHECARIES.—The taxes imposed by this subpart and by 
part II of this subchapter shall not be imposed on apothecaries as 
to wines or spirituous liquors which they use exclusively in the prepa-
ration or making up of medicines unfit for use for beverage purposes. 
(h) MANUFACTURERS OF CHEMICALS AND FLAVORING EXTRACTS.— 
The taxes imposed by this subpart and by part II of this subchapter 
shall not be imposed on manufacturing chemists or flavoring-extract 
manufacturers for recovering tax paid alcohol or spirituous liquors 
from dregs or marc of percolation, or extraction, if such recovered 
alcohol or spirituous liquors be again used in the manufacture of 
medicines or flavoring extracts of the kind in the production of which 
originally used. 
(i) CROSS REFERENCES.— 
, , 
(1) For provisions exempting industrial alcohol plants and ware-
'\ 
• • houses, see section 5306. 
' 
> 
(2) For provisions exempting the blending of beverage brandies in 
o 
bonded warehouses, see section 5023. 
(3) For provisions exempting distilled spirits and wines rectified in 
customs bonded manufacturing warehouses, see section 5523. 
(4) For provisions exempting certain redistillation and mingling of 
spirits during national emergency, see section 5217 (a). 
(5) For provisions exempting winemakers in the use or treatment 
of wines or wine spirits, see section 5392. 
(6) For provisions exempting the manufacture of volatile fruit-flavor 
concentrates, see section 5511. 
SEC. 5026. DETERMINATION 
AND COLLECTION 
OF 
RECTIFICATION 
TAX. 
(a) 
D E T E R M I N A T I O N OF T A X . — 
(1) GENERAL.—The taxes imposed by sections 5021 and 5022 
shall be determined upon the completion of the process of rectifica-
tion by such means as the Secretary or his delegate shall by regula-
tions prescribe and with the use of such devices and apparatus 
(including but not limited to storage, gauging, and bottling tanks, 
and pipelines) as the Secretary or his delegate may require. 
(2) UNAUTHORIZED 
RECTIFICATION.—In the case of 
taxable 
rectification on premises other than an authorized rectifying plant, 
§ 5025(e) 
CH. 51 
DISTILLED SPIRITS, WINES AND BEER 
609 
the tax imposed by sections 5021 and 5022 shall be due and payable 
at the time of such rectification. 
(b) PAYMENT OF TAX ON RECTIFIED SPIRITS, WINES, AND CORDIALS 
OR LIQUEURS.—The taxes imposed by sections 5021 and 5022 shall 
be paid in accordance with section 5061. 
SEC. 5027. STAMP PROVISIONS APPLICABLE TO RECTIFIERS. 
(a) EXCHANGE 
OF WHOLESALE 
LIQUOR 
DEALERS' STAMPS FOR 
RECTIFIED SPIRITS STAMPS.—The Secretary or his delegate shall not 
furnish wholesale liquor dealers' stamps in lieu of and in exchange for 
stamps for rectified spirits unless the package covered by stamp for 
rectified spirits is to be broken into smaller packages. 
(b) CROSS REFERENCES.— 
(1) For provisions relating to stamps for immediate containers, see 
section 5008 (b). 
= ,i 
(2) Provisions relating to the stamping of packages of rectified dis-
tilled spirits containing 5 wine gallons or more, see section 5282 (b) 
and (c). 
SEC. 5028. CROSS REFERENCES. 
For penalty provisions applicable to this subpart, see subchapter J. 
C.J 
Subpart C—Wines 
^f= 
Sec. 5041. Imposition and rate of tax. 
Sec. 5042. Exemption from tax. 
Sec. 5043. Collection of taxes on wines. 
Sec. 5044. Refund of tax on unmerchantable wine. 
, 
Sec. 5045. Cross references. 
SEC. 5041. IMPOSITION AND RATE OF TAX. 
(a) IMPOSITION.—There is hereby imposed on all wines, including 
imitation, substandard or artificial wine, and compounds sold as 
wine, having not in excess of 24 percent of alcohol by volume, in 
bond in, produced in, or imported into, the United States, taxes at 
the rates shown in subsection (b), such taxes to be determined as of 
the time of removal for consumption or sale. 
All wines containing 
more than 24 percent of alcohol by volume shall be classed as distilled 
spirits and taxed accordingly. 
(b) RATES OF TAX.— 
(1) On still wines containing not more than 14 percent of alcohol 
by volume, 17 cents per wine gallon, except that on and after April 1, 
1955, the rate shall be 15 cents per wine gallon; 
(2) On still wines containing more than 14 percent and not ex-
ceeding 21 percent of alcohol by volume, 67 cents per wine gallon, 
except that on and after April 1, 1955, the rate shall be 60 cents a 
wine gallon; 
(3) On still wines containing more than 21 percent and not ex-
ceeding 24 percent of alcohol by volume, $2.25 per wine gallon, 
except that on and after April 1, 1955, the rate shall be $2.00 per 
wine gallon; 
(4) On champagne and other sparkling wines, $3.40 per wine 
gallon, except that on and after April 1, 1955, the rate shall be $3.00 
per wine gallon; and 
(5) On artificially carbonated wines, $2,40 per wine gallon, except 
that on and after April 1, 1955, the rate shall be $2.00 per wine 
gallon. 
§ 5041(b)(5) 
610 
INTERNAL REVENUE CODE OF 1954 
(c) W I N E GALLON.—For the purpose of this chapter, the term 
"wine gallon" means a United States gallon of liquid measure equiv-
alent to the volume of 231 cubic inches. 
On lesser quantities the 
tax shall be paid proportionately (fractions of less than one-tenth 
gallon being converted to the nearest one-tenth gallon, and five-
hundred 
ths gallon being converted to the next full one-tenth gallon). 
(d) ILLEGALLY PRODUCED WINE.—Notwithstanding subsection (a), 
any wine produced in the United States at any place other than the 
bonded premises provided for in this chapter shall (except as pro-
vided in section 5042 in the case of tax-free production) be subject to 
tax at the rate prescribed in subsection (b) at the time of production 
and whether or not removed for consumption or sale. 
SEC. 5042. EXEMPTION FROM TAX 
(a) TAX-FREE PRODUCTION.— 
(1) CIDER.—Subject to regulations prescribed by the Secretary or 
his delegate, the noneffervescent product of the normal alcoholic 
fermentation of apple juice only, which is produced at a place other 
than a bonded wine cellar and without the use of preservative 
methods or materials, and which is sold or offered for sale as cider 
and not as wine or as a substitute for wine, shall not be subject to 
tax as wine nor to the provisions of subchapter F. 
(2) FAMILY WINE.—Subject to regulations prescribed by the 
Secretary or his delegate, the duly registered head of any family 
may, without payment of tax, produce for family use and not for 
sale an amount of wine not exceeding 200 gallons per annum. 
(3) EXPERIMENTAL WINE.—Subject to regulations prescribed by 
the Secretary or his delegate, any scientific university, college of 
learning, or institution of scientific research may produce, receive, 
blend, treat, and store wine, without payment of tax, for experi-
mental or research use but not for consumption (other than organ-
oleptical tests) or sale, and may receive such wine spirits without 
payment of tax as may be necessary for such production. 
(b) CROSS REFERENCES.— 
(1) For provisions relating to exemption of tax on losses of wine 
(including losses by theft or authorized destruction), see section 5370. 
(2) For provisions exempting from tax samples of wine, see section 
5372. 
(3) For provisions authorizing withdrawals of wine without payment 
of tax, see section 5362. 
SEC. 5043. COLLECTION OF TAXES ON WINES. 
(a) PERSONS LIABLE FOR PAYMENT.—The taxes on wine provided 
for in this subpart shall be paid— 
(1) BONDED WINE CELLARS.—In the case of wines removed from 
any bonded wine cellar, by the proprietor of such bonded wine 
cellar: Provided, That, in the case of any withdrawal without pay-
ment of tax authorized under section 5362, such obligation, if any, 
shall become the obligation of the transferee, and the transferor 
shall thereupon be relieved of such obligation. 
(2) FOREIGN WINE.—In the case of foreign wines, by the importer 
thereof. 
(3) OTHER WINES.-—In the case of any other wine or of any wine 
produced, imported, received, removed, or possessed otherwise 
than as authorized iDy law, by any person producing, importing, 
§ 5041(c) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
611 
receiving, removing, or possessing such wine; and all such persons 
shall be jointly and severally liable for such tax with each other as 
well as with any proprietor, transferee, or importer who may be 
liable for the tax under this subsection, 
(b) COLLECTION OF TAX.—The taxes on wines shall be paid in 
accordance with the provisions of section 5061. 
SEC. 5044. REFUND OF TAX ON UNMERCHANTABLE WINE. 
In the case of any champagne or other sparkling wine or artificially 
carbonated wine produced in the United States and returned to a 
bonded wine cellar as unmerchantable under section 5361— 
(1) any tax imposed by this chapter on or after the effective 
date of this chapter shall, if paid, be refunded or credited to the 
proprietor of the bonded wine cellar to which such champagne 
or wine is delivered; or 
(2) if any tax so imposed has not been paid, the person liable 
for the tax may be relieved of liability therefor, 
under such regulations as the Secretary or his delegate may prescribe. 
Such regulations may provide that claim for refund or credit under 
paragraph (1), or relief from liability under paragraph (2), may be 
made only with respect to minimum quantities specified in such 
regulations. 
The burden of proof in all such cases shall be on the 
applicant. 
SEC. 5045. CROSS REFERENCES. 
For provisions relating to the establishment and operation of wineries, 
see subchapter F, and for penalties pertaining to wine, see subchapter J. 
^ 
Subpart D—Beer 
•*' 
Sec. 5051. Imposition and rate of tax. 
Sec. 5052. Definitions. 
Sec. 5053. Exemptions. 
Sec. 5054. Persons liable for tax. 
Sec. 5055. Determination and collection of tax on beer. 
Sec. 5056. Drawback of tax. 
Sec. 5057. Refund and credit of tax, or relief from liability. 
SEC. 5051. IMPOSITION AND RATE OF TAX. 
(a) RATE OF TAX.—There is hereby imposed on all beer, brewed or 
produced and sold, or removed for consumption or sale, within the 
United States, or imported into the United States, a tax of $9 for 
every barrel containing not more than 31 gallons, and at a like rate 
for any other quantity or for the fractional parts of a barrel au-
thorized and defined by law. 
On and after April 1, 1955, the tax 
imposed by the preceding sentence shall be at the rate of $8 in lieu 
of $9. 
In estimating and computing such tax, the fractional parts of 
a barrel shall be halves, thirds, quarters, sixths, and eighths; and any 
fractional part of a barrel, containing less than one-eighth, shall be 
accounted one-eighth; more than one-eighth, and not more than one-
sixth, shall be accounted one-sixth; more than one-sixth, and not more 
than one-fourth, shall be accounted one-fourth; more than one-fourth, 
and not more than one-third, shall be accounted one-third; more 
than one-third and not more than one-half, shall be accounted one-
half; more than one-half and not more than one barr.el, shall be 
accounted one barrel; and more than one barrel, and not more than 
§ 5051(a) 
612 
INTERNAL REVENUE CODE OF 1954 
63 gallons, shall be accounted two barrels, or a hogshead. 
The 
provisions of this section requiring the accounting of hogsheads, 
barrels, and fractional parts of barrels at the next higher quantity 
shall not apply where the contents of such hogsheads, barrels, or 
fractional parts of barrels are within the limits of tolerance established 
by the Secretary or his delegate by regulations which he is hereby 
authorized to prescribe; and no assessment shall be made and no 
tax shall be collected for any excess in any case where the contents 
of the hogsheads, barrels, or fractional parts of barrels heretofore or 
hereafter used are within the limits of the tolerance so prescribed, 
(b) ASSESSMENT ON MATERIALS USED IN PRODUCTION IN CASE 
OF FRAUD.—Nothing contained in this subpart or subchapter G shall 
be construed to authorize an assessment on the quantity of materials 
used in producing or purchased for the purpose of producing beer, 
nor shall the quantity of materials so used or purchased be evidence, 
for the purpose of taxation, of the quantity of beer produced; but the 
tax on all beer shall be paid as provided in section 5054, and not 
otherwise: Provided, That this subsection shall not apply to cases 
of fraud: And provided further, That nothing in this subsection shaU 
have the effect to change the rules of law respecting evidence in any 
prosecution or suit. 
SEC. 5052. DEFINITIONS. 
(a) BEER.—For purposes of this chapter (except when used with 
reference to distilling or distilling material) the term "beer" means 
beer, ale, porter, stout and other similar fermented beverages (includ-
ing sake or similar products) of any name or description containing 
one-half of 1 percent or more of alcohol by volume, brewed or pro-
duced from malt, wholly or in part, or from any substitute therefor. 
(b) GALLON.—^For purposes of this subpart, the term "gallon" 
means the liquid measure containing 231 cubic inches. 
(c) 
BREWER.— 
For definition of brewer, see section 5092. 
SEC. 5053. EXEMPTIONS. 
(a) REMOVALS FOR EXPORT.—Beer may be removed from the brew-
ery, without payment of tax, for export to a foreign country, in such 
containers and under such regulations, and on the giving of such 
notices, entries, and bonds and other security, as the Secretary or his 
delegate may by regulations prescribe. 
(b) REMOVALS W H E N UNFIT FOR BEVERAGE USE.—When beer has 
become sour or damaged, so as to be incapable of use as such, a brewer 
may remove the same from his brewery without payment of tax, for 
manufacturing purposes, under such regulations as the Secretary or 
his delegate may prescribe. 
(c) REMOVALS FOR LABORATORY ANALYSIS.—Beer may be removed 
from the brewery, without payment of tax, for laboratory analysis, 
subject to such limitations and under such regulations as the Secretary 
or his delegate may prescribe. 
(d) REMOVAL AS SUPPLIES FOR CERTAIN VESSELS AND AIRCRAFT.— 
For exemption as to supplies for certain vessels and aircraft, see sec-
tion 309 of the Tariff Act of 1930, as amended (19 U. S. C. 1309). 
§ 5051(a) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
613 
SEC. 5054. PERSONS LIABLE FOR TAX. 
The tax on beer imposed by section 5051 shall be paid by the owner, 
agent, or superintendent of the brewery in which such beer is made, 
and in the manner and at the time provided in this subchapter. 
SEC. 5055. DETERMINATION AND COLLECTION OF TAX ON BEER. 
The tax on beer imposed by section 5051 shall be determined on 
sale or removal for consumption or sale and shall be paid by the 
brewer or importer thereof in accordance with section 5061. 
When 
the Secretary or his delegate finds it necessary for protection of the 
revenue, he may require stamps, or other devices, evidencing the tax 
or indicating a compliance with the provisions of this chapter, to be 
affixed to hogsheads, barrels, or kegs of beer at the time of removal. 
The Secretary or his delegate shaU by regulations prescribe the manner 
by which such stamps or other devices shaU be supplied, affixed, and 
accounted for. 
All administrative and penal provisions of this title, 
insofar as applicable, shall apply to any tax imposed by section 5051. 
SEC. 5056. DRAWBACK OF TAX. 
On the exportation of beer, brewed or produced in the United 
States, the brewer thereof shall be allowed a drawback equal in 
amount to the tax found to have been paid on such beer, to be paid 
on submission of such evidence, records and certificates indicating 
exportation, as the Secretary or his delegate may by regulations 
prescribe. 
For the purpose of this section, exportation shall include 
delivery for use as supplies on the vessels and aircraft described in 
section 309 of the Tariff Act of 1930, as amended (19 U. S. C. 1309). 
SEC. 5057. REFUND AND CREDIT OF TAX, OR RELIEF FROM LIABILITY. 
(a) BEER REMOVED FROM MARKET.—Any tax paid on or after the 
effective date of this chapter by any brewer on beer produced in the 
United States may be refunded or credited to him, or if the tax has 
not been paid, the brewer may be relieved of liability therefor, under 
such regulations as the Secretary or his delegate may prescribe, if 
such beer is removed from the market before the transfer of title 
thereto to any other person, and, such beer is returned to the brewery 
for reconditioning, for use as materials, or is destroyed under the 
supervision required by such regulations: Provided, That the tax im-
posed by section 5051 shall apply to the beer so reconditioned, such 
tax to be paid pursuant to section 5055. 
(b) BEER LOST BY FIRE, CASUALTY, OR ACT OP GOD.—Subject to 
regulations prescribed by the Secretary or his delegate, the tax paid 
by any brewer on beer produced in the United States may be re-
funded or credited, or if the tax has not been paid, the liability may 
be remitted, if such beer is lost other than by theft, or is destroyed by 
fire, casualty, or act of God, before the transfer of title thereto to any 
other person. 
(c) DATE OF FILING.—No claims under this section shall be allowed 
unless filed within 6 months after the date of such removal from the 
market, loss, or destruction, or if the claimant was indemnified by 
insurance or otherwise in respect of the tax. 
§ 5057(c) 
614 
INTERNAL REVENUE CODE OF 1954 
Subpart E—General Provisions 
Sec. 5061. Method of collecting tax. 
Sec. 5062. Refund and drawback in case of exportation. 
Sec. 5063. Floor stocks tax refunds on distilled spirits, wines,, 
cordials, and beer. 
Sec. 5064. Territorial extent of law. 
Sec. 5065. Cross references. 
SEC. 5061. METHOD OF COLLECTING TAX. 
(a) COLLECTION BY RETURN.—The taxes on distilled spirits, wines, 
rectified distilled spirits and wines, and beer shall be paid by return. 
The Secretary or his delegate shall, by regulation, prescribe the period 
for which such return shall be filed, the time for filing such return, the 
information to be shown in such return and the time for payment of 
such tax: Provided, however, That, notwithstanding this subsection, 
the taxes shall continue to be paid by stamp until the Secretary or his 
delegate shall by regulations provide for the payment of the taxes by 
return. 
(b) DISCRETIONARY METHOD OF COLLECTION.—Whether or 
not 
the method of collecting any tax imposed by this part is specifically 
provided in this part, any such tax may, under regulations prescribed 
by the Secretary or his delegate, be collected by stamp, coupon, 
serially-numbered ticket, or the use of tax-stamp machines, or by such 
other reasonable device or method as may be necessary or helpful in 
securing collection of the tax. 
(c) APPLICABILITY or OTHER PROVISIONS OF LAW.—All adminis-
trative and penalty provisions of this title, insofar as applicable, shall 
apply to the collection of any tax which the Secretary or his delegate 
determines or prescribes shall be collected in any manner provided in 
this section. 
SEC. 5062. EEFUND AND DRAWBACK IN CASE OF EXPORTATION. 
(a) REFUND.—Under such regulations as the Secretary or his 
delegate may prescribe, the amount of any internal revenue tax 
erroneously or illegally collected in respect to exported articles may 
be refunded to the exporter of the article, instead of to the manufac-
turer, if the manufacturer waives any claim for the amount so to be 
refunded. 
(b) DRAWBACK,—On the exportation of distilled spirits and wines 
manufactured or produced in the United States on which an internal 
revenue tax has been paid, and which are contained in any cask or 
package or in bottles, packed in cases or other containers, there shall 
be allowed, under regulations prescribed by the Secretary or his 
delegate, a drawback equal in amount to the tax found to have been 
paid on such distilled spirits and wines: Provided, That such distilled 
spirits and wines have been packaged or bottled especially for export, 
under regulations prescribed by the Secretary or his delegate. 
The 
Secretary or his delegate is authorized to prescribe regulations govern-
ing the determination and payment of drawback of internal revenue 
tax on domestic distilled spirits and wines, including the requirement 
of such notices, bonds, bills of lading, and other evidence of payment 
of tax and exportation as shall be deemed necessary. 
§5061 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
615 
SEC. 5063. FLOOR STOCKS TAX REFUNDS ON DISTILLED SPIRITS, 
WINES, CORDIALS AND BEER. 
(a) GENERAL,—With respect to any article upon which tax is im-
posed under this part, upon which internal revenue tax (including floor 
stocks tax) at the applicable rate prescribed has been paid, and which, 
on April 1, 1955, is held by any person and intended for sale or for use 
in the manufacture or production of any article intended for sale, there 
shall be credited or refunded to such person (without interest) subject 
to such regulations as may be prescribed by the Secretary or his dele-
gate an amount equal to the difference between the tax so paid and the 
rate made applicable to such articles on and after April 1, 1955, if 
claim for such credit or refund is filed with the Secretary or his delegate 
prior to May 1, 1955 or within 30 days from the promulgation of 
such regulations. 
(b) LIMITATIONS ON ELIGIBILITY FOR CREDIT OR REFUND.—No 
person shall be entitled to credit or refund under subsection (a), unless 
such person, for such period or periods both before and after April 1, 
1955 (but not extending beyond 1 year thereafter), as the Secretary 
or his delegate shall by regulations prescribe, makes and keeps, and 
files with the Secretary or his delegate, such records of inventories, 
sales, and purchases as may be prescribed in such regulations. 
(c) OTHER LAWS APPLICABLE.—All provisions of law, including 
penalties, applicable in respect of internal revenue taxes on distilled 
spirits, wines, liqueurs and cordials, imported perfumes containing 
distilled spirits, and beer shall, insofar as applicable and not incon-
sistent with this section, be applicable in respect of the credits and 
refunds provided for in this section to the same extent as if such credits 
or refunds constituted credits or refunds of such taxes. 
SEC. 5064. TERRITORIAL EXTENT OF LAW. 
The provisions of this part imposing taxes on distilled spirits, wines, 
and beer shall be held to extend to such articles produced anywhere 
within the exterior boundaries of the United States, whether the same 
be within an internal revenue district or not. 
SEC. 5065. CROSS REFERENCES. 
For general administrative provisions applicable to the assessment, 
collection, refund, etc., of taxes, see subtitle F. 
PART 11—OCCUPATIONAL TAX 
Subpart A. Rectifier. 
b; 
Subpart B. Brewer. 
Subpart C, Manufacturers of stills. 
Subpart D. Wholesale dealers. 
Subpart E. Retail dealers. 
Subpart F. Nonbeverage domestic Drawback claimants. 
Subpart G. General provisions. 
Subpart A—Rectifier 
Sec. 5081. Imposition and rate of tax. 
^ 
Sec. 5082. Definition of rectifier. 
Sec. 5083. Exemptions. 
Sec. 5084. Cross references. 
SEC. 5081. IMPOSITION AND RATE OF TAX. 
Every rectifier of distUled spirits or wines (as defined in section 
5082) shall pay a special tax of $220 a year: Provided, That any 
§ 5081 
616 
INTERNAL REVENUE CODE OF 19 54 
• 
rectifier of less than 500 barrels a year, counting 40 gallons of proof 
spirits to the barrel, shall pay $110 a year. 
SEC. 5082. DEFINITION OF RECTIFIER. 
Every person who rectifies, purifies, or refines distilled spirits or wines 
by any process (other than by original and continuous distillation from 
mash, wort, or wash, through continuous closed vessels and pipes, 
until the manufacture thereof is complete), and every wholesale or 
retail liquor dealer who has in his possession any still or leach tub, 
or who keeps any other apparatus for the purpose of refining in any 
manner distilled spirits, and every person who, without rectifying, 
purifying, or refining distilled spirits, shall, by mixing such spirits, 
wine, or other liquor with any material, manufacture any spurious, 
imitation, or compound liquors for sale, under the name of whisky, 
brandy, gin, rum, wine, spirits, cordials, or wine bitters, or any other 
name, shall be regarded as a rectifier, and as being engaged in the 
business of rectifying. 
SEC. 5083. EXEMPTIONS. 
For exemptions from tax under section 5021 or 5081 in case of— 
(1) Industrial alcohol plants and bonded warehouses, see section 5306 
(2) Absolute alcohol, see section 5025 (a) 
(3) Production of gin and vodka, see section 5025 (b) 
(4) Refining spirits in course of original distillation, see section 
5025 (c) 
(5) Redistillation of spirits at distillery, see section 5025 (d) 
(6) Redistillation and mingling of spirits during National Emer-
gency, see section 5217 (a) 
(7) Apothecaries, see section 5025 (g) 
(8) Manufacturers of chemicals and flavoring extracts, see section 
5025 (h) 
(9) Distilled spirits and wines, rectified in customs bonded manu-
facturing warehouses, see section 5523 
(10) Blending beverage brandies in internal revenue bonded ware-
houses, see section 5023 
(11) Blending of straight whiskies, fruit brandies, or wines, see 
section 5025 (e) 
(12) Addition of caramel to brandy, see section 5025 (f) 
(13) Winemakers' use or treatment of wines or wine spirits, see 
section 5391. 
SEC. 5084. CROSS REFERENCES. 
(1) For provisions relating to the gallonage tax on rectification, see 
subpart B of part I of this subchapter. 
(2) For provisions relating to the establishment and operation of 
rectifying plants, see subchapter D. 
(3) For penalties, seizures, and forfeitures relating to rectifying and 
rectified products, see subchapter J. 
Subparts—Brewer 
Sec. 5091. Imposition and rate of tax. 
Sec. 5092. Definition of brewer. 
Sec. 5093. Cross references. 
SEC. 5091. IMPOSITION AND RATE OF TAX. 
Every brewer shall pay $110 a year in respect of each brewery: Pro-
vided, That any brewer of less than 500 barrels a year shall pay the sum 
of $55 a year: Provided further, That any beer procured by a brewer in 
his own hogsheads, barrels, or kegs under the provisions of section 
5413 shall be included in calculating the liability to brewers' special 
5081 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
617 
tax of both the brewer who produces the same and the brewer who 
procures the same. 
SEC. 5092. DEFINITION OF BREWER. 
Every person who brews or produces beer for sale shall be deemed 
a brewer. 
SEC. 5093. CROSS REFERENCES. 
(1) For exemption of brewers selling at wholesale in hogsheads, 
barrels, and kegs from special tax as wholesale dealer, see section 
5113 (b). 
-^^^ . 
(2) For exemption of brewers selling in eighth-barrel kegs from special 
tax as retail dealer, see section 5123 (a). 
(3) For exemption of brewer from special tax as wholesale or retail 
dealer in beer by reason of sales at different locations on contiguous 
brewery premises, see section 5144 (c). 
(4) For exemption from special tax in case of sales made on purchaser 
dealers' premises, see section 5123 (b) (3). 
•Si 
'r 
Subpart C—Manufacturers of Stills 
Sec. 5101. Imposition and rate of tax. 
Sec. 5102. Definition of manufacturer of stills. 
Sec. 6103. Exemptions. 
Sec. 5104. Method of payment of tax on stills. 
Sec. 5105. Notice of manufacture of and permit to set up still. 
Sec. 5106. Drawback. 
SEC. 5101. IMPOSITION AND RATE OF TAX. 
Every manufacturer of stills shall pay a special tax of $55 a year, 
and $22 for each still or worm for distiUing made by him. 
SEC. 5102. DEFINITION OF MANUFACTURER OF STILLS. 
Any person who manufactures any still or worm to be used in 
distilling shall be deemed a manufacturer of stills. 
SEC. 5103. EXEMPTIONS. 
For exemption of industrial alcohol plants from the special tax imposed 
by section 5101, see section 5306. 
SEC. 5104. METHOD OF PAYMENT OF TAX ON STILLS. 
The tax imposed on stills or worms by section 5101 shall be paid 
by stamp, denoting the tax, under such regulations as the Secretary 
or his delegate m a y prescribe. 
SEC. 5105. NOTICE OF MANUFACTURE OF AND PERMIT TO SET UP 
STILL. 
(a) R E Q U I R E M E N T . — A n y 
person 
who 
manufactures 
any 
still, 
boiler, or other vessel to be used for the purpose of distilling shall, 
before the same is removed from the place of manufacture, notify 
the Secretary or his delegate, setting forth in writing, by whom it is 
to be used, its capacity, and the time when the same is to be removed 
from the place of manufacture; and no such still, boiler, or other 
vessel shall be set up without the permit in writing of the Secretary 
or his delegate for that purpose. 
The notice required by this section 
shall be submitted in such form and manner as the Secretary or his 
delegate m a y by regulations prescribe. 
(b) 
P E N A L T Y . — 
(1) For penalty for failure to give notice of manufacture, or for setting 
up still without permit, see section 5602. 
(2) Penalty for failure to register stills or distilling apparatus when set 
up, see section 5601. 
§ 5105(b)(2) 
49012°—54——42 
618 
INTERNAL REVENUE CODE OF 19 54 
SEC. 5106. DRAWBACK. 
Under regulations prescribed by the Secretary or his delegate, a 
drawback shall be allowed on all stills and worms manufactured for 
export (and actually exported) on which the tax has been paid. 
Subpart D—Wholesale Dealers 
Sec. 5111. Imposition and rate of tax. 
Sec. 5112. Definitions of wholesale dealers. 
Sec. 5113. Exemptions. 
Sec. 5114. Records. 
Sec. 5115. Marking and stamping packages filled on premises of 
wholesale dealers. 
Sec. 5116. Sign required on premises. 
SEC. 5111. IMPOSITION AND RATE OF TAX. 
(a) W H O L E S A L E D E A L E R S I N L I Q U O R S . — 
(1) GENERAL.—Every wholesale dealer in liquors shall pay a 
special tax of $200 a year. 
(2) RETAILERS SELLING AT WHOLESALE.—A qualified retail dealer 
in liquors may not sell distilled spirits, wines, or beer in quantities 
of 5 wine gallons or more to the same person at the same time 
without incurring liability to special tax as a wholesale dealer in 
liquors. No retail dealer in liquors shall be held to be a wholesale 
dealer in liquors solely by reason of sales of 5 wine gallons or more 
to the same person at the same time if such sales are for immediate 
consumption on the premises where sold. 
(b) WHOLESALE DEALERS IN B E E R . — 
(1) GENERAL.—Wholesale dealers in beer shall pay a special tax 
of $100 a year. 
(2) RETAILERS SELLING AT WHOLESALE.—A qualified retail dealer 
in beer may not sell such beer in quantities of 5 gallons or more 
to the same person at the same time without incurring liability to 
special tax as a wholesale dealer in beer. No retail dealer in beer 
shall be held to be a wholesale dealer in beer solely by reason of 
sales of 5 gallons or more to the same person at the same time if 
such sales are for immediate consumption on the premises where 
sold. 
SEC. 5112. DEFINITIONS OF WHOLESALE DEALERS. 
(a) WHOLESALE DEALER IN LIQUORS.—Except as otherwise pro-
vided, every person who sells, or offers for sale, foreign or domestic 
distilled spirits, wines, or beer in quantities of 5 wine gallons or more 
to the same person at the same time shall be regarded as a wholesale 
dealer in liquors. The Secretary or his delegate may, by regulations, 
provide for the issuance of a stamp denoting payment of such special 
tax as a "wholesale dealer in wines" or a "wholesale dealer in wines 
and beer" if, as the case may be, wines only, or wines and beer only, 
are sold by a wholesale dealer in liquors. 
(b) WHOLESALE DEALER IN BEER.—Except as otherwise provided, 
every person who sells, or offers for sale, beer in quantities of 5 gallons 
or more, to the same person at the same time, and who does not deal 
in distilled spirits or wines at wholesale, shall be regarded as a whole-
sale dealer in beer. 
§5106 
^ ^ _ _ , , 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
619 
SEC. 5113. EXEMPTIONS. 
(a) DISTILLERS SELLING SPIRITS OF OWN PRODUCTION.—No dis-
tiller who has given the required bond and who sells only distilled 
spirits of his own production after determination of the tax, at the 
place of manufacture, or at the place of storage in bond, in the 
original packages shall be required to pay the special tax of a whole-
sale dealer in liquors on account of such sales. 
(b) BREWERS SELLING IN BARRELS, ETC.—No brewer shall be 
required to pay special tax as a dealer by reason of selling in hogs-
heads, barrels, or kegs, whether at the place of manufacture or else-
where, beer manufactured by him, or purchased and procured by 
him in his own hogsheads, barrels, or kegs, under section 5413, but 
the quantity of beer so purchased shall be included in calculating the 
liability to brewers' special tax of both the brewer who manufactures 
and sells the same and the brewer who purchases the same. 
(c) WINEMAKERS SELLING WINES OF OWN PRODUCTION.—Nothing 
in this chapter shall be construed to impose a special tax on wine-
makers who have qualified as such under the internal revenue laws 
and regulations, and who sell wines of their own production where 
the same are made or at the general business office of such winemaker: 
Provided, That no winemaker shall have more than one place of busi-
ness for the sale of such wine that shall be exempt from the special tax. 
(d) CASUAL SALES.— 
(1) SALES BY CREDITORS, FIDUCIARIES AND OFFICERS OF COURT.— 
No special tax shall be imposed on a sale of distilled spirits, wines, 
or beer made by a person who is not otherwise a dealer in liquors, 
where such spirits, wines, or beer have been received by the person 
so selling as security for or in payment of a debt, or as executor, 
administrator, or other fiduciary, or have been levied on by any 
officer, under order or process of any court or magistrate, and where 
such liquors are sold by such person in one parcel only, or at public 
auction in parcels not less than 20 wine gallons. 
(2) SALES 
BY RETIRING 
PARTNERS OR REPRESENTATIVES OF 
DECEASED PARTNERS TO INCOMING OR REMAINING PARTNERS.—No 
special tax shall be held to accrue on a sale of distilled spirits, wines, 
or beer made by a retiring partner, or the representatives of a 
deceased partner, to the incoming, remaining, or surviving partner 
or partners of a firm. 
(e) CROSS REFERENCES.— 
(1) For exemption of retail dealers selling in wholesale quantities for 
consumption on premises, see section 5111. 
(2) For exemption of retail dealers selling in liquidation, see section 
5123 (d). 
SEC. 5114. RECORDS. 
(a) REQUIREMENTS.—Every wholesale liquor dealer who sells, or 
offers for sale, distilled spirits in quantities of 5 wine-gallons or 
more to the same person at the same time shall keep daily a record 
of distilled spirits received and disposed of by him, in such form, at 
such place and containing such information as the Secretary or his 
delegate shall by regulations prescribe. 
Such wholesale liquor dealers 
shall also render such correct transcripts, summaries and copies of 
their records at such times and in such form and manner as the 
Secretary or his delegate may by regulations require. 
The records 
§ 5114(a) 
620 
INTERNAL REVENUE CODE 
OF 
1954 
required to be kept under the provisions of this section, and regulations 
issued pursuant thereto, shall be preserved for a period of 2 years, 
and during such period shall be available during business hours for 
inspection and the taking of abstracts therefrom by internal revenue 
officers. 
(b) EXEMPTION OF STATES.—The provisions of subsection (a) shall 
not apply to States and liquor stores operated by such States that 
maintain and make available to inspection by internal revenue officers 
such records as will enable such officers to readily trace all distilled 
spirits received and disposed of by them: Provided, That such States, 
and the liquor stores operated by them, shall, upon the request of the 
Secretary or his delegate, furnish him such transcripts, summaries 
and copies of their records as he shall require. 
(c) CROSS REFERENCES.— 
(1) For provisions relating to the keeping of records by distillers as 
wholesalers, see section 5197 (a) (2). 
(2) For provisions relating to the keeping of records by rectifiers as 
wholesalers, see section 5285 (b). 
(3) For penalty for violation of subsection (a), see sections 5620 and 
5621. 
SEC. 6115. MARKING AND STAMPING PACKAGES FILLED ON PREM-
ISES OF WHOLESALE DEALERS. 
(a) REQUIREMENTS.—Every package of distilled spirits containing 
5 wine gallons or more, filled on the premises of a wholesale liquor 
dealer who has paid the special tax required by law, shall be marked, 
branded, and stamped by such wholesale liquor dealer in such manner 
and under such rules and regulations as the Secretary or his delegate 
may prescribe. 
(b) PENALTY.— 
For penalty for failure to comply with subsection (a), see section 5631 
SEC. 5116. SIGN REQUIRED ON PREMISES. 
(a) REQUIREMENTS.—Every wholesale liquor dealer, shall, in the 
manner and form prescribed by regulations issued by the Secretary or 
his delegate, place and keep conspicuously on the outside of the place 
of such business a sign, exhibiting, in plain and legible letters, the name 
or firm of the wholesale dealer, with the words: "wholesale liquor 
dealer". 
(b) PENALTY.— 
For penalty for failure to post sign, or for posting sign without paying 
the special tax, see section 5681. 
Subpart E—Retail Dealers 
Sec. 5121. Imposition and rate of tax. 
Sec. 5122. Definitions. 
Sec. 5123. Exemptions. 
Sec. 5124. Records. 
SEC. 5121. IMPOSITION AND RATE OF TAX. 
(a) RETAIL DEALERS IN LIQUORS.— 
(1) GENERAL.—Except as provided in subsection (c), every 
retail dealer in liquors shall pay a special tax of $50 a year, 
(2) WHOLESALERS SELLING AT RETAIL.—A qualified wholesale 
dealer in liquors may not sell distilled spirits, wines, or beer in 
§ 5114(a) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
621 
quantities of less than 5 wine gallons without incurring liability 
to special tax as a retail dealer in liquors. 
(b) RETAIL DEALERS IN B E E R . — 
(1) GENERAL.—Retail dealers in beer shall pay a special tax of 
$22 a year. 
(2) WHOLESALERS SELLING AT RETAIL.—A qualified wholesale 
dealer in beer may not sell such beer in quantities of less than 5 
gallons without incurring liability to special tax as a retail dealer in 
beer. 
(c) LIMITED DEALERS IN WINES AND BEER.—Notwithstanding the 
provisions of this part, each person making sales of beer or wine to the 
members, guests, or patrons of bona fide fairs, reunions, picnics, 
carnivals, or other similar outings, and each fraternal, civic, church, 
labor, charitable, benevolent, or ex-servicemen's organization, making 
sales of beer or wine on the occasion of any kind of entertainment, 
dance, picnic, bazaar, or festival held by it, if such person or organiza-
tion is not otherwise engaged in business as a wholesale or retail 
liquor dealer or as a wholesale or retail beer dealer, shall pay, before 
any such sales are made and in lieu of the special taxes imposed by 
subsections (a) and (b), a special tax of $2.20 as a retaU dealer in 
beer, if beer only is sold, or a special tax of $2.20 as a retail dealer in 
liquors if wine only, or wine and beer only are sold, for each calendar 
month in which any such sales are made. 
SEC. 5122 DEFINITIONS. 
(a) RETAIL DEALERS IN LIQUORS.—Except as otherwise provided, 
every person who sells, or offers for sale, foreign or domestic distUled 
spirits, wines, or beer in quantities of less than 5 wine gallons to the 
same person at the same time shall be regarded as a retail dealer in 
liquors: Provided, That the Secretary or his delegate may, by regula-
tions, provide for the issuance of a stamp denoting payment of such 
special tax as a "retail dealer in wines" or a "retail dealer in wines 
and beer" if, as the case may be, wines only, or wines and beer only, 
are sold by a retail dealer in liquors. 
(b) RETAIL DEALERS IN BEER.—Except as otherwise provided, 
everv person who sells, or offers for sale, beer in less quantities than 
5 gallons to the same person at the same time, and does not deal in 
distUled spirits or wines, shall be regarded as a retail dealer in beer. 
(c) RETAIL DRUG STORES OR PHARMACIES.—The tax required to 
be paid by section 5121 (a) (1) shall, in the case of a retail drug store 
or pharmacy making sales of liquors through a duly licensed phar-
macist, be designated as a "medicinal spirits stamp tax." 
SEC. 5123. EXEMPTIONS. 
(a) BREWERS SELLING IN EIGHTH-BARREL PACKAGES.—No collec-
tion of special tax as a retail dealer in beer shall be made from brewers 
for selling beer of their own manufacture in eighth-barrel packages. 
(b) BUSINESS CONDUCTED IN MORE THAN O N E LOCATION.— 
(1) RETAIL DEALERS AT LARGE.—Any retail dealer in liquors or 
retail dealer in beer whose business is such as to require him to 
travel from place to place in different States of the United States, 
may under regulations prescribed by the Secretary or his delegate, 
procure a special tax stamp "At Large" covering his activities 
throughout the United States with the payment of but one special 
§ 5123(b)(1) 
622 
INTERNAL REVENUE CODE OF 1954 
tax as a retail dealer in liquors or as a retail dealer in beer, as the 
case may be. 
(2) KETAIL DEALERS ON TRAINS, AIRCRAFT, AND BOATS.—Nothing 
contained in this chapter shall prevent the issue, under such regula-
tions as the Secretary or his delegate may prescribe, of special tax 
stamps to persons carrying on the business of retail dealers in 
liquors, or retail dealers in beer on trains, aircraft, boats or other 
vessels, engaged in the business of carrying passengers. 
(3) DEALERS MAKING SALES ON PURCHASER DEALERS' PREMISES.— 
No wholesale or retail dealer in liquors or wholesale or retail dealer 
in beer who has paid the special tax as such a dealer shall again be 
required to pay special tax as such dealer on account of sales of 
beer to wholesale or retail dealers in liquors or wholesale or retail 
dealers in beer consummated at the purchaser's place of business. 
(c) SALES BY RETAIL DEALERS IN LIQUIDATION.—The special tax 
of a wholesale dealer in liquors or wholesale dealer in beer shall not 
apply to a retail dealer in liquors or to a retail dealer in beer, because 
of such retail dealer selling out his entire stock of liquors in one parcel, 
or in parcels embracing not less than his entire stock of distilled spirits, 
of wines, or of beer. 
(d) CROSS REFERENCES.— 
(1) For exemption of winemakers selling wines of their own produc-
tion from special tax, see section 5113 (c). 
(2) For provisions relating to sales by creditors, fiduciaries, and 
officers of courts, see section 5113 (d) (1). 
(3) For provisions relating to sales by retiring partners or repre-
sentatives of deceased partners to incoming or remaining partners, see 
section 5113 (d) (2). 
(4) For exemption from special tax as wholesale dealer of retail dealers 
making sales of 5 wine gallons or more for immediate consumption on 
premises where sold, see section 5111. 
SEC. 5124. RECORDS. 
(a) REQUIREMENT.—Each retail liquor dealer shall provide at his 
own expense, and keep in his place of business, a record in book form, 
or shall keep all invoices of, and bills for, all distilled spirits, wines, 
and beer received, the quantity thereof, and from whom and the date 
when received. 
(b) INSPECTION.—Such records, invoices, and bills shall be open to 
inspection during the usual business hours of the retailer, by internal 
revenue oflScers, on identification and request. 
(c) PRESERVATION.—Such records, invoices, and bills shall be kept 
for a period of 2 years after the time of the transactions to which 
they relate. 
(d) 
PENALTY.— 
For penalty relating to retail dealers' records, see section 5692. 
Subpart F—Nonbeverage Domestic Drawback Claimants 
Sec. 5131. Eligibility and rate of tax. 
Sec. 5132. Registration and regulation. 
Sec. 5133. Investigation of claims. 
Sec. 5134. Drawback. 
SEC. 5131. ELIGIBILITY AND RATE OF TAX. 
(a) ELIGIBILITY 
FOR D R A W B A C K . — A n y 
person 
using 
distilled 
spirits, produced 
in a domestic 
registered 
distillery or 
industrial 
§ 5123(b)(1) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
623 
alcohol plant and on which the tax has been determined, in the manu-
facture or production of medicines, medicinal preparations, food 
products, flavors, or flavoring extracts, which are unfit for beverage 
purposes, on payment of a special tax per annum, shall be eligible for 
drawback at the time when such distilled spirits are used in the 
manufacture of such products as provided for in this subpart. 
(b) RATE OP TAX.—The special tax imposed by subsection (a) 
shall be graduated in amount as follows: (1) for total annual with-
drawals not exceeding 25 proof gallons, $25 a year; (2) for total annual 
withdrawals not exceeding 50 proof gallons, $50 a year; (3) for total 
annual withdrawals of more than 50 proof gallons, $100 a year. 
SEC. 5132. REGISTRATION AND REGULATION. 
Every person claiming drawback under this subpart shall register 
annually with the Secretary or his delegate; keep such books and 
records as may be necessary to establish the fact that distilled spirits 
purchased by him and on which the tax has been determined were 
used in the manufacture or production of medicines, medicinal prepa-
rations, food products, flavors, or flavoring extracts which were unfit 
for use for beverage purposes; and be subject to such rules and regu-
lations in relation thereto as the Secretary or his delegate shall 
prescribe to secure the Treasury against frauds. 
SEC. 5133. INVESTIGATION OF CLAIMS. 
The Secretary or his delegate, for the purpose of ascertaining the 
correctness of any claim filed under this subpart, is authorized, by any 
officer or employee of the Treasury Department, including the field 
service, designated by him for that purpose, to examine any books, 
papers, records, or memoranda bearing upon the matters required to 
be alleged in the claim, and may require the attendance of the person 
filing the claim or of any officer or employee of such person, or the 
attendance of any other person having knowledge in the premises, and 
may take his testimony with reference to any matter covered by the 
claim, with power to administer oaths to such person or persons. 
SEC. 5134. DRAWBACK. 
(a) In the case of distilled spirits on which the tax has been de-
termined and used as provided in this subpart, a drawback shall be 
allowed— 
(1) At the rate of $6 on each proof gallon upon which tax is 
paid at a rate of $9 per proof gallon prior to November 1, 1951; 
(2) at the rate of $9.50 on each proof gallon upon which tax is 
determined at the rate of $10.50 per proof gallon on and after 
November 1, 1951; 
(3) at the rate of $8 on each proof gallon upon which tax is 
determined at a rate of $9 per proof gallon after March 31, 1955. 
(b) Such drawback shall be due and payable quarterly upon filing of 
a proper claim with the Secretary or his delegate; except that, where 
any person entitled to such drawback shall elect in writing to file 
monthly claims therefor, such drawback shall be due and payable 
monthly upon filing of a proper claim with the Secretary or his dele-
gate: Provided, however, That the Secretary or his delegate may re-
quire persons electing to file monthly drawback claims to file with 
him a bond or other security in such amount and with such con-
ditions as he shall by regulations prescribe. Any such election may be 
§ 5134(b) 
624 
INTERNAL REVENUE CODE 
OF 1954 
revoked on filing of notice thereof with the Secretary or his delegate. 
No claim under this subpart shall be allowed unless filed with the 
Secretary or his delegate within the 3 months next succeeding the 
quarter in which the distilled spirits covered by the claim were used as 
provided in this subpart. 
Subpart G—General Provisions 
Sec. 5141. Registration. 
Sec. 5142. Payment of tax. 
Sec. 5143. Returns. 
Sec. 5144. Provisions relating to liability for occupational taxes. 
Sec. 5145. Supply of stamps. 
Sec. 5146. Posting stamp in place of business. 
Sec. 5147. List of special taxpayers for public inspection. 
Sec. 5148. Application of State laws. 
Sec. 5149. Application of subpart. 
SEC. 5141. REGISTRATION. 
For provisions relating to registration in the case of persons engaged 
in any trade or business on which a special tax is imposed, see section 
7011 (a). 
SEC. 5142. PAYMENT OF TAX. 
(a) CONDITION PRECEDENT TO DOING BUSINESS.—NO person shall 
be engaged in or carry on any trade or business subject to tax under 
this part until he has paid a special tax therefor in the manner 
provided in this part. 
(b) DATE DUE.—All special taxes imposed by this part shall be-
come due on the first day of July in each year, or on commencing any 
trade or business on which such tax is imposed. 
In the former case 
the tax shall be reckoned for 1 year, and in the latter case it shall be 
reckoned proportionately, from the first day of the month in which 
the liability to a special tax commenced, to and including the 30th 
day of June following. 
(c) METHOD OF PAYMENT.—BY STAMP.—^All special taxes imposed 
by this part shall be paid by stamps denoting the tax. 
(d) PENALTY.— 
For penalties and forfeitures for nonpayment of special taxes, see 
section 5691. 
SEC. 5143. RETURNS. 
(a) TIME FOR FILING.—Except as provided in section 6081, every 
special taxpayer referred to in this part shall render his return (duly 
signed and verified and accompanied by payment of the tax) to the 
Secretary or his delegate at such time during the calendar month in 
which the special tax liability commences as will enable the Secretary 
or his delegate to receive such return not later than the last day of 
such month. 
(b) PENALTIES.— 
For penalties imposed for failure to file returns or for making false or 
fraudulent returns, see sections 6651 and 6653. 
SEC. 5144. PROVISIONS RELATING TO LIABILITY FOR OCCUPATIONAL 
TAXES. 
(a) PARTNERS.—Any number of persons doing business in copartner-
ship at any one place shall be required to pay but one special tax. 
§ 5134(b) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
625 
(b) DIFFERENT BUSINESSES OF SAME OWNERSHIP AND LOCATION.— 
Whenever more than one of the pursuits or occupations described 
in this part are carried on in the same place by the same person at 
the same time, except as otherwise provided in this part, the tax shall 
be paid for each according to the rates severally prescribed. 
(c) BUSINESSES IN MORE THAN ONE LOCATION.—The payment of 
the special tax imposed by this part shall not exempt from an addi-
tional special tax the person carrying on a trade or business in any 
other place than that stated in the register of the principal collection 
officer in such district; but nothing contained in this subsection shall 
require a special tax for the storage of goods, wares, or merchandise in 
other places than the place of business, nor, except as provided in this 
chapter for the sale by manufacturers or producers of their own goods, 
wares, and merchandise, at the place of production or manufacture, 
and at their principal office or place of business, provided no goods, 
wares, or merchandise shall be kept except as samples at said office 
or place of business: Provided, That, by place of business is meant 
the entire office, plant or area of the business in any one location 
under the same proprietorship, and passageways, streets, highways, 
rail crossings, waterways, or partitions dividing the premises shall not 
be deemed sufficient separation to require additional special tax, if 
the various divisions of the premises are otherwise contiguous. 
(d) DEATH OR CHANGE OF LOCATION.—When any person who has 
paid the special tax for any trade or business dies, his wife or child, 
or executors or administrators or other legal representatives, may 
occupy the house or premises, and in like manner carry on, for the 
residue of the term for which the tax is paid, the same trade or business 
as the deceased before carried on, in the same house and upon the same 
premises, without the payment of any additional tax. 
And when any 
person removes from the house or premises for which any trade or 
business was taxed to any other place, he may carry on the trade or 
business specified in the register of the principal collection officer, at 
the place to which he removes, without the payment of any additional 
tax: Provided, That all cases of death, change, or removal, as aforesaid, 
with the name of the successor to any person deceased, or of the person 
making such change or removal, shall be registered in accordance 
with the provisions of section 7011 (b). 
(e) FEDERAL AGENCIES OR INSTRUMENTALITIES.—Any tax imposed 
by this part shall apply to any agency or instrumentality of the United 
States unless such agency or instrumentality is granted by statute a 
specific exemption from such tax. 
SEC. 5145. SUPPLY OF STAMPS. 
The Secretary or his delegate is required to procure appropriate 
stamps for the payment of all special taxes imposed by this part, 
including the tax on stills or worms; and all provisions of law relating 
to the preparation and issue of stamps shall, so far as applicable, 
extend to and include such stamps for special taxes; and the Secretary 
or his delegate shall have authority to make all needful regulations 
relative thereto. 
SEC. 5146. POSTING STAMP IN PLACE OF BUSINESS. 
(1) For provisions relating to posting of special tax stamp, see sec-
tion 6806 (a); and 
(2) For penalty relating to failure to post special tax stamps, see sec-
tion 7273 (a). 
§ 5146(2) 
626 
INTERNAL REVENUE CODE OF 1954 
SEC. 5147. LIST OF SPECIAL TAXPAYERS FOR PUBLIC INSPECTION. 
For provisions relating to the keeping of a list of special taxpayers 
for public inspection, see section 6107. 
SEC. 5148. APPLICATION OF STATE LAWS. 
The payment of any tax imposed by this part for carrying on any 
trade or business shall not exempt any person from any penalty or 
punishment provided by the laws of any State for carrying on such 
trade or business within such State, or in any manner to authorize the 
commencement or continuance of such trade or business contrary to 
the laws of such State or in places prohibited by municipal law; nor 
shall the payment of any such tax be held to prohibit any State from 
placing a duty or tax on the same trade or business, for State or 
other purposes, 
SEC. 5149. APPLICATION OF SUBPART. 
The provisions of this subpart, so far as applicable, shall extend to 
and apply to the special taxes imposed by the other subparts of this 
part and by chapter 53, and to the persons on whom such taxes are 
imposed. 
§5147 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
627 
Subchapter B—Distilleries 
Part 
I. Establishment. 
Part II. Operation. 
Part III. General provisions relating to distilleries and distilled 
spirits. 
Part I—ESTABLISHMENT 
Sec. 5171. Premises prohibited for distilling. 
Sec. 5172. Conditions precedent to carrying on business of distilling. 
Sec. 5173. Distillery fixtures and equipment. 
Sec. 5174. Registry of stills. 
Sec. 5175, Notice of business of distiller. 
Sec. 5176. Distiller's bond. 
Sec. 5177. Conditions of approval of distiller's bond. 
Sec. 5178. Plan of distillery. 
Sec. 5179. Survey of distillery. 
Sec. 5180. Sign required on premises. 
SEC. 5171. PREMISES PROHIBITED FOR DISTILLING. 
(a) GENERAL.—No person shall use any still, boiler, or other vessel 
for the purpose of distilling, in any dwelling house, or in any shed, yard, 
or inclosure connected with any dwelling house, or on board of any 
vessel or boat, or on any premises where beer, wines, or vinegar are 
manufactured or produced, or where sugars or sirups are refined, or 
where liquors of any description are retailed, or where any other busi-
ness is carried on, except that the Secretary or his delegate may by 
regulations authorize such other business to be carried on by a dis-
tiller on the distillery premises as the Secretary or his delegate finds 
will not jeopardize the revenue: Provided, That saleratus may be manu-
factured, or meal or flour ground from grain, in any building or on any 
premises where spirits are distilled; but such meal or flour shall be used 
only for distillation on the premises: Provided further, That any boiler 
used in generating steam or heating water to be used in any distillery 
may be located in any other building or on any other premises to be 
connected with such still or boiling tubs, by suitable pipes or other 
apparatus, or the steam from such boiler in the distillery may be 
conveyed to other premises to be used for manufacturing or other pur-
poses. 
This section shall not prohibit the use of any still, boiler, or 
other vessel by a rectifier (as defined by section 5082) in a rectifying 
plant qualified under this chapter. 
(b) 
PENALTY.— 
For penalty for violation of subsection (a), see section 5607. 
SEC. 5172. CONDITIONS PRECEDENT TO CARRYING ON BUSINESS 
OF DISTILLING. 
It shall not be lawful for any distiller to commence the business of 
distilling until he has given the bond required by law and complied 
with the provisions of law, relating to the registration of distilleries, 
and the arrangement and construction of distilleries and the premises 
connected therewith. 
§5172 
628 
INTERNAL REVENUE CODE OF 1954 
SEC. 5173. DISTILLERY FIXTURES AND EQUIPMENT. 
(a) REQUIREMENTS AS TO FERMENTING AND DISTILLING EQUIP-
MENT, FIXED PIPES AND VESSELS.—The door of the furnace, or the 
steam or fuel line, of every still or boiler used in any distillery shall 
be so constructed that it may be securely fastened and locked. 
The 
fermenting and distilling equipment, and all fixed pipes and vessels, 
shall be constructed, arranged and identified in such manner as the 
Secretary or his delegate may by regulations prescribe. 
(b) RECEIVING CISTERNS.—The proprietor of any distillery shall 
erect, in a room or building to be provided and used for that purpose, 
and for no other, and to be constructed in the manner to be prescribed 
by regulations issued by the Secretary or his delegate, two or more 
receiving cisterns into which all spirits produced in the distillery shall 
be deposited when the manufacture thereof is complete. 
Such cis-
terns and the room in which they are contained shall be equipped for 
locking with Government locks. 
The cisterns shall, as prescribed by 
regulations issued by the Secretary or his delegate, be connected with 
the outlet of the worm or condenser by suitable pipes or other appara-
tus, so constructed as always to be exposed to the view of the Govern-
ment officer, and so connected and constructed as to prevent the 
abstraction of the spirits while passing from the worm or condenser 
back to the still or doubler, or forward to the receiving cistern. 
(c) CHANGES IN APPARATUS AND FASTENINGS.—The Secretary or 
his delegate is authorized to order and require such changes of or addi-
tions to distilling apparatus, connecting pipes, pumps, or cisterns, or 
any machinery connected with or used in or on the distillery premises, 
or may require to be put on any of the stills, tubs, cisterns, pipes, or 
other vessels, such fastenings, locks or seals as he may deem necessary. 
(d) CROSS REFERENCES.— 
(1) For provisions authorizing the Secretary or his delegate to require 
installation of meters, tanks, and other apparatus, see section 5552. 
(2) For penalties for failure of distiller to paint or identify fixed pipes, 
see section 5618. 
SEC. 5174. REGISTRY OF STILLS. 
(a) REQUIREMENT.—Every person having in his possession or cus-
tody, or under his control, any still or distilling apparatus set up, shall 
register such still or apparatus with the Secretary or his delegate 
immediately on its being set up, by subscribing and filing with the 
Secretary or his delegate a statement, in writing, setting forth the 
particular place where such still or distilling apparatus is set up, the 
kind of still and its cubic contents, the owner thereof, his place of 
residence, and the purpose for which said still or distilling apparatus 
has been or is intended to be used: Provided, That stills or distilling 
apparatus not used or intended to be used for the distillation, redistilla-
tion, or recovery of distilled spirits are not required to be registered 
under this section. 
(b) PENALTY.— 
For penalty and forfeiture provisions pertaining to unregistered stills, 
see section 5601. 
SEC. 5175. NOTICE OF BUSINESS OF DISTILLER. 
(a) REQUIREMENTS.—Every person engaged in, or intending to be 
engaged in, the business of a distiller, shall give notice in writing, 
subscribed by him, to the Secretary or his delegate, stating his name 
§ 5173 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
6 2 9 
and residence, and if a company or firm, the name and residence of 
each member thereof, the name and residence of every person inter-
ested or to be interested in the business, and the precise place where 
said business is to be carried on; and if such business is carried on 
in a city, the residence and place of business shall be indicated by 
the name of the street and number of the building. 
The notice shall 
also state a particular description of the lot or tract of land on which 
the distillery is situated, and of the buildings thereon, including their 
size, material, and construction, that said distillery premises are not 
on any qualified rectifying plant premises, and such additional par-
ticulars, as the Secretary or his delegate shall, by regulations, pre-
scribe. In case of any change in the location, form, capacity, owner-
ship, agency, superintendency, or in the persons interested in the 
business of such distillery, notice thereof in writing, shall be given to 
the Secretary or his delegate. 
Every notice required by this section 
shall be in such form, contain such additional particulars, and be 
submitted at such time or times, as the Secretary or his delegate 
shall, by regulations, prescribe, 
(b) PENALTY.— 
For penalty for failure or refusal of distiller to give notice as required 
by subsection (a) or for giving false notice, see section 5603. 
SEC. 5176. DISTILLER'S BOND. 
(a) FORM AND APPROVAL.—Every person intending to commence or 
to continue the business of a distiller shall, on filing with the Secre-
tary or his delegate his notice of such intention, and before proceed-
ing with such business, and on the first day of May of each succeeding 
year, execute a bond in the form prescribed by the Secretary or his 
delegate, conditioned that he shall faithfully comply with all the pro-
visions of law relating to the duties and business of distillers, and 
shall pay all penalties incm-red or fines imposed on him for a viola-
tion of any of the said provisions; and that he shall not suffer the lot 
or tract of land on which the distillery stands, or any part thereof, 
or any of the distilling apparatus, to be incumbered by mortgage, 
judgment, or other lien, during the time in which he shall carry on 
said business. 
Such bond shall be with such sureties, approved by 
the Secretary or his delegate, and for a penal sum not less than the 
amount of tax on the spirits that can be distilled in his distillery 
during a period of 15 days. 
Such bond shall not exceed the sum of 
$100,000. 
(b) ADDITIONAL BOND.—No distilled spirits, other than distilled 
spirits authorized by law to be withdrawn without payment of tax, 
shall be withdrawn from a distillery except on the payment of tax at 
the time of withdrawal, unless the distiller has furnished such bond 
(in addition to the bond required by subsection (a)) to secure pay-
ment of the tax, in such form and in such penal sum, and has com-
plied with such other requirements, as the Secretary or his delegate 
may, by regulations, prescribe. 
(c) N E W BONDS.—New bonds shall be required in case of the death, 
insolvency, or removal of any surety, and may be required in any 
other contingency at the discretion of the Secretary or his delegate. 
(d) W H E N EXEMPT FROM SURVEY 
REQUIREMENTS.—Whenever, 
under authority of law, the Secretary shall relieve a distiller from the 
survey requirements of section 5179, he may likewise by regulation 
§ 5176(d) 
630 
INTERNAL REVENUE CODE OF 1.954 
fix the penal sum of the distiller's bond, but in no case shall the amount 
of the minimum bond required under subsection (a) be less than 
$5,000 nor the amount of the maximum bond so required be greater 
than $100,000. 
(e) CROSS REFERENCES.— 
For deposit of United States bonds or notes in lieu of sureties, see 
6 U. S. C. 15, and for penalty and forfeiture for failure or refusal to 
give bond or for giving false, forged or fraudulent bond, see section 
5604, and for carrying on the business of a distiller without giving bond, 
see section 5606. 
SEC. 5177. CONDITIONS OF APPROVAL OF DISTILLER'S BOND. 
(a) GENERAL,—No officer shall approve the bond of any distiller 
until all the requirements of the law and all regulations made by the 
Secretary or his delegate in relation to distilleries, in pursuance thereof, 
have been complied with. 
(b) OWNERSHIP, CONSENT OF OWNER, OR INDEMNITY BOND,—No 
bond of a distiller shall be approved unless— 
(1) The distiller is the owner in fee, unencumbered by any mort-
gage, judgment, or other lien, of the lot or tract of land on which 
the distillery is situated; or 
(2) The distiller files with the ofiicer designated for the purpose 
by the Secretary or his delegate, in connection with his notice, the 
written consent of the owner of the fee, and of any mortgagee, judg-
ment creditor, or other person having a lien, thereon, duly acknowl-
edged, that the premises may be used for the purpose of distilling 
spirits, subject to the provisions of law, and expressly stipulating 
that the lien of the United States for taxes and penalties shall have 
priority of such mortgage, judgment, or other encumbrance, and 
that in the case of the forfeiture of the distillery premises, or any 
part thereof, the title to the same shaU vest in the United States, 
discharged from such mortgage, judgment, or other encumbrance; 
or 
(3) If consent as required under paragraph (2) cannot be ob-
tained, the distiller, with the approval of the Secretary or his 
delegate, files with the officer designated by the Secretary or his 
delegate a bond, approved by the Secretary or his delegate, in the 
penal sum equal to the appraised value of the lot or tract of land 
on which the distillery is situated, the distillery, the buildings, and 
the distilling apparatus. 
Such value shall be determined, and such 
bond shall be executed, in such form and with such sureties, and 
filed with the officer designated by the Secretary or his delegate, 
under such regulations as the Secretary or his delegate shall pre-
scribe. 
(4) In the case of any distillery sold at judicial or other sale in 
favor of the United States, a bond may be taken at the discretion 
of the Secretary or his delegate, in lieu of the written consent 
required by this subsection, and the person giving such bond may be 
allowed to operate such distillery during the existence of the right 
of redemption from such sale, on complying with all the other 
provisions of law. 
(c) SITUATION OP DISTILLERY.—The officer designated by the 
Secretary or his delegate may refuse to approve the bond of a dis-
tillery when, in his judgment, the situation of the distillery is such 
§ 5176(d) 
CH. 51 
DISTILLED SPIRITS, WINES, AND BEER 
631 
as would enable the distiller to defraud the United States; and in case 
of such refusal the distiller may appeal to the Secretary or his delegate, 
whose decision in the matter shall be jBnal. 
(d) 
PENALTY.— 
For penalty for improper approval of distiller's bond, see section 5605, 
and for general provisions relating to approval, disapproval and appeal 
on bonds, see section 5551. 
SEC. 5178. PLAN OF DISTILLERY. 
Every distiller and every person intending to engage in the business 
of a distUler shall, previous to the approval of his bond, submit an 
accurate plan and description of the distillery and its equipment, and 
disclosing such information, in such detail, and in the number of copies 
as the Secretary or his delegate shall by regulations prescribe. 
One 
copy of such plan and description shall be kept in the distillery available 
for examination by government officers. The accuracy of every such 
plan and description shall be verified by the Secretary or his delegate, 
the draftsman, and the distiller; and no alteration shall be made in 
such distillery without the consent, in advance, of the Secretary or 
his delegate. 
Any alteration so made shall be shown on the original, 
or by a supplemental plan and description, as the Secretary or his 
delegate may direct; and any such supplemental plan and description 
shall be executed and preserved in the same manner as the original. 
SEC. 5179. SURVEY OF DISTILLERY. 
(a) REQUIREMENTS.—On receipt of notice that any person, firm, or 
corporation wishes to commence the business of distUling, the Secretary 
or his delegate shall proceed in person, at the expense of the United 
States, for the purpose of making surveys of distilleries in that dis-
trict, to make a survey of such distillery for the purpose of estimating 
and determining its true spirit-producing capacity for a day of 24 
hours. In all surveys 45 gallons of mash or beer brewed or fermented 
from grain shall represent not less than one bushel of grain, and 7 
gallons of mash or beer brewed or fermented from molasses shall 
represent not less than one gallon of molasses; except that in distilleries 
operated on the sour-mash principle, 60 gallons of beer brewed or 
fermented from grain shall represent not less than one bushel of grain; 
and except that in distilleries where the filtration-aeration process is 
used with the approval of the Secretary or his delegate (that is, where 
the mash after it leaves the mash tub is passed through a filtering 
machine before it is run into the fermenting tub, and only the filtered 
liquor passes into the fermenting tub) there shall be no limitation on 
the number of gallons of water which may be used in the process 
of mashing or filtration for fermentation; but the Secretary or his 
delegate in order to protect the revenue, shall be authorized to pre-
scribe by regulation such character of survey as he may find suitable 
for distilleries using such filtration-aeration process. 
The provisions 
hereof relating to filtration-aeration process shall apply only to sweet-
mash distilleries. 
A written report of such survey shall be made of 
which one copy shall be delivered to the distiller and one copy shall be 
retained by the ofiicer designated by the Secretary or his delegate and 
the survey shall take effect upon the delivery of such copy to the 
distiller. 
Whenever the Secretary or his delegate is satisfied that any 
report of the capacity of a distillery is incorrect or needs a revision, 
he shall direct an officer to make in like manner another survey of 
§ 5179(a) 
632 
INTERNAL REVENUE CODE 
OF 
1954 
said distillery, and the report thereof shall be made and deposited as 
hereinbefore required: Provided, That the survey of any distillery esti-
mated and stated by the distiller, in his notice of intention to distill, 
as capable of distilling not more than 150 proof gallons of distilled 
spirits every 24 hours may be made by the Secretary or his delegate 
without the aid of an assistant; and that all surveys made for the 
purpose of correcting clerical errors or errors of computation existing 
in the report of a previous survey, and all surveys made for the purpose 
of changing the true spirit producing capacity of any distillery for a 
day of 24 hours as estimated and determined by a previous survey, 
but which surveys do not require the remeasuring of the fermenting 
tubs in a grain or molasses distillery, or the still or stills in a distillery 
of apples, peaches, or grapes exclusively, may be made without taking 
the measurements of the fermenting tubs or stills, as the case may be, 
and without revisiting the distillery: And provided further, That the 
Secretary or his delegate may, whenever he shall deem it proper, 
designate an officer to make, with or without the aid of a designated 
assistant, the surveys and resurveys hereinabove provided for. 
(b) WAIVER OF REQUIREMENTS.—The Secretary or his delegate in 
the case of any distillery may, under regulations, waive such of the 
requirements of this section as he determines may be waived without 
danger to the revenue. Whenever the Secretary or his delegate, by 
authority of this subsection, waives any or all of the requirements of 
this section, he may, by regulation, relieve the distiller from such 
requirements of sections 5007 (e) and 5191 (a) and of such other 
provisions of law relating or incidental to survey requirements as the 
Secretary or his delegate determines may be waived without danger 
to the revenue. 
SEC. 5180. SIGN REQUIRED ON PREMISES. 
(a) REQUIREMENT.—Every person engaged in distilling shall, in 
such manner and form as the Secretary or his delegate may by regula-
tions prescribed, place and keep conspicuously on the outside of the 
place of such business a sign, e^ibiting in plain and legible letters the 
name or firm of the distiller, with the words: "registered distillery." 
(b) PENALTY.— 
For penalty relating to failure to post sign or improperly posting such 
sign, see section 5681. 
PART II—OPERATION 
Sec. 5191. Commencement, suspension, and resumption of operations. 
Sec. 5192. Supervision of operations by storekeeper-gaugers. 
Sec. 5193. Drawing, gauging, and marking of distilled spirits. 
Sec. 5194. Transfer of spirits at registered distilleries. 
Sec. 5195. Restrictions relating to operations. 
Sec. 5196. Entry and examination of distillery and premises. 
Sec. 5197. Distiller's records and returns. 
SEC. 5191. COMMENCEMENT, SUSPENSION, AND RESUMPTION OF 
OPERATIONS. 
(a) COMMENCEMENT, SUSPENSION AND RESUMPTION.—NO distiller 
whose bond has been approved shall commence operations until a 
storekeeper-gauger has been assigned to the distillery. 
Any distiller 
desiring to suspend work in his distillery shaU give notice in writing 
to the Secretary or his delegate, stating when he will suspend work; 
§ 5179(a) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
633 
and on the day mentioned in said notice a government officer shall 
adopt such means, by locks and otherwise, as the Secretary or his dele-
gate may, by regulations, prescribe to prevent the use of the stills. 
No distiller, after having given such notice, shall, after the time stated 
therein, carry on the business of a distiller on said premises until he 
gives another notice in writing to the Secretary or his delegate, stat-
ing the time when he will resume work; and at the time so stated for 
resuming work a government officer shall attend at the distillery to 
release the stills for use; and thereupon, and not before, work may be 
resumed in said distillery. 
The notices submitted under this section 
shall be in such form and submitted in such manner as the Secretary 
or his delegate may by regulations require. 
Nothing in this section 
shall apply to suspensions caused by unavoidable accidents; and the 
Secretary shall prescribe regulations to govern such cases of involun-
tary suspension. 
(b) WAIVER OF REQUIREMENTS.— 
For authority to relieve distillers of the requirements of this section, 
see section 5179 (b). 
SEC. 5192. SUPERVISION 
OF 
OPERATIONS 
BY 
STOREKEEPER-
GAUGERS. 
(a) ASSIGNMENT OF GAUGERS.—The Secretary or his delegate 
shall assign to each distillery such number of storekeeper-gangers as 
he deems necessary for the proper supervision of the operations con-
ducted on the premises thereof. 
(b) CISTERN ROOM.—The receiving cisterns in each distillery and 
the room in which they are contained shall be in charge of a store-
keeper-gauger and shall be under such supervision by him as the 
Secretary or his delegate may, by regulations, prescribe. 
(c) U S E OF MATERIALS AND REMOVAL OF SPIRITS.—The use of 
materials for the purpose of making mash, wort, or beer or for the 
production of spirits, and the removal of distilled spirits shall be 
under such supervision by storekeeper-gangers as the Secretary or 
his delegate shall, by regulations, prescribe, 
(d) STOREKEEPER-GAUGERS' 
RECORDS.—The 
storekeeper-gauger 
assigned to any distillery shall, in addition to all other duties required 
to be performed by him, keep such records and submit such reports 
as the Secretary or his delegate shall, by regulations, prescribe. 
(e) PENALTY.— 
For penalty for use of materials or removal of spirits in violation of 
subsection (c), see section 5612. 
SEC. 5193. DRAWING, 
GAUGING, AND MARKING OF DISTILLED 
SPIRITS. 
(a) GENERAL RULE.—On or before the third working day after dis-
tilled spirits are deposited into receiving cisterns, such spirits shall be 
drawn off and removed as provided by law. 
Except as otherwise pro-
vided by law, all distilled spirits shall be drawn from receiving cisterns 
into casks or packages, and thereupon shall be gauged and marked 
under the supervision of a storekeeper-gauger, and immediately re-
moved into an internal revenue bonded warehouse. 
The Secretary 
or his delegate is hereby empowered to prescribe all necessary regula-
tions relating to the drawing off, gauging, and packaging of distilled 
spirits; the marking, branding, numbering, and stamping of such 
§ 5193(a) 
49012°—54 
43 
634 
INTERNAL REVENUE CODE OF 1954 
packages; and the transfer and transportation to, and the storage of 
such spirits in, internal revenue bonded warehouses. 
(b) I N WOODEN 
PACKAGES CONTAINING METALLIC 
CANS.—On 
the appHcation of the distiller and under such regulations as the 
Secretary or his delegate may prescribe, distilled spirits may be drawn 
into wooden packages, each containing two or more metallic cans, 
which cans shall each have a capacity of not less than 5 gallons, 
wine measure. 
Such packages shall be filled and used only for exporta-
tion from the United States. 
(c) STANDARDS OF FILL.—The Secretary or his delegate may by 
regulations prescribe the standards of fill of casks or packages of 
distilled spirits at each distillery. 
(d) MARKING AND BRANDING BY DISTILLERS.—The Secretary or his 
delegate may by regulations require a distiller, at his expense and 
under the supervision of a storekeeper-gauger, to do such gauging, 
marking, and branding, and such mechanical labor pertaining to 
gauging, required under this section as the Secretary or his delegate 
deems proper and determines may be done without danger to the 
revenue. 
SEC. 5194. TRANSFER OF SPIRITS AT REGISTERED DISTILLERIES. 
(a) REQUIREMENTS.—Subject to the provisions of existing law, 
spirits of 160 degrees of proof or more produced at registered distilleries, 
including registered fruit distilleries, may be transferred by means of 
pipelines from receiving cisterns in the distillery direct to storage tanks 
in the internal revenue bonded warehouse located on the bonded 
premises where produced or located contiguous thereto, and be ware-
housed in such storage tanks, or they may be withdrawn from the 
receiving cisterns, without, or after, reduction in proof, into approved 
containers and transferred to any internal revenue bonded warehouse 
for storage therein, or they may, on determination of tax, be with-
drawn in such approved containers from the cistern rooms of distilleries 
without being entered into an internal revenue bonded warehouse. 
Such spirits may be drawn into approved containers from storage 
tanks in an internal revenue bonded warehouse. 
Spirits of 160 degrees 
of proof, or more, may be transferred in bond in tank cars or tank 
trucks from cistern rooms of distilleries or from storage tanks in an 
internal revenue bonded warehouse and be deposited in storage tanks 
in any internal revenue bonded warehouse. 
Such spirits in tanks in 
internal revenue bonded warehouses distilled at or above 190 degrees 
of proof may be reduced to not less than 111 degrees prior to being 
drawn into packages. 
Such spirits, on determination of tax, may be 
withdrawn in approved containers, including pipelines to contiguous 
premises. 
Except as provided in subsections (b) and (c), such spirits 
may not be withdrawn for denaturation. 
(b) DISTILLATES CONTAINING ALDEHYDES OR FUSEL OIL.—Under 
rules and regulations to be prescribed by the Secretary or his delegate, 
distillers may collect, in locked tanks, distillates containing one-half 
of 1 percent or more of aldehydes or 1 percent or more of fusel oil 
(heads and tails) removed in the course of distillation. The distillates 
so collected may, under regulations prescribed by the Secretary or his 
delegate, be removed from such distillery for denatm-ation or be 
destroyed in the manner prescribed by the Secretary or his delegate. 
§ 5193(a) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
635 
under the supervision of an internal revenue officer to be designated 
by the Secretary or his delegate, and when so denatured or destroyed 
shall not be subject to the tax imposed by law upon distilled spirits. 
Such distillates so collected in registered fruit distilleries may, under 
regulations to be prescribed by the Secretary or his delegate, be drawn 
into approved casks, barrels, or other containers and stored in the 
brandy deposit room of the registered fruit distillery where produced 
pending removal for denaturation or destruction. 
(c) TRANSFER OF RUM FOR DENATURATION.—Rum of not less than 
150 degrees of proof may be transferred by pipeline for denaturation 
from receiving cisterns in the cistern room of any distillery to a 
denaturing bonded warehouse on the distillery premises or to storage 
tanks situated in the internal revenue bonded warehouse located on 
the distillery premises, or from such storage tanks to a denaturing 
bonded warehouse on the distillery premises. 
(d) TRANSFER OF W I N E SPIRITS.—Wine spirits withdrawn without 
payment of tax under section 5373, or transferred between any 
registered fruit distillery and any internal revenue bonded warehouse, 
may be transferred by pipeline, tank car, tank truck, or other ap-
proved containers, as provided by regulations prescribed by the 
Secretary or his delegate. 
(e) TRANSFER OF GIN AND VODKA.— 
(1) To CONTIGUOUS PREMISES.—Gin and vodka of any proof may 
be transferred in bond by means of pipelines from receiving cisterns 
in distilleries direct to storage tanks in the internal revenue bonded 
warehouse located on the bonded premises where produced, or 
located contiguous thereto, and be warehoused in such storage 
tanks. 
On determination of tax, gin and vodka of any proof may 
be transferred by pipeline from receiving cisterns in distilleries, or 
from storage tanks in internal revenue bonded warehouses located 
on or contiguous to the bonded premises of the producing distillery, 
to a contiguous tax-paid bottling house or rectifying plant. 
(2) To OTHER PREMISES.—Gin and vodka of any proof may be 
transferred in bond in tank cars or tank trucks from cistern rooms 
of distilleries or from storage tanks in an internal revenue bonded 
warehouse and be deposited in storage tanks in any internal revenue 
bonded warehouse or removed therefrom upon determination of tax 
in approved containers including tank cars and tank trucks. 
(f) REDISTILLATION OF SPIRITS.—Distilled spirits of any proof may 
be transferred in any approved container from a distillery or an 
internal revenue bonded warehouse to any distillery for redistillation. 
Such spirits may be transferred by pipeline to a distillery for redis-
tillation from tanks in an internal revenue bonded warehouse located 
on such distillery premises or located contiguous thereto, or from 
receiving tanks in a distillery to a contiguous distillery. 
On removal 
of distilled spirits to any distillery for redistillation, the consignee 
distiller shall assume the liability for the payment of the tax on the 
spirits from the time they leave the internal revenue bonded ware-
house or distillery, and the tax liability on the producing distillery 
or the internal revenue bonded warehouseman, and the liens on the 
premises of the producing distiller shall cease, and the tax and liens 
shall become the liability of the consignee distiller: Provided, That 
on redistillation the redistilled spirits shall be treated the same as 
§ 5194(f) 
636 
INTERNAL REVENUE CODE 
OF 1954 
if the spirits had been originally produced by the redistiller, and all 
prior obligations as to taxes and liens shall be superseded. 
(g) REGULATIONS.—The Secretary or his delegate is hereby em-
powered to prescribe all necessary regulations relating to the drawing 
off, transferring, gauging, storing, redistilling, and transporting of 
the spirits; the records to be kept and returns to be made; the size 
and kind of containers to be used; the marking, branding, numbering, 
and stamping of such containers; and the kind of bond and the penal 
sum thereof. 
(h) EFFECT ON OTHER LAWS.—Nothing contained in this section 
shall be construed as restricting or limiting the provisions of other 
sections of the internal revenue laws relating to internal revenue 
bonded warehouses, distilleries, and bonded wineries. 
SEC. 5195. RESTRICTIONS RELATING TO OPERATIONS. 
(a) PROHIBITED HOURS FOR DISTILLING.—Except as provided in 
section 5306, no malt, corn, grain, or other material shall be mashed, 
nor any mash, wort, or beer, brewed or made, nor any still used by a 
distiller, at any time between 11 p. m. on any Saturday and 1 a. m. 
on the next succeeding Monday. 
(b) PROHIBITED HOURS FOR REMOVAL OF SPIRITS.—No person 
shall remove any distilled spirits at any other time than after sun-
rising and before sun-setting in any cask or package containing more 
than 10 gallons from any premises or building in which the same 
may 
have 
been 
distilled, 
redistilled, 
rectified, 
compounded, 
manufactured, or stored. 
(c) CROSS REFERENCES— 
(1) For restrictions relating to the production, removal, etc., of 
mash, wort or wash, see section 5216. 
(2) For limitation on the restrictions in subsection (b) in case 
of National Emergency transfers of distilled spirits, see section 5217. 
(3) For penalty for distilling during prohibited hours, see section 
5613, and for penalty for removal of spirits during prohibited hours, 
see section 5614. 
SEC. 5196. ENTRY AND EXAMINATION OF DISTILLERY AND PREMISES 
(a) KEEPING DISTILLERY ACCESSIBLE.—Every distiller shall fur-
nish the Secretary or his delegate such keys as may be required for 
internal revenue officers to gain access to the distillery premises and 
structures, at any time, and the distillery shall always be kept 
accessible to any officer having such keys. 
(b) RIGHT OF ENTRY AND EXAMINATION.—It shall be lawful for 
any revenue officer at all times, as well by night as by day, to enter 
into any distillery or building or place used for the business of distill-
ing, or used in connection therewith for storage or other purposes, 
and to examine, gauge, measure, and take an account of every still 
or other vessel or utensil of any kind, and of all low wines, and of the 
quantity and gravity of all mash, wort, or beer, and of all yeast, or 
other compositions for exciting or producing fermentation in any 
mash or beer, of all spirits and of all materials for making or distilling 
spirits, which may be in any such distillery or premises, or in possession 
of the distiller. Whenever any officer, having demanded admittance 
into a distillery or distillery premises, and having declared his name 
and office, is not admitted into such distillery or premises by the 
distiller or other person having charge thereof, it shall be lawful for 
such officer at all times, as well by night as by day, to break open by 
§ 5194(f) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
637 
force any of the doors or windows, or to break through any of the 
walls of such distillery or premises necessary to be broken open or 
through, to enable him to enter such distillery or premises. 
(c) FURNISHING FACILITIES AND ASSISTANCE.—On the demand of 
any internal revenue officer or agent, every distiller shall furnish 
strong, safe, and convenient ladders of sufficient length to enable the 
officer or agent to examine and gauge any vessel or utensil in such 
distillery or premises; and shall, at all times when required, supply 
all assistance, lights, ladders, tools, staging, or other things necessary 
for inspecting the premises, stock, tools, and apparatus belonging to 
such person, and shall open all doors, and open for examination all 
boxes, packages, and all casks, barrels, and other vessels not under 
the control of the revenue officer in charge. 
(d) AUTHORITY TO BREAK U P GROUNDS OR WALLS.—It shall be 
lawful for any revenue officer, and any person acting in his aid, to 
break up the ground on any part of a distillery, or premises of a 
distiller, or any ground adjoining or near to such distillery or prem-
ises, or any wall or partition thereof, or belonging thereto, or 
other place, to search for any pipe, cock, private conveyance, or 
utensil; and, upon finding any such pipe or conveyance leading 
therefrom or thereto, to break up any ground, house, wall, or other 
place through or into which such pipe or other conveyance leads, and 
to break or cut away such pipe or other conveyance, and turn any 
cock, or to examine whether such pipe or other conveyance conveys 
or conceals any mash, wort, or beer, or other liquor, which may be 
used for the distillation of low wines or spirits, from the sight or 
view of the officer, so as to prevent or hinder him from taking a 
true account thereof. 
(e) WORM TUBS OR CONDENSERS.—Whenever any officer or internal 
revenue agent requires the water contained in any worm tub in a dis-
tillery, at any time when the still is not at work, to be drawn off, and 
the tub and worm cleansed, the water shall forthwith be drawn off, 
and the tub and worm cleansed by the distiller, or his workmen, 
accordingly; and the water shall be kept out of such worm tub for 
the period of 2 hours, or until the officer or agent has finished his 
examination thereof. It shall be lawful for the officer or agent to 
draw off such water, or any portion of it, and to keep the same drawn 
off for so long a time as he shall think necessary. 
(f) PENALTIES.— 
(1) For penalty for failure to keep distillery accessible, see section 
5617. 
(2) For penalty for obstructing or refusing to admit officer to distillery 
premises, see section 5616. 
(3) For penalty for refusal of distillers to give assistance to officers, 
see section 5615. 
(4) For penalty for refusal or neglect to comply with subsection (e), 
see section 5619. 
SEC. 5197. DISTILLER'S RECORDS AND RETURNS. 
(a) RECORDS.— 
(1) GENERAL.— 
(A) REQUIREMENTS.—Every person who makes or distills 
spirits, or owns any still, boiler, or other vessel used for the 
purpose of distilling spirits, or who has such still, boiler, or other 
vessel so used under his superintendence, either as agent or owner, 
§ 5197(a)(1)(A) 
638 
INTERNAL REVENUE CODE OF 1954 
or who uses any such still, boiler, or other vessel, shall keep a 
record, in the form and manner prescribed by regulations issued 
by the Secretary or his delegate, of the receipt on the distillery 
premises, and the use thereon, of materials intended for use in 
the distillation of spirits, the kind and quantity of distilled spirits 
produced, the kind and quantity of distilled spirits removed 
from the distillery premises, and such additional particulars as 
may be required by such regulations. 
(B) PEESERVATION AND INSPECTION.—The records of every 
distiller required by subparagraph (A) shall be kept at the 
distillery and be available at all times for inspection by any 
internal revenue officer, and shall be preserved by the distiller 
for a period of not less than 2 years. 
(2) RECORDS OF DISTILLERS AS WHOLESALE DEALERS.—Every 
distiller shall keep daily a record of distilled spirits of his own 
production disposed of by him, in such form, at such place and 
containing such information as the Secretary or his delegate shall 
by regulations prescribe. 
Such distillers shall also render such 
correct transcripts, summaries, and copies of their records at such 
times and in such form and manner as the Secretary or his delegate 
may by regulations require. 
The records required to be kept under 
this paragraph, and regulations prescribed pursuant thereto, shall 
be preserved for a period of 2 years, and during such period shall 
be available during business hours for inspection and the taking 
of abstracts therefrom by the Secretary or his delegate. 
(b) MONTHLY RETURN OP DISTILLER.—On the first day of each 
month or within 5 days thereafter, every distiller shall render to 
the Secretary or his delegate a monthly return of the operations of 
the preceding month taken from his records, such returns to be in 
such form and manner, and contain such information as the Secretary 
or his delegate may by regulations require. 
(c) PENALTIES AND FORFEITURES.— 
(1) For penalty for using unregistered materials, see section 5610. 
(2) For penalty and forfeiture for false or omitted entries in distiller's 
books, see section 5620. 
(3) For penalty relating to records and returns of distiller as wholesale 
dealer, see section 5621. 
PART III—GENERAL PROVISIONS RELATING TO 
DISTILLERIES AND DISTILLED SPIRITS 
Sec. 5211. Detention of cases, packages, or containers on suspicion. 
Sec. 5212. Prevention and detection of fraud. 
Sec. 5213. Return of materials used in the manufacture of distilled 
spirits. 
. Sec. 5214. Regulation of traffic in containers of distilled spirits. 
Sec. 5215. Exemption of distillers of fruit brandy from certain re-
quirements. 
Sec. 5216. Mash, wort, and vinegar; vinegar factories. 
Sec. 5217. Exemptions relating to national emergency transfers. 
SEC. 5211. DETENTION OF CASKS, PACKAGES, OR CONTAINERS 
ON 
SUSPICION. 
It shall be lawful for any internal revenue officer to detain any cask, 
package, or other container containing, or supposed to contain, dis-
tilled spirits, when he has reason to believe that the tax imposed by 
§ 5197(a)(1)(A) 
CH. 51 
DISTILLED SPIRITS, WINES, AND BEER 
639 
law on such distilled spirits has not been paid or determined as 
required by law, or that such cask, package, or other container is 
being removed in violation of law; and every such cask, package, or 
other container, may be held by him at a safe place until it shall be 
determined whether the property so detained is liable by law to be 
proceeded agakist for forfeiture; but such summary detention shall 
not continue in any case longer than 48 hours without process of law 
or intervention of the officer to whom such detention is to be reported. 
SEC. 5212. PREVENTION AND DETECTION OF FRAUD. 
(a) GENEEAL.—For the prevention and detection of frauds, the 
Secretary or his delegate may prescribe for use such hydrometers, 
saccharometers, weighing and gauging instruments, or other means 
for ascertaining the quantity, gravity, and producing capacity of 
any mash, wort, or beer used, or to be used, in the production of 
distilled spirits, and the strength and quantity of spirits subject to 
tax, as he may deem necessary; and he may prescribe regulations 
to secure a uniform and correct system of inspection, weighing, mark-
ing, and gauging of spirits. 
(b) 
CROSS REFERENCES.— 
For other provisions relating to gauging and marking of spirits in case of— 
(1) Transfers at registered distilleries, see section 5194. 
(2) Withdrawals from receiving cisterns for transfer to internal 
revenue bonded warehouses, see section 5193. 
(3) Removals from internal revenue bonded warehouses, see section 
5250. 
(4) Spirits intended to be rectified or received from 
rectification, 
see section 5282 (b). 
(5) Packages filled on premises of wholesale dealers, see section 
5115 (a). 
SEC. 5213. RETURN OF MATERIALS USED IN THE MANUFACTURE OF 
DISTILLED SPIRITS. 
(a) REQUIREMENT.—Every person disposing of any substance of 
the character used in the manufacture of distilled spirits shall, when 
required by the Secretary or his delegate, render a correct return, in 
such form and manner as the Secretary or his delegate may by regu-
lations prescribe, showing the names and addresses of the persons 
to whom such disposition was made, with such details, as to the 
quantity so disposed of or other information which the Secretary or 
his delegate may require as to each such disposition, as will enable 
the Secretary or his delegate to determine whether all taxes due with 
respect to any distilled spirits manufactured from such substances 
have been paid. 
As used in this section— 
(1) the term "distilled spirits" includes all products referred to 
in section 5002 (b); and 
(2) the term "substance of the character used in the manufacture 
of distilled spirits" includes, but not by way of limitation, molasses, 
corn sugar, cane sugar, and malt sugar. 
(b) 
PENALTY.— 
For penalty for violation of subsection (a), see section 5609. 
SEC. 5214. REGULATION OF TRAFFIC IN CONTAINERS OF DISTILLED 
SPIRITS. 
(a) REQUIREMENTS.—Whenever in his judgment such action is 
necessary to protect the revenue, the Secretary or his delegate is 
§ 5214(a) 
640 
INTERNAL REVENUE CODE OF 19 
54 
authorized, by the regulations prescribed by him, and permits issued 
thereunder if required by him— 
(1) to regulate the size, branding, marking, sale, resale, possession, 
use, and re-use of containers (of a capacity of not more than 5 wine 
gallons) designed or intended for use for the sale of distilled spirits 
(within the meaning of such term as it is used in section 5002 (b) (1) 
and (2)) for other than industrial use; and 
(2) to require, of persons manufacturing, dealing in, or using 
any such containers, the submission to such inspection, the keeping 
of such records, and the filing of such reports as may be deemed by 
him reasonably necessary in connection therewith. 
Any require-
ments imposed under this section shall be in addition to any other 
requirements imposed by, or pursuant to, law and shall apply as 
well to persons not liable for tax under the internal revenue laws 
as to persons so hable. 
^ 
(b) PENALTY.— 
For penalty for violation of subsection (a), see section 5642. 
SEC. 5215. EXEMPTION OF DISTILLERS OF FRUIT BRANDY FROM 
CERTAIN REQUIREMENTS. 
The Secretary or his delegate may by regulation exempt brandy or 
wine spirits produced (with or without the use of water to facilitate 
extraction and distillation) exclusively from fresh or dried fruit, or 
their residues, or the wine or wine residues therefrom, or any person 
responsible therefor, from any provision of the internal revenue laws 
relating to the production, storage, or withdrawal of spirits applicable 
to such brandy or wine spirits, except as to the tax thereon, when 
in his judgment it may seem expedient to do so: Provided, 
That 
where, in the production of natural wine, sugar has been used, the 
wine or the residuum thereof may, if the unfermented sugars therein 
are not refermented, be used in the distillation of brandy or wine 
spirits, and such use shall not prevent the Secretary or his delegate, 
from exempting such brandy or wine spirits, or persons, from any 
provision of the internal revenue laws relating to the production, 
storage or withdrawal of spirits, except as to the tax thereon, when 
in his judgment it may seem expedient to do so: Provided jurther, 
That any scientific university, college of learning, or institution of 
scientific research may, as authorized by regulation and on filing 
of bond with adequate surety in amount equal to the tax on the 
maximum quantity received or possessed during any calendar month 
(but in no case less than $500), produce, receive, blend, treat, and 
store brandy or wine spirits, without payment of tax, for experimental 
or research use but not for consumption (other than organoleptical 
tests) or sale, in such quantities as may be reasonably necessary for 
such purposes. 
SEC. 5216. MASH, WORT AND VINEGAR; VINEGAR FACTORIES. 
(a) 
GENERAL.— 
(1) No mash, wort or wash, fit for distillation or for the produc-
tion of spirits or alcohol, shall be made or fermented in any building 
or on any premises other than a distillery duly authorized according 
to law; and no mash, wort, or wash so made and fermented shall 
be sold or removed from any distillery before being distilled; and 
no person, other than an authorized distiller, shall, by distillation, 
§ 5214(a) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
641 
or by any other process, separate the alcoholic spirits from any 
fermented mash, wort, or wash; and no person shall use spirits or 
alcohol in manufacturing vinegar or any other article, or in any 
process of manufacture whatever, unless the spirits or alcohol so 
used shall have been produced in an authorized distillery and 
(except in the case of vinegar) the tax thereon paid or determined 
as provided by law. Nothing in this section shall be construed to 
apply to fermented liquors, or to fermented liquids used for the 
manufacture of vinegar exclusively. 
But no worm, goose-neck, 
pipe, conductor, or contrivance of any description whatsoever 
whereby vapor might in any manner be conveyed away and con-
verted into distUled spirits, shall be used or employed or be fastened 
to or connected with any vaporizing apparatus used for the manu-
facture of vinegar; nor shall any worm be permitted on or near the 
premises where such vaporizing process is carried on. It shall be 
lawful for manufacturers of vinegar to separate, by a vaporizing 
process, the alcoholic property from the mash produced by them, 
and condense the same by introducing it into the water or other 
liquid used in making vinegar. 
(2) No person, however, shall remove, or cause to be removed, 
from any vinegar factory or place where vinegar is made, any 
vinegar or other fluid or material containing a greater proportion 
than 2 percent of proof spirits. 
(3) Section 5196 (b), (c), and (d) shall apply to all premises on 
which vinegar is manufactured and to all manufacturers of vinegar 
and their workmen or other persons employed by them. 
(4) Notwithstanding paragraph (1), when authorized by regula-
tions prescribed by the Secretary or his delegate, fermented material 
may be removed from a distillery before being distilled if made and 
fermented in carrying on a business (other than distilling) authorized 
by regulations prescribed under section 5171 (a). 
(b) 
PENALTY.— 
For penalty for violation of subsection (a), see section 5608. 
SEC. 5217. EXEMPTIONS 
RELATING TO NATIONAL 
EMERGENCY 
TRANSFERS. 
(a) TRANSFERS OF DISTILLED SPIRITS.—Under regulations pre-
scribed by the Secretary or his delegate, distUled spirits of any proof 
including alcohol (the term "distilled spirits" or "spirits" as herein-
after used in this section shall include alcohol) may be removed in 
bond in approved containers and pipelines from any registered 
distillery including a registered fruit distUlery (such registered dis-
tillery and registered fruit distillery hereinafter referred to in this sec-
tion as "distillery"), internal revenue bonded warehouse, industrial 
alcohol plant, or industrial alcohol bonded warehouse to any distillery, 
internal revenue bonded warehouse, industrial alcohol plant, or indus-
trial alcohol bonded warehouse for redistillation, or storage, or any 
other purpose deemed necessary to meet the requirements of the na-
tional defense: Provided, That any such distilled spirits may be stored 
in approved tanks in, or constituting a part of, any internal revenue 
bonded warehouse or industrial alcohol bonded warehouse: Provided 
further, 
That any such distUled spirits removed to an industrial 
alcohol plant or industrial alcohol bonded warehouse may be with-
drawn therefrom if of a proof of 160 degrees or more for any tax-free 
§ 6217(a) 
642 
INTERNAL REVENUE CODE OF 1954 
purpose, or on payment of tax for any purpose, authorized by sub-
chapter E; and any such distilled spirits removed to a distillery or 
internal revenue bonded warehouse may be withdrawn therefrom if 
of a proof of 160 degrees or more for any tax-free purpose authorized 
by subchapter E or for any purpose authorized in the case of like 
spirits produced at a distillery: Provided further, That any such dis-
tilled spirits, upon removal from a distUlery or internal revenue 
bonded warehouse for transfer to an industrial alcohol plant or indus-
trial alcohol bonded warehouse or for any tax-free purpose authorized 
by subchapter E shall be subject to the provisions of part I of sub-
chapter E: Provided further, 
That when any distilled spirits are 
removed under the provisions of this section to a distillery, industrial 
alcohol plant, or industrial alcohol bonded warehouse, the tax liability 
of the proprietor of the distillery, internal revenue bonded warehouse, 
industrial alcohol plant, or industrial alcohol bonded warehouse from 
which the spirits are removed, and the liens on such distillery, indus-
trial alcohol plant, or industrial alcohol bonded warehouse, shall 
cease; and at and from the time the distilled spirits leave the distillery, 
internal revenue bonded warehouse, industrial alcohol plant, or indus-
trial alcohol bonded warehouse, the tax shall be the liability of the 
proprietor of, and the liens shall be transferred to the premises of, the 
distillery, industrial alcohol plant, or industrial alcohol bonded ware-
house to which the distUled spirits are transferred: Provided further, 
That when any distilled spirits are removed under the provisions of 
this section to an internal revenue bonded warehouse the proprietor 
of such warehouse shall be primarily liable for the tax on the spirits 
at and from the time the spirits leave the premises from which trans-
ferred: Provided further, That section 5011 (a) shall apply in respect 
of losses of any distilled spirits transferred, or removed for transfer, 
under this section to a distillery or internal revenue bonded warehouse; 
and section 5011 (c) shall apply in respect of losses of any distilled 
spirits transferred, or removed for transfer, under this section to an 
industrial alcohol plant or industrial alcohol bonded warehouse: And 
provided further. That section 5195 (a) and (b) shall not apply to the 
production or redistillation and removal of any such spirits; nor shall 
sections 5021 and 5081 apply to the redistillation or to the mingling 
at a distillery or an internal revenue bonded warehouse or in the course 
of removal, of any such spirits. 
(b) 
EXEMPTION FROM STATUTORY REQUIREMENTS.—The Secretary 
or his delegate may temporarily exempt proprietors of distilleries, 
internal revenue bonded warehouses, industrial alcohol plants, or 
industrial alcohol bonded warehouses from any provision of the inter-
nal revenue laws relating to distilled spirits, except those requiring 
payment of the tax thereon, whenever in his judgment it may seem 
expedient to do so to meet the requirements of the national defense. 
Whenever the Secretary or his delegate shall exercise the authority 
conferred by this subsection he may prescribe such regulations as may 
be necessary to accomplish the purpose which caused him to grant 
the exemption. 
(c) TERMINATION OF SECTION.—The authority conferred upon the 
Secretary or his delegate by this section shall expire at the close of 
July 11, 1956. 
§ 5217(a) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
643 
Subchapter C—Internal Revenue Bonded Warehouses 
Part I. Establishment, 
Part II. Operation. 
PART I—ESTABLISHMENT 
Sec. 5231. Authority to establish. 
Sec. 5232. Bond requirements. 
Sec. 5233. Establishment of bottling in bond department. 
SEC. 5231. AUTHORITY TO ESTABLISH. 
The Secretary or his delegate is authorized, in his discretion, and 
upon the execution of such bonds as he may prescribe, to estabHsh 
warehouses, to be designated as internal revenue bonded warehouses, 
to be used exclusively for the storage of spirits distilled at a registered 
distillery, including a registered fruit distillery. 
No dwelling house 
shall be used for such a warehouse, and no door, window, or other 
opening shall be made or permitted in the walls of such warehouse 
leading into a distillery. 
The sole type and kind of bonded warehouse 
under the internal revenue laws for the storage of spirits distilled at a 
registered distillery, including a fruit distillery, on which the tax has 
not been paid, shall be an internal revenue bonded warehouse. 
The 
establishment and construction of such internal revenue bonded 
warehouses shall be under such regulations as the Secretary or his 
delegate shall prescribe. 
SEC. 5232. BOND REQUIREMENTS. 
(a) GENERAL.—The Secretary or his delegate shall, by regulations, 
prescribe the form and penal sums of bonds covering distilled spirits in 
internal revenue bonded warehouses and in transit to and between such 
warehouses: Provided, That the penal sums of such bonds covering 
distilled spirits shall not exceed in the aggregate $200,000 for each such 
warehouse. 
Such bonds shall be conditioned (1) on the withdrawal 
of the spirits from the internal revenue bonded warehouse within 
8 years from the date of original entry for deposit; (2) on payment of 
the tax on the spirits as determined on withdrawal from the internal 
revenue bonded warehouse; and (3) on compliance with all provisions 
of law and regulations relating to the business of warehousing distilled 
spirits. 
(b) ADDITIONAL BOND.—No distilled spirits, other than distilled 
spirits authorized by law to be withdrawn without payment of tax, 
shall be withdrawn from an internal revenue bonded warehouse 
except on the payment of the tax at the time of withdrawal unless 
the warehouseman has furnished such bond (in addition to that re-
quired in subsection (a)) to secure payment of the tax in such form 
and in such penal sum, and has complied with such other requirements, 
as the Secretary or his delegate may by regulations prescribe. 
(c) RENEWAL REQUIRED IN CERTAIN CASES.—New bonds shall be 
required in case of the death, insolvency, or removal of the surety or 
§ 5232(c) 
644 
INTERNAL REVENUE CODE OF 1954 
sureties, and may be required in any other contingency affecting its 
validity or impairing its efl&ciency, at the discretion of the Secretary 
or his delegate. 
In case the warehouseman fails or refuses to give the 
bond required, or to renew the same, or neglects to immediately with-
draw the spirits and pay the tax thereon, or if he neglects to withdraw 
any bonded spirits and pay the tax thereon before the expiration of the 
time limited in the bond, the Secretary or his delegate shall proceed to 
collect the tax. 
(d) CROSS KEFERENCE.— 
For deposit of United States bonds or notes in lieu of sureties, see 
section 6 U. S. C. 15. 
SEC. 5233. ESTABLISHMENT OF BOTTLING IN BOND DEPARTMENT. 
For provisions relating to establishment of a separate part of internal 
revenue bonded warehouse for bottling of distilled spirits in bond, see 
section 5243. 
PART II—OPERATION 
Sec. 6241. Supervision of operations. 
Sec. 5242. Deposit of spirits in warehouses. 
Sec. 5243. Bottling of distilled spirits in bond. 
Sec. 5244. Withdrawal of spirits on determination of tax. 
Sec. 5245. Withdrawal of spirits on original gauge. 
Sec. 5246. Transfers of spirits in bond. 
Sec. 5247. Withdrawal of spirits for exportation. 
Sec. 5248. Withdrawal of spirits without payment of tax. 
Sec. 5249. Prohibited hours for removal of spirits. 
Sec. 5250. Gauging, stamping, and branding of spirits removed from 
warehouse. 
Sec. 5251. Blending of beverage brandies in internal revenue bonded 
warehouses. 
Sec. 5252. Discontinuance of warehouse and transfer of merchandise. 
SEC. 5241. SUPERVISION OF OPERATIONS. 
(a) MAINTENANCE AND SUPERVISION.—The maintenance and super-
vision of internal revenue bonded warehouses shall be under such 
regulations as the Secretary or his delegate may prescribe. 
(b) ASSIGNMENT OF GAUGERS.—Storekeeper-gangers shall be as-
signed by the Secretary or his delegate to internal revenue bonded 
warehouses established by law. 
Such warehouses shall be under the 
control of the officer designated by the Secretary or his delegate, and 
shall be in the joint custody of the storekeeper-gauger or such other 
officer and the proprietor thereof, and kept securely locked, and shall 
at no time be unlocked or opened or remain open except in the presence 
of such storekeeper-gauger or other person who may be designated to 
act for him. 
(c) STOREKEEPER-GAUGERS' RECORDS AND RETURNS.—^Every store-
keeper-gauger in charge of an internal revenue bonded warehouse shall 
keep records, in the form and manner prescribed by regulations issued 
by the Secretary or his delegate, of all distilled spirits deposited in the 
warehouse, indicating the date thereof, by whom manufactured or pro-
duced, the description of the containers and the number and contents 
thereof, and such additional particulars as may be required by such 
regulations; and he shall keep records, in the form and manner pre-
scribed by such regulations, of all distilled spirits removed from the 
warehouse, indicating the date of removal, the description of the con-
tainers and the number and contents thereof, the purpose of removal, 
§ 5232(c) 
CH. 51 
DISTILLED SPIRITS, WINES, AND BEER 
645 
and such additional particulars as may be required by such regula-
tions. 
The storekeeper-gauger shall submit such reports, in such form 
and manner, and at such times, as the Secretary or his delegate may, 
by regulations, require. All records and reports required by this 
section, or regulations prescribed under this section, shall be open to 
the examination of any revenue officer, 
(d) CROSS REFERENCES.— 
(1) For provisions relating to gauging, stamping, and branding pack-
ages of distilled spirits on determination of tax, and removal from inter-
nal revenue bonded warehouses, see section 5250. 
(2) For provisions relating to supervision of certain operations in bot-
tling in bond department, see section 5243 (a). 
SEC. 5242. DEPOSIT OF SPIRITS IN WAREHOUSES. 
(a) GENERAL.—The distillers of all spirits removed to an internal 
revenue bonded warehouse shall enter the same for deposit in such 
warehouse, under such regulations as the Secretary or his delegate 
may prescribe. 
Said entry shall be in such form as the Secretary or 
his delegate shall prescribe. 
(b) CROSS REFERENCES.— 
(1) For provisions relating to transfer of distilled spirits in packages 
from registered distilleries to internal revenue bonded warehouses, and 
for authority of the Secretary or his delegate to prescribe regulations 
relating to transportation to and storage in such warehouses, see section 
5193 (a). 
(2) For provisions relating to transfer of distilled spirits from dis-
tilleries to internal revenue bonded warehouses by pipeline, or in ap-
proved containers, see section 5194. 
(3) For provisions relating to National Emergency transfers of dis-
tilled spirits, see section 5217. 
(4) For provisions authorizing transfers in bond between internal 
revenue bonded warehouses, see section 5246 (a). 
(5) For provisions requiring that all distilled spirits entered for 
deposit in internal revenue bonded warehouses be withdrawn within 8 
years from date of entry for deposit, see section 5006 (a). 
SEC. 5243. BOTTLING OF DISTILLED SPIRITS IN BOND. 
(a) GENERAL 
REQUIREMENTS.—Whenever 
any 
distilled 
spirits 
deposited in the internal revenue bonded warehouse have been duly 
entered for withdrawal for bottling in bond before tax payment or 
for export in bond, such spirits shall be dumped, gauged, bottled, 
packed, and cased in the manner which the Secretary or his delegate 
shall by regulations prescribe. The bottling of distilled spirits in 
bond shall be conducted in a separate portion of such warehouse, 
which shall be set apart and used exclusively for that purpose. For 
convenience in such process any number of packages of spirits of the 
same kind, differing only in proof, but produced at the same distillery 
by the same distiller, may be mingled together in a cistern provided 
for that purpose, but nothing herein shall authorize or permit any 
mingling of different products, or of the same products of different 
distilling seasons, or the addition or subtraction of any substance or 
material or the application of any method or process to alter or 
change in any way the original condition or character of the product 
except as authorized in this section. The tax on the distilled spirits 
bottled in bond shall be paid upon the actual quantity of spirits with-
drawn from bond except as otherwise provided in section 5011 (a) and 
(b). 
The Secretary or his delegate may by regulations prescribe the 
mode of separating and securing the additional warehouse or portion of 
§ 5243(a) 
646 
INTERNAL REVENUE CODE OF 19 
54 
the warehouse required in this subsection to be set apart, the manner in 
which the business of botthng spirits in bond shall be carried on, the 
notices, bonds, and returns to be given and accounts and records to 
be kept by the persons conducting such business, the mode and time 
of inspection of such spirits, the accounts and records to be kept and 
returns made by the Government officers, and all such other matters 
and things, as in his discretion he may deem requisite for a secure and 
orderly supervision of said business; and he may also prescribe and 
issue the stamps required. 
(b) BOTTLING REQUIREMENTS.—The warehouseman may, under 
the supervision of the storekeeper-gauger, remove by straining through 
cloth, felt, or other like material any charcoal, sediment, or other like 
substance, found therein, and may whenever necessary reduce such 
spirits as are withdrawn for bottling purposes by the addition of pure 
water only to 100 percent proof for spirits for domestic use, or to not 
less than 80 percent proof for spirits for export purposes, under such 
regulations as may be prescribed by the Secretary or his delegate; 
but no spirits (except gin for export) shall be bottled in bond until 
they have remained in bond in wooden containers for at least 4 years 
from the date of original gauge as to fruit brandy, or original entry as 
to all other spirits: Provided, That nothing in this subchapter shall 
authorize the labeling of spirits in bottles contrary to regulations issued 
pursuant to the Federal Alcohol Administration Act (49 Stat. 977; 27 
U. S. C , chapter 8), or any amendment thereof. 
Distilled spirits, 
known commercially as gin, of not less than 80 percent proof may at 
any time within 8 years after entry in bond be bottled in bond for 
export without the payment of tax, under such regulations as the 
Secretary or his delegate may prescribe. 
(c) TRADE MARKS ON BOTTLES.—No trade-marks shall be put on 
any bottle unless the real name of the actual bona fide distUler, or the 
name of the individual, firm, partnership, corporation, or association 
in whose name the spirits were produced and warehoused, shall also 
be placed conspicuously on such bottle. 
(d) MARKS AND BRANDS FOR CASES.—There shall be plainly burned, 
embossed, stenciled, or printed on the side of each case, to be known 
as the Government side, such marks, brands, and stamps to denote the 
bottling in bond of the distilled spirits packed therein as the Secretary 
or his delegate may by regulations prescribe. 
(e) EXPORTATION OF SPIRITS BOTTLED IN BOND.—All distilled 
spirits intended for export under this section shall be inspected, 
bottled, cased, weighed, marked, labeled, stamped, or sealed in such 
manner and at such time as the Secretary or his delegate may by 
regulations prescribe; and the Secretary or his delegate may prescribe 
such regulations for the transportation, entry, reinspection, and 
lading of such spirits for export as may from time to time be deemed 
necessary; and all provisions of law relating to the exportation of 
distilled spirits in bond, so far as applicable, and all penalties therein 
imposed, are extended and made applicable to distilled spirits bottled 
for export under this section, but no drawback shall be allowed or 
paid upon any spirits bottled under this section. 
(f) EFFECT ON STATE LAWS.—Nothing in this section shall be 
construed to exempt spirits bottled under this section from the oper-
ation of the Act of August 8, 1890 (26 Stat. 313; 27 U. S. C. 121). 
§ 6243(a) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
647 
(g) CROSS KEFERENCE.— 
For provisions relating to stamps and stamping of bottled in bond 
spirits, see section 5008 (a). 
SEC. 5244. WITHDRAWAL OF SPIRITS ON DETERMINATION OF TAX. 
Any distilled spirits may, on determination of the tax thereon, be 
withdrawn from warehouse on application to the Secretary or his 
delegate in such form and manner as the Secretary or his delegate 
may by regulations prescribe. 
SEC. 5245. WITHDRAWAL OF SPIRITS ON ORIGINAL GAUGE. 
Under such regulations as the Secretary or his delegate may pre-
scribe, distilled spirits deposited in internal revenue bonded ware-
houses may, upon application, be withdrawn therefrom on the original 
gauge. 
SEC. 5246. TRANSFERS OF SPIRITS IN BOND. 
(a) GENERAL.'—Distilled spirits may be transferred in bond between 
internal revenue bonded warehouses in original packages or in such 
other packages or containers and under such regulations as the Secre-
tary or his delegate may by regulations prescribe. 
(b) 
CROSS REFERENCES.— 
(1) For provisions relating to transfers of distilled spirits from internal 
revenue bonded warehouses to other bonded premises, see section 5194. 
(2) For provisions relating to National Emergency transfers, see 
section 5217. 
SEC. 5247. WITHDRAWAL OF SPIRITS FOR EXPORTATION. 
(a) ENTRIES, BONDS, AND BILLS OF LADING.—Distilled spirits may 
be withdrawn from internal revenue bonded warehouses, at the 
instance of the owner of the spirits, for exportation in the original 
casks or packages, or in packages filled from such original casks or 
packages, without the payment of tax, after making such entries and 
executing and filing with the Secretary or his delegate such bonds 
and bills of lading, and giving such other additional security as the 
Secretary or his delegate may by regulations prescribe. 
The bonds 
given under this section shall be canceled or credited upon the sub-
mission of such evidence, records and certificates indicating exporta-
tion as the Secretary or lais delegate by regulations may prescribe. 
(b) MARKS AND PERMITS.—When the owner of the spirits shall 
have made the proper entries, filed the bonds, and otherwise complied 
with all the requirements of the law and regulations, the Secretary or 
his delegate shall issue to him a permit for the removal and trans-
portation of such spirits to the collector of the port from which they 
are to be exported, accurately describing the spirits to be shipped, the 
amount of tax thereon, the State and district from which the spirits 
are to be shipped, the name of the distiller by whom distilled, the 
collector of the port to whom the spirits are to be consigned, and 
the routes over which they are to be sent to the port of shipment. 
Such shipments shall be made over bonded routes whenever prac-
ticable. The collector of the port shall receive such spirits, and permit 
the exportation thereof, under the same regulations as are prescribed 
for the exportation of spirits on which the tax has been paid. 
(c) TRANSPORTATION BOND.—Whenever the owner or owners of 
distilled spirits shall desire to withdraw such spirits from any internal 
revenue bonded warehouse for exportation, such owner or owners may 
§ 5247(c) 
648 
INTERNAL REVENUE CODE OF 19 54 
at their option, in lieu of executing an export bond as provided by 
law, give a transportation bond with sureties satisfactory to the 
Secretary or his delegate and under such regulations as he may pre-
scribe, conditioned for the due delivery thereof on board an export 
carrier at a port of exportation to be named therein, and for the due 
performance on the part of the exporter or owner at the port of export 
of all the requirements in regard to notice of export, entry, and the 
giving of bond hereinafter specified in this subsection. In such case, 
on arrival of the spirits at the port of export, the exporter or owner at 
that port shall immediately notify the collector of the port of the fact, 
setting forth his intention to export such spirits, and the designation of 
the carrier on which such spirits are to be laden, and the port to which 
they are intended to be exported. 
He shall, after the quantity of 
spirits has been determined by inspection or by gauge as regulations 
prescribed by the Secretary or his delegate shall require, file with the 
collector of the port an export entry. The Secretary or his delegate 
may, by regulations, require the exporter or owner also to give bond 
to the United States, conditioned that the principal named in said 
bond will export the spirits as specified in such entry to the port 
designated in such entry, or to some other port without the jurisdiction 
of the United States. On the lading of such spirits, the collector of the 
port, after the filing of such bonds as the Secretary or his delegate may, 
by regulations, require, by the exporter or owner at the port of ship-
ment thereof, shall transmit to the Secretary or his delegate a clear-
ance certificate and a report of the inspection or gauge. 
Whenever a 
warehouseman of spirits in bond desires to change the packages in 
which such spirits are contained, for exportation, the Secretary or 
his delegate may, under regulations prescribed by him, and on the 
execution of proper bonds with sufficient sureties, permit the with-
drawal of so much spirits from bond and in such packages as the 
warehouseman desires to export. 
(d) I N TANKS OR TANK CARS.—Under such regulations as the 
Secretary or his delegate may prescribe, alcohol or other distilled 
spirits intended for export free of tax may be drawn from receiving 
cisterns at any distUlery, or from storage tanks in any internal revenue 
bonded warehouse, for transfer to tanks or tank cars for export from 
the United States, and all provisions of law relating to the exportation 
of distilled spirits not inconsistent herewith shall apply to spirits 
removed for export under this section. 
(e) LOSSES.—Section 5011 (a) shall apply to spirits withdrawn for 
exportation under this section. 
SEC. 5248. WITHDRAWAL OF SPIRITS WITHOUT PAYMENT OF TAX. 
(1) For proyisions relating to withdrawal of spirits, without payment 
of tax, to manufacturing bonded warehouses, see section 5522. 
(2) For provisions relating to withdrawal of spirits, without payment 
of tax, as supplies for certain vessels and aircraft, see 19 U. S. C. 1309. 
(3) For provisions authorizing regulations for withdrawal of spirits, 
without payment of tax, for use of United States, see section 7510. 
(4) For provisions relating to withdrawal of distilled spirits, without 
payment of tax, to foreign-trade zones, see 19 U. S. C. 81c. 
(5) For provisions relating to withdrawal of wine spirits, without 
payment of tax, for addition to wine, section 5373. 
(6) For provisions relating to withdrawal of rum, without payment of 
tax, for denaturation, see section 5331 (c). 
§ 5247(c) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
649 
SEC. 5249. PROHIBITED HOURS FOR REMOVAL OF SPIRITS. 
For provisions prohibiting removal of distilled spirits from internal 
revenue bonded warehouses during certain hours, see section 5195 (b). 
SEC. 5250. GAUGING, 
STAMPING 
AND BRANDING 
OF 
SPIRITS 
REMOVED FROM WAREHOUSE. 
(a) Except as provided by section 5245, or under section 5006 (a), 
whenever an application is received for the removal from any internal 
revenue bonded warehouse of any cask or package of distilled spirits 
on which the tax is to be paid, the storekeeper-gauger shall inspect 
and gauge such distilled spirits and determine the tax thereon, and 
shall, before such cask or package has left the warehouse, place on 
such cask or package such marks, brands, and stamps as the Sec-
retary or his delegate may by regulations prescribe, which marks, 
brands, and stamps shall be defaced when such cask or package is 
emptied. 
(b) The Secretary or his delegate may by regulations from time to 
time require any proprietor, at the proprietor's expense and under 
supervision of a storekeeper-gauger, to do such marking and brand-
ing and stamping and such mechanical labor pertaining to gauging 
required under this section as the Secretary or his delegate deems 
proper and determines may be done without danger to the revenue. 
SEC. 5251. BLENDING OF BEVERAGE BRANDIES IN INTERNAL REV-
ENUE BONDED WAREHOUSES. 
For provisions relating to the blending of beverage brandies in internal 
revenue bonded warehouses, see section 5023. 
SEC. 5252. DISCONTINUANCE OF WAREHOUSE AND TRANSFER OF 
MERCHANDISE. 
Whenever, in the opinion of the Secretary or his delegate, any 
internal revenue bonded warehouse is unsafe or unfit for use, or the 
merchandise therein is liable to loss or great wastage, he may dis-
continue such warehouse and require the merchandise therein to be 
transferred to such other warehouse as he may designate, and within 
such time as he may prescribe. 
Such transfer shall be made under 
the supervision of such officer as may be designated by the Secretary 
or his delegate and the expense thereof shall be paid by the owner of 
the merchandise. 
Whenever the owner of such merchandise fails to 
make such transfer within the time prescribed, or to pay the just 
and proper expense of such transfer, as ascertained and determined 
by the Secretary or his delegate, such merchandise may be seized 
and sold by the Secretary or his delegate in the same manner as 
goods are sold on distraint for taxes, and the proceeds of such sale 
shall be applied to the payment of the taxes due thereon and the 
cost and expenses of such sale and removal, and the balance paid 
over to the owner of such merchandise. 
§5252 
49012"—54 
44 
650 
INTERNAL REVENUE CODE OF 1954 
Subchapter D—Rectifying Plants 
Part I. Establishment, 
Part II. Operation. 
PART I—ESTABLISHMENT 
Sec. 5271. Notice of business of rectifier. 
Sec. 6272. Bond. 
Sec. 6273. Premises. 
Sec. 6274. Sign required on premises. 
Sec. 5275. Cross references. 
SEC. 5271. NOTICE OF BUSINESS OF RECTIFIER. 
(a) REQUIREMENTS.—Every person engaged in, or intending to be 
engaged in, the business of a rectifier, shall give notice in writing, 
subscribed by him, to the Secretary or his delegate, stating his name 
and residence, and if a company or firm, the name and residence of 
each member thereof, and the name and residence of every person 
interested or to be interested in the business, the precise place where 
such business is to be carried on; and if such business is carried on in 
a city, the residence and place of business shall be indicated by the 
name of the street and number of the building. 
The notice shall 
also state the process by which the applicant intends to rectify, purify 
or refine distilled spirits, that such rectifying premises are not on the 
premises of any distUlery registered for the distillation of spirits, and 
such additional particulars, as the Secretary or his delegate may by 
regulations prescribe. 
In case of any change in the location, form, 
capacity, ownership, agency, superintendency, or in the persons 
interested in the business of such rectifying establishment, notice 
thereof, in writing, shall be given to the Secretary or his delegate. 
Every notice required by this section shall be in such form, contain 
such additional particulars, and be submitted at such time or times, 
as the Secretary or his delegate may by regulations prescribe. 
(b) 
PENALTY.— 
For penalty for violation of this section, see section 5603. 
SEC. 5272. BOND. 
(a) REQUIREMENT.—The business of a rectifier of spirits shall be 
carried on, and the tax on rectified spirits and wines shall be paid, 
under such bonds as the Secretary or his delegate may by regulations 
prescribe. 
(b) APPROVAL OP BOND AS CONDITION TO COMMENCING BUSINESS.— 
For provisions relating to approval of bond as condition to commencing 
business of a rectifier, see section 5551. 
SEC. 5273. PREMISES. 
(a) GENERAL.—The premises of a rectifier shall be as described in 
his notice and, whether they consist of an entire building or of rooms 
in a building, shall have means of ingress from and egress into a public 
street or yard, or into a public hall or elevator shaft leading into a 
§5271 
. 
U-^-. tf-
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
651 
public street or yard, and shall be used exclusively for the business of 
rectification and the bottling of liquors rectified by him thereon, and 
the bottling of wines and spirits without rectification, 
(b) 
CROSS REFERENCES.— 
(1) For provisions authorizing the Secretary or his delegate to require 
installation of meters, tanks, and other apparatus, see section 5552. 
(2) For penalty for unlawful use of rectifying premises, see section 
5627. 
SEC. 5274. SIGN REQUIRED ON PREMISES. 
(a) REQUIREMENT.—Every person engaged in rectifying spirits 
shall, in such manner and form as the Secretary or his delegate may 
by regulations prescribe, place and keep conspicuously on the outside 
of the place of such business a sign exhibiting in plain and legible 
letters the name or firm of the rectifier, with the words: "rectifier 
of spirits". 
(b) PENALTY.— 
For penalty for failure to post sign or improperly posting such sign, 
see section 5681. 
SEC. 5275. CROSS REFERENCES. 
(1) For provisions requiring the registration of stills, see section 5174. 
(2) For provisions requiring permit to set up still, boiler, or other 
vessel, for distilling, see section 5105. 
(3) For provisions requiring payment of special (occupational) tax as 
rectifier, see section 5081, and as wholesale liquor dealer, see section 
5111, and as retail liquor dealer, see section 5121. 
PART II—OPERATION 
Sec. 5281. Regulation of business of rectifier. 
Sec. 5282. Rectification of spirits. 
Sec. 5283. Examination of premises. 
Sec. 5284. Prohibited hours for removal of distilled spirits. 
Sec. 5285. Records and returns. 
SEC. 5281. REGULATION OF BUSINESS OF RECTIFIER. 
(a) GENERAL.—The business of a rectifier shall be carried on under 
such regulations as the Secretary or his delegate may prescribe. 
The Secretary or his delegate may prescribe such regulations under 
this part and subpart B of part I of subchapter A as he deems neces-
sary. 
All distilled spirits or wines taxable under sections 5021 and 
5022 shall be subject to regulations prescribed by the Secretary or his 
delegate concerning the use thereof in the manufacture, blending, 
compounding, mixing, marking, branding, and sale of rectified 
products. 
(b) 
CROSS REFERENCES.— 
(1) For requirement that the premises of a rectifier be used exclu-
sively for rectification and bottling of spirits and wines, see section 
5273 (a). 
(2) For provisions requiring the blending of straight whiskies and 
pure fruit brandies to be under supervision of a revenue officer and 
under conditions prescribed by regulations, see section 5025 (e). 
SEC. 5282. RECTIFICATION OF SPIRITS. 
(a) NOTICE OF INTENTION TO RECTIFY.—^When any rectifier in-
tends to rectify or compound any distilled spirits he shall, before dump-
ing any distilled spirits for that purpose, give notice to the Secretary 
or his delegate of his intention so to rectify. 
Such notice shall be 
§ 5282(a) 
652 
INTERNAL REVENUE CODE OF 19 
54 
made in such form and contain such particulars as the Secretary or 
his delegate may by regulations prescribe. 
(b) 
GAUGING, BEANDING, 
AND STAMPING RECTIFIED SPIRITS.— 
Whenever any cask or package of distilled spirits containiag 5 wine 
gallons or more is dumped by a rectifier for rectification, or filled 
and received from rectification for sale, shipment, or delivery, the 
same shall be gauged, marked, branded and stamped by a storekeeper-
ganger, whose duty it shall be to mark and brand the same and place 
thereon a stamp, which shall be in such form and shall show such in-
formation as the Secretary or his delegate may by regulations pre-
scribe; but the Secretary or his delegate may by regulations provide 
that the gauging, marking, stamping, and branding of such packages 
so dumped for rectification, or received therefrom, be done by the 
rectifier instead of by a storekeeper-ganger. 
(c) AFFIXING STAMPS.—The stamps required by this section shall 
in every case be affixed to a smooth surface of the cask or other pack-
age, which surface shall not have been previously painted or covered 
with any substance, and so as to fasten the same securely to the cask 
or package, and shall be duly canceled, and shall then be immediately 
covered with a coating of transparent varnish or other substance, so 
as to protect them from removal or damage by exposure; and such 
affixing, cancellation, and covering shall be done in such manner as 
the Secretary or his delegate may by regulations prescribe. 
(d) PENALTY.— 
For penalty for violation of subsections (a) and (b), see section 5630. 
SEC. 5283. EXAMINATION OF PREMISES. 
The provisions of section 5196 (c) requiring the giving of assistance 
to revenue officers for the examination of the premises and section 
5196 (d) authorizing revenue officers to break up grounds or walls 
shall apply in like manner to rectifiers and rectifying premises. 
SEC. 5284. PROHIBITED 
HOURS FOR REMOVAL OF DISTILLED 
SPIRITS. 
For provisions prohibiting the removal during certain hours of distilled 
spirits in any cask or package containing more than 10 gallons, see 
section 5195 (b). 
SEC. 5285. RECORDS AND RETURNS. 
(a) MONTHLY RETURNS.—Every person engaged in rectifying or 
compounding distilled spirits shall, on or before the 10th day of every 
month, render to the Secretary or his delegate a monthly return of 
the operations of the preceding month, taken from his records, in 
such form and manner, and containing such information, as the Sec-
retary or his delegate may by regulations prescribe. 
(b) RECORD OF RECTIFIER AS WHOLESALE DEALER.—Every recti-
fier who sells, or offers for sale, distilled spirits in quantities of 5 wine-
gallons or more to the same person at the same time shall keep daily a 
record of distilled spirits received and disposed of by him, in such form, 
at such place and containing such information as the Secretary or his 
delegate may by regulations prescribe. 
Such rectifiers shall also 
render such correct transcripts, summaries, and copies of their records 
at such times and in such form and manner as the Secretary or his 
delegate may by regulations require. 
The records required to be kept 
under this section, and regulations issued pursuant thereto, shall be 
§ 5282(a) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
653 
preserved for a period of 2 years, and during such period shall be 
available during business hours for inspection and the taking of 
abstracts therefrom by the Secretary or his delegate, 
(c) PENALTY.— 
For penalty for refusal or neglect of rectifier to keep records required 
under subsection (b), or for false entries therein, etc., see section 5621. 
§ 5285(c) 
654 
INTERNAL REVENUE CODE OF 1954 
Subchapter E—Industrial Alcohol Plants, Bonded Warehouses, 
Denaturing Plants, and Denaturation 
Part I. Industrial alcohol plants, bonded warehouses, and denatur-
ing plants. 
Part II. Denaturation. 
PART I—INDUSTRIAL ALCOHOL PLANTS, BONDED WARE-
HOUSES, AND DENATURING PLANTS 
Sec. 5301. Establishment of industrial alcohol plants. 
Sec. 5302. Establishment of industrial alcohol bonded warehouses. 
Sec. 5303. Establishment of industrial alcohol denaturing plants. 
Sec. 5304. Alcohol permits. 
Sec. 5305. Regulations for establishing, bonding, and operation of 
plants and warehouses. 
Sec. 5306. Exemption of industrial alcohol plants and warehouses 
from certain laws. 
Sec. 5307. Production, use, or sale of alcohol. 
Sec. 5308. Transfer of alcohol to other plants or warehouses. 
Sec. 5309. Withdrawal of fermented liquors to industrial alcohol 
plants. 
Sec. 5310. Withdrawal of alcohol free of tax. 
Sec. 5311. Importation of alcohol for industrial purposes. 
Sec. 5312. Remission and refund of tax on alcohol for loss or leakage. 
Sec. 5313. Powers and duties of persons enforcing this part. 
Sec. 5314. Officers and agents authorized to investigate, issue search 
warrants, and prosecute for violations. 
Sec. 5315. Compliance with court subpoena as to testifying or pro-
ducing records. 
Sec. 5316. Form of affidavit, information, or indictment. 
Sec. 5317. Applicability of other laws. 
Sec. 5318. Application of part to Puerto Rico and Virgin Islands. 
Sec. 5319. Definitions, etc. 
Sec. 5320. Cross references. 
SEC. 5301. ESTABLISHMENT OF INDUSTRIAL ALCOHOL PLANTS. 
Any person establishing a plant for the production of industrial 
alcohol shall before operation, make application to the Secretary or 
his delegate for registration of his plant, file bond, and receive permit 
for the operation of such plant. 
SEC. 5302. ESTABLISHMENT 
OF INDUSTRIAL 
ALCOHOL 
BONDED 
WAREHOUSES. 
Warehouses for the storage and distribution of alcohol may be 
established on filing of application and bond and issuance of permit 
at such places, either in connection with the manufacturing plant or 
elsewhere, as the Secretary or his delegate may determine; the entry 
and storage of alcohol therein and the withdrawals of alcohol there-
from shall be made in such containers and by such means as the Secre-
tary or his delegate by regulation may prescribe. 
Permanent tanks 
and other structures located on the industrial alcohol plant premises 
and approved by the Secretary or his delegate shall be deemed to be 
warehouses within the meaning of this section. 
§5301 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
655 
SEC. 5303. ESTABLISHMENT OF INDUSTRIAL ALCOHOL DENATUR-
ING PLANTS. 
On the filing of application and bond and issuance of permit, 
denaturing plants may be established on the premises of any indus-
trial alcohol plant, or elsewhere, and shall be used exclusively for the 
denaturation of alcohol by the admixture of such denaturing materials 
as shall render the alcohol, or any compound in which it is authorized 
to be used, unfit for use as an intoxicating beverage. 
SEC. 5304. ALCOHOL PERMITS. 
(a) GENERAL RULE.^— 
(1) PERMIT REQUIRED.—No one shall manufacture alcohol, pro-
cure it tax-free, denature it, deal iu or use specially denatured 
alcohol, recover completely or specially denatured alcohol, or trans-
port specially denatured or tax-free alcohol, without first obtaining 
a permit from the Secretary or his delegate so to do. 
All such 
permits may be issued for 1 year, and shall expire on the 31st 
day of December next succeeding the issuance thereof: Provided, 
That the Secretary or his delegate may without formal application 
or new bond extend any permit granted under this part after 
August 31 in any year to December 31 of the succeeding year. 
(2) AUTHORITY TO PRESCRIBE REGULATIONS.—Permits to pur-
chase or procure specially denatured alcohol and tax-free alcohol 
shall be issued in such terms and under such conditions as the 
Secretary or his delegate may by regulation prescribe. 
(3) RESTRICTION ON ISSUANCE OF PERMITS.—No permit shall be 
issued to any person who, within 1 year before the application 
therefor or issuance thereof, shall not in good faith have conformed 
to the provisions of this chapter, or shall have violated the terms of 
any permit issued under this section, or made any false statement in 
the application therefor, or willfully failed to disclose any infor-
mation required by regulation to be furnished, or violated any law 
of the United States relating to intoxicating liquor, or willfully 
violated any law of any State, Territory, or possession of the 
United States or of the District of Columbia relating to intoxicating 
liquor. 
(4) FORM OP APPLICATION AND PERMIT.—Every permit shall be 
in writing, dated when issued, and signed by the Secretary or his 
delegate. It shall give the name and address of the person to whom 
it is issued and shall designate and limit the acts that are permitted 
and the time when and place where such act^ may be performed. 
No permit shall be issued until a verified, written application shall 
have been made therefor, setting forth the qualification of the 
applicant and the purpose for which the alcohol or denatured alcohol 
is to be used. The Secretary or his delegate may prescribe the form 
of all permits and applications and the facts to be set forth therein. 
(5) BOND REQUIREMENT.—Before any permit is granted, the Sec-
retary or his delegate may require a bond, in such form and amount 
as he may prescribe, to insure compliance with the terms of the 
permit and the provisions of this chapter. 
(6) REVIEW OP DISAPPROVAL.—In the event of the refusal by the 
Secretary or his delegate of any application for a permit, the appli-
cant may have a review of his decision before a court with equity 
jurisdiction, in the manner provided in subsection (c). 
§ 5304(a)(6) 
656 
INTERNAL REVENUE CODE OF 1954 
(b) REVOCATION OF PERMIT.—If at any time there shall be filed 
with the Secretary or his delegate a complaint under oath setting 
forth facts showing, or if the Secretary or his delegate has reason to 
believe, that any person who has a permit is not in good faith conform-
ing to the provisions of this chapter, or has violated the terms of such 
permit, or has made any false statement in the application therefor, 
or has willfully failed to disclose any information required by regula-
tion to be furnished, or has violated any law of the United States, or 
of any State, Territory, or possession of the United States, or of the 
District of Columbia, relating to intoxicating liquor, the Secretary 
or his delegate shall immediately issue an order citing such person to 
appear before him on a day named not more than 30 nor less than 15 
days from the date of service on such permittee of a copy of the 
citation, which citation shall be accompanied by a copy of such com-
plaint, or in the event that the proceedings be initiated by the Secre-
tary or his delegate, with a statement of the facts constituting the 
violation charged, at which time a hearing shall be had unless con-
tinued for cause. Such hearing shall be held within the judicial district 
and within 50 mUes of the place where the offense is alleged to have 
occurred unless the parties agree on another place. If it be found that 
such person is not in good faith conforming to the provisions of this 
chapter or has violated the terms of his permit, or made any false 
statement in the application therefor, or willfully failed to disclose 
any information required by regulation to be furnished, or violated 
any law of the United States relating to intoxicating liquor, or willfully 
violated any law of any State, Territory, or possession of the United 
States or of the District of Columbia relating to intoxicating liquor, 
such permit shall be revoked, and no permit shall be granted to such 
person within 1 year thereafter. Should the permit be revoked by the 
Secretary or his delegate, the permittee may have a review of his 
decision before a court with equity jurisdiction in the manner provided 
in subsection (c). During the pendency of such action such permit 
shall be temporarily revoked. 
(c) INACCURATE DESCRIPTION OF DENATURED ARTICLES.—^When-
ever the Secretary or his delegate has reason to believe that denatured 
alcohol, denatured rum, or articles do not correspond with the descrip-
tions and limitation as to such alcohol, rum, or articles provided by 
law and regulations, he shall cause an analysis of such alcohol, rum, 
or articles to be made, and if on such analysis the Secretary or his 
delegate shall find that such alcohol, rum, or articles do not so cor-
respond, he shall give not less than 15 days' notice in writing to the 
person who is the manufacturer thereof to show cause why such alcohol, 
rum, or articles should not be dealt with as other distilled spirits, 
such notice to be served personally or by registered mail, as the Secre-
tary or his delegate may determine, and shall specify the time when, 
the place where, and the name of the agent or ofiicial before whom, 
such person is required to appear. If the manufacturer of such alcohol, 
rum, or articles fails to show to the satisfaction of the Secretary or his 
delegate that the alcohol, rum, or articles manufactured by him cor-
respond to the descriptions and limitations as to such alcohol, rum, or 
articles provided by law and regulations, his permit to manufacture 
and sell the same shall be revoked. 
The manufacturer may by appro-
priate proceeding in a court with equity jurisdiction have the action 
§ 5304(b) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
657 
of the Secretary or his delegate reviewed, and the court may affirm, 
modify, or reverse the finding of the Secretary or his delegate as the 
facts and law of the case may warrant, and during the pendency of 
such proceeding, may restrain the manufacture, sale, or other disposi-
tion of such alcohol, rum, or articles. 
(d) PROVISIONS RELATING TO VENUE.—In case of a sale of liquor 
or denatured alcohol or denatured rum, where the delivery thereof was 
made by a common or other carrier, the sale and delivery for purposes 
of prosecution or revocation of any permit shall be deemed to be made 
in the county or district wherein the delivery was made by such carrier 
to the consignee, his agent or employee, or in the county or district 
wherein the sale was made, or from which the shipment was made, and 
prosecution for such sale or delivery may be had in any such county 
or district. 
SEC. 5305. REGULATIONS FOR ESTABLISHING, BONDING, AND OPER-
ATION OF PLANTS AND WAREHOUSES. 
The Secretary or his delegate shall issue regulations respecting the 
establishment, bonding, and operation of industrial alcohol plants, de-
naturing plants, and bonded warehouses authorized by this subchap-
ter, and the distribution, sale, export, and use of alcohol which may be 
necessary, advisable, or proper, to secure the revenue, to prevent 
diversion of the alcohol to illegal uses, and to place the nonbeverage 
alcohol industry and other industries using such alcohol as a chemical 
raw material or for other lawful purpose on the highest possible plane 
of scientific and commercial efficiency consistent with the interests of 
the Government, and which shall insure an ample supply of such 
alcohol and promote its use in scientific research and the development 
of fuels, dyes, and other lawful products. 
SEC. 5306. EXEMPTION OF INDUSTRIAL ALCOHOL PLANTS AND 
WAREHOUSES FROM CERTAIN LAWS. 
Industrial alcohol plants and bonded warehouses established under 
this part shall be exempt from section 5082 and the special taxes im-
posed by part II of subchapter A and from sections 5116, 5171, 5172, 
5173 (a) and (b), 5174, 5175, 5176, 5178, 5179, 5180, 5191, 5192 (b), (c) 
and (d), 5193, 5195, 5196 (a) and (e), 5197, 5231, 5232, 5241 (c), 5242, 
5244, 5250, 5271, 5274, 5551, 5625 and 5640, and from such other pro-
visions of law relating to distilleries and bonded warehouses as may 
by regulations be deemed inapplicable to industrial alcohol plants and 
bonded warehouses established under this part. Regulations may be 
made embodying any provisions of part II of subchapter A or of the 
sections above enumerated. 
SEC. 5307. PRODUCTION, USE OR SALE OF ALCOHOL. 
Alcohol may be produced at any industrial alcohol plant established 
under this part, from any raw materials or by any processes suitable 
for the production of alcohol, and, under regulations, may be used at 
any industrial alcohol plant or bonded warehouse or sold or disposed 
of for any lawful purpose. 
SEC. 5308. TRANSFER OF ALCOHOL TO OTHER PLANTS OR WARE-
HOUSES. 
Alcohol produced at any registered industrial alcohol plant or stored 
in any bonded warehouse may be transferred, under regulations, to any 
other registered industrial alcohol plant or bonded warehouse for any 
lawful purpose. 
§ 5308 
658 
INTERNAL REVENUE CODE OF 19 54 
SEC. 5309. WITHDRAWAL OF FERMENTED LIQUORS TO INDUSTRIAL 
ALCOHOL PLANTS. 
Fermented liquors may be conveyed without payment of tax from 
the brewery premises where produced to a contiguous industrial alcohol 
plant, to be used as distilling material, and the residue from such dis-
tillation, containing less than one-half of 1 percent of alcohol by 
volume, which is to be used in making beverages, may be manipulated 
by cooling, flavoring, carbonating, settling, and filtering on the dis-
tillery premises or elsewhere. The removal of the taxable fermented 
liquor from the brewery to the industrial alcohol plant and the opera-
tion of such plant and removal of the residue therefrom shall be under 
the supervision of such officer or officers as the Secretary or his delegate 
shall deem proper, and the Secretary or his delegate is hereby author-
ized to make such regulations as may be necessary to give force and 
effect to this section and to safeguard the revenue. 
SEC. 5310. WITHDRAWAL OF ALCOHOL FREE OF TAX. 
(a) FOR DENATURATION.—Alcohol produced at any industrial 
alcohol plant or stored in any bonded warehouse may, under regula-
tions, be withdrawn tax-free, as provided by existing law from any such 
plant or warehouse for transfer to any denaturing plant for denatura-
tion, or may, under regulations, before or after denaturation, be 
removed from any such plant or warehouse for any lawful tax-free 
purpose. 
Alcohol lawfully denatured may, under regulations, be 
sold free of tax either for domestic use or for export. 
(b) FOR U S E BY FEDERAL OR STATE AGENCIES.—Alcohol may be 
withdrawn tax-free, under regulations, from any industrial alcohol 
plant or bonded warehouse by the United States or any governmental 
agency thereof, or by the several States and Territories or any 
municipal subdivision thereof or by the District of Columbia. 
Alcohol 
may be withdrawn tax-free from customs custody by the United States 
or any governmental agency thereof for its own use, under such 
regulations as may be prescribed. 
(c) U S E IN RESEARCH, HOSPITALS, OR FOR CHARITABLE CLINICS.— 
Alcohol may be withdrawn, under regulations, from any industrial 
alcohol plant or bonded warehouse tax-free for the use of any scientific 
university or college of learning, for any laboratory for use exclusively 
in scientific research, or for use in any hospital or sanitarium, or for 
the use of any clinic operated for charity and not for profit, including 
use in the compounding of bona fide medicines for treatment outside 
of such clinics of patients thereof, but not for sale. 
(d) CONDITIONS OF EXEMPTIONS.—Any person permitted to obtain 
alcohol tax-free, except the United States and the several States and 
Territories and subdivisions thereof, and the District of Columbia, 
shall first apply for and secure a permit to purchase the same and give 
the bonds prescribed under section 5304, but alcohol withdrawn for 
nonbeverage purposes for use of the United States and the several 
States, Territories, and subdivisions thereof, and the District of 
Columbia may be purchased and withdrawn subject only to such 
regulations as may be prescribed. 
SEC. 5311. IMPORTATION OF ALCOHOL FOR INDUSTRIAL PURPOSES. 
Under regulations, and subject from the time of its withdrawal 
from customs custody to all the applicable provisions of this part, 
alcohol of 160 proof, or greater, may be imported into the United 
§ 5309 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
659 
States and be withdrawn, in bond, from customs custody, without 
payment of the internal revenue tax imposed by section 5001 upon 
the act of importing such alcohol, for transfer to industrial alcohol 
plants, alcohol bonded warehouses, and denaturing plants for redis-
tillation or denaturation and withdrawal, or withdrawal without 
redistillation or denaturation, tax-free or taxpaid, as the case may be, 
for all the purposes authorized by this part. 
SEC. 5312. REMISSION AND REFUND OF TAX ON ALCOHOL FOR LOSS 
OR LEAKAGE. 
For provisions relating to remission or refund of tax on alcohol for 
loss or leakage, see section 5011 (c). 
SEC. 5313. POWERS AND DUTIES OF PERSONS ENFORCING THIS 
PART. 
(a) SECRETARY AND OTHER PERSONS.—The Secretary, his assist-
ants, agents, and inspectors, and all other officers, employees, or 
agents of the United States, whose duty it is to enforce criminal laws, 
shall have all the rights, privileges, powers, and protection in the en-
forcement of the provisions of this part or section 5686 which are con-
ferred by law for the enforcement of any laws in respect of the taxation, 
importation, exportation, transportation, manufacture, possession, or 
use of, or traffic in, intoxicating liquors. 
(b) POWER TO SECURE RECORDS.—All records and reports kept or 
filed under this part, and all liquor or property to which such records 
or reports relate, shall be subject to inspection at any reasonable 
hour by the Secretary or any of his agents or by any public prosecutor 
or by any person designated by him, or by any peace officer in the 
State where records or reports are kept, and copies of such records 
and reports duly certified by the person with whom kept or filed 
may be introduced in evidence with like effect as the originals thereof, 
and verified copies of such records shall be furnished to the Secretary 
or his delegate when called for. 
SEC. 5314. OFFICERS AND AGENTS AUTHORIZED TO INVESTIGATE, 
ISSUE SEARCH WARRANTS, AND PROSECUTE FOR VIOLA-
TIONS. 
The Secretary, his assistants, agents, and inspectors, shall investi-
gate and report violations of this chapter or of section 7302 to the 
United States Attorney for the district in which committed, who is 
hereby charged with the duty of prosecuting the offenders, subject to 
the direction of the Attorney General, as in the case of other offenses 
against the laws of the United States; and the Secretary, his assist-
ants, agents, and inspectors, may swear out warrants before United 
States commissioners or other officers or courts authorized to issue 
warrants for the apprehension of such offenders, and may, subject to 
the control of such United States attorney, conduct the prosecution 
at the committing trial for th-e purpose of having the offenders held 
for the action of a grand jury. 
Section 3041 of title 18 of the United 
States Code is hereby made applicable in the enforcement of this 
chapter and section 7302. 
Officers mentioned in section 3041 are 
authorized to issue search warrants under the limitations provided in 
chapter 205 of title 18 of the United States Code, and the Federal 
Rules of Criminal Procedure. 
§5314 
660 
INTERNAL REVENUE CODE OF 1954 
SEC. 5315. COMPLIANCE WITH COURT SUBPOENA AS TO TESTIFYING 
OR PRODUCING RECORDS. 
No person shall be excused, on the ground that it may tend to 
incriminate him or subject him to a penalty or forfeiture, from 
attending and testifying, or producing books, papers, documents, 
and other evidence in obedience to a subpoena of any court in any 
suit or proceeding based on or growing out of any alleged violation 
of this part or section 5686; but no natural person shall be prosecuted 
or subjected to any penalty or forfeiture for or on account of any 
transaction, matter, or thing as to which, in obedience to a subpoena 
and under oath, he may so testify or produce evidence, but no person 
shall be exempt from prosecution and punishment for perjury com-
mitted in so testifying. 
SEC. 5316. FORM OF AFFIDAVIT, INFORMATION, OR INDICTMENT. 
In any affidavit, information, or indictment for the violation of 
this subchapter, or of section 5686, separate offenses may be united 
in separate counts, and the defendant may be tried on all such offenses 
at one trial and the penalty for all offenses may be imposed. 
It shall 
not be necessary in any affidavit, information, or indictment to give 
the name of the purchaser or to include any defensive negative aver-
ments, but it shall be sufficient to state that the act complained of 
was then and there prohibited and unlawful, but this provision shall 
not preclude the trial court from directing the furnishing to the 
defendant of a bill of particulars when it deems it proper to do so. 
SEC. 5317. APPLICABILITY OF OTHER LAWS. 
(a) INTERNAL REVENUE LAWS.—All administrative provisions of 
internal revenue law, including those relating to assessment, collection, 
abatement, and refund of taxes and penalties, and the seizure and 
forfeiture of property, shall apply to this part and section 5686 insofar 
as they are not inconsistent with the provisions thereof. 
(b) FEDERAL TRADE COMMISSION ACT.—The provisions, including 
penalties, of sections 9 and 10 of the Federal Trade Commission Act 
(U. S. C , title 15, sees. 49, 50), as now or hereafter amended, shall 
apply to the jurisdiction, powers, and duties of the Secretary under 
this part, and section 5686, and to any person (whether or not a 
corporation) subject to the provisions of this part or section 5686. 
SEC. 5318. APPLICATION OF PART TO PUERTO RICO AND VIRGIN 
ISLANDS. 
This part, sections 5001 (a) (6), (8), and (b), 5004 (b), 5005 (c), 
5007 (d), 5011 (c), 5686, and 7302, the penalties of special application 
thereto, and all provisions of the internal revenue laws relating to the 
enforcement thereof shall extend and apply to Puerto Rico and the 
Virgin Islands. 
The respective insular governments shall advance 
to the Treasury of the United States such funds as may be required 
from time to time by the Secretary or his delegate for the purpose of 
defraying all expenses incurred by the Treasury Department in 
connection with the enforcement in Puerto Rico and the Virgin Islands 
of this part, sections 5001 (a) (6), (8), and (b), 5004 (b), 5005 (c), 
5007 (d), 5011 (c), 5686, and 7302, and regulations promulgated there-
under. 
The funds so advanced shall be deposited in a separate trust 
fund in the Treasury of the United States and shall be available to the 
Treasury Department for the purposes of this section. 
§5315 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
661 
SEC. 5319. DEFINITIONS, ETC. 
For purposes of this part or section 5686— 
(1) The term "alcohol" means that substance known as ethyl 
alcohol, hydrated oxide of ethyl, or spirit of wine, from whatever 
source or whatever processes produced. Spirits of proof of less than 
160 degrees may under regulations be deemed to be alcohol for the 
purpose of denaturation. 
(2) The term "container" includes any receptacle, vessel, or form 
of package, tank, or conduit used, or capable of use, for holding, 
storing, transferring, or shipping alcohol. 
(3) The term "application" means a formal written request sup-
ported by a verified statement of facts, showing that the Secretary 
or his delegate may grant the request. 
(4) The term "permit" means a formal written authorization by 
the Secretary or his delegate, setting forth specifically therein the 
things that are authorized. 
(5) The term "bond" means an obligation authorized or required 
by or under this part or under part II of subchapter C of chapter 26 
of the Internal Revenue Code of 1939, or any regulation there-
under, executed in such form and for such penal sum as may 
have been or shall be required by the Secretary or his delegate or 
prescribed by regulations. 
(6) The term "regulation" means any regulation prescribed by 
the Secretary or his delegate for carrying out the provisions of this 
part, and the Secretary or his delegate is authorized to make such 
regulations. 
(7) The term "articles" means any substance or preparation in 
the manufacture of which denatured alcohol or denatured rum is 
used. 
This definition shall also apply to the term "articles" as 
used in section 5001 (a) (6). 
(8) The term "person" means and includes natural persons, firms, 
partnerships, corporations, and associations. 
SEC. 5320. CROSS REFERENCES. 
(1) For provisions relating to liability of proprietors of industrial 
alcohol plants and bonded warehouses, see section 5005 (c). 
(2) For provisions relating to attachment of lien in case of alcohol, 
see section 5004 (b). 
(3) For provisions relating to penalties and forfeitures, see sub-
chapter J. 
PART II—DENATURATION 
Sec. 5331. Withdrawal from bond free of tax. 
Sec. 5332. Recovery of spirits for reuse in manufacturing. 
Sec. 5333. Sale of abandoned spirits for denaturation without collec-
tion of tax. 
Sec. 5334. Cross references. 
SEC. 5331. WITHDRAWAL FROM BOND FREE OF TAX. 
(a) FOR INDUSTRIAL U S E . — 
(1) DENATURATION REQUIRED.—Domestic alcohol of such degree 
of proof as may be prescribed by the Secretary or his delegate, may 
be withdrawn from bond without the payment of internal revenue 
tax, for use in the arts and industries, and for fuel, light, and power, 
provided such alcohol shall have been mixed in the presence and 
§ 5331(a)(1) 
662 
INTERNAL REVENUE CODE OF 1954 
under the direction of an authorized Government officer, after 
withdrawal from the distillery warehouse, with methyl alcohol or 
other denaturing material or materials, or admixture of the same, 
suitable to the use for which the alcohol is withdrawn, but which 
destroys its character as a beverage and renders it unfit for liquid 
medicinal purposes; such denaturing to be done on the application 
of any registered distillery in denaturing bonded warehouses specially 
designated or set apart for denaturing purposes only, and under 
conditions prescribed by the Secretary or his delegate. 
(2) DENATURING MATERIALS.—The character and quantity of 
such denaturing material and the conditions under which such 
alcohol may be withdrawn free of tax shall be prescribed by the 
Secretary or his delegate, who shall make all necessary regulations 
for carrying into effect the provisions of this section. 
(3) RECORDS.^—Distillers, manufacturers, dealers, and all other 
persons furnishing, handling, or using alcohol withdrawn from bond 
under this section shall keep such books and records, execute such 
bonds, and render such returns as the Secretary or his delegate may 
by regulations require. 
Such books and records shall be open at 
all times to the inspection of any internal revenue officer or agent. 
(b) FOR U S E IN MANUFACTURE OF CHEMICALS.—Notwithstanding 
anything contained in subsection (a), domestic alcohol when suitably 
denatured may be withdrawn from bond without the payment of 
internal revenue tax and used in the manufacture of ether and chloro-
form and other definite chemical substances where said alcohol is 
changed into some other chemical substance and does not appear in 
the finished product as alcohol. 
(c) WITHDRAWAL OF RUM.^—Rum of not less than 150 degrees proof 
may be withdrawn, for denaturation only, in accordance with sub-
section (a). 
SEC. 5332. RECOVERY OF SPIRITS FOR REUSE IN MANUFACTURING. 
Manufacturers employing processes in which alcohol or rum, used 
free of tax under section 5331, is expressed or evaporated from the 
articles manufactured, shall be permitted to recover such alcohol or 
rum and to have such alcohol or rum restored to a condition suitable 
solely for reuse in manufacturing processes under such regulations as 
the Secretary or his delegate may prescribe. 
SEC. 5333. SALE OF ABANDONED SPIRITS FOR DENATURATION WITH-
OUT COLLECTION OF TAX. 
Notwithstanding any other provision of law, any distilled spirits 
abandoned to the United States may be sold, in such cases as the Secre-
tary or his delegate may by regulation provide, to the proprietor of any 
industrial alcohol plant for denaturation, or redistillation and denatur-
ation, without the payment of the internal revenue tax thereon. 
SEC. 5334. CROSS REFERENCES. 
(1) For penalty for unlawful use or concealment of denatured alcohol, 
see section 5647. 
(2) For applicability of all provisions of law relating to alcohol that is 
not denatured, including those requiring payment of tax, to denatured 
alcohol, denatured rum or articles produced, withdrawn, sold, trans-
ported, or used in violation of law or regulations, see section 5001 (a) (6). 
§ 5331(a)(1) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
663 
Subchapter F—Bonded and Taxpaid Wine Premises 
Part 
I. Establishment. 
Part II. Operations. 
Part III. Cellar treatment and classification of wine. 
Part IV. General. 
PART I—ESTABLISHMENT 
Sec. 5351. Bonded wine cellar. 
Sec. 5352. Taxpaid wine bottling house. 
Sec. 5353. Bonded wine warehouse. 
Sec. 5354. Bond. 
Sec. 5355. General provisions relating to bonds. 
Sec. 5356. Application. 
Sec. 5357. Premises. 
SEC. 5351. BONDED WINE CELLAR. 
Any person establishing premises for the production, blending, 
cellar treatment, storage, bottling, packaging, or repackaging of un-
taxpaid wine (other than wine produced exempt from tax under sec-
tion 5042), including the use of wine spirits in wine production, shall, 
before commencing operations, make application to the Secretary or 
his delegate and file bond and receive permission to operate. 
Such 
premises shall be known as ''bonded wine cellars": Provided, That 
any such premises engaging in production operations may, in the 
discretion of the Secretary or his delegate, be designated as a "bonded 
winery". 
SEC. 5352. TAXPAID WINE BOTTLING HOUSE. 
Any person bottling, packaging, or repackaging taxpaid wines at 
premises other than a rectifying plant or a taxpaid distilled spirits 
bottling house shall, before commencing such operations, make appli-
cation to the Secretary or his delegate and receive permission to 
operate. 
Such premises shall be known as "taxpaid wine bottling 
houses". 
SEC. 5353. BONDED WINE WAREHOUSE. 
Any responsible warehouse company or other responsible person 
may, upon filing application with the Secretary or his delegate and 
consent of the proprietor and the surety on the bond of any bonded 
wine cellar, under regulations prescribed by the Secretary or his dele-
gate, establish on such premises facilities for the storage of wines and 
allied products for credit purposes, to be known as a "bonded wine 
warehouse". 
The proprietor of the bonded wine cellar shall remain 
responsible in all respects for operations in the warehouse and the tax 
on the wine or wine spirits stored therein. 
SEC. 5354. BOND. 
The bond for a bonded wine cellar shall be in such form, on such 
conditions, and with such adequate surety, as regulation issued by the 
Secretary or his delegate shall prescribe, and shall be in a penal sum 
not less than the tax on any wine or wine spirits possessed or in 
§5354 
664 
INTERNAL REVENUE CODE OF 1954 
transit at any one time, but not less than $1,000 nor more than 
$50,000: Provided, That where the tax on such wine and on such 
wine spirits exceeds $250,000, the penal sum of the bond shall be 
not more than $100,000: And provided further, That where additional 
liability arises as a result of deferral of payment of tax payable on 
any return, the Secretary or his delegate may require the proprietor 
to file a supplemental bond in such amount as may be necessary to 
protect the revenue. 
The liability of any person on any such bond 
shall apply whether the transaction or operation on which the liability 
of the proprietor is based occurred on or off the proprietor's premises, 
SEC. 5355. GENERAL PROVISIONS RELATING TO BONDS. 
The provisions of section 5551 (relating to bonds) shall be applicable 
to the bonds required under section 5354. 
SEC. 5356. APPLICATION. 
The application required by this part shall disclose, as regulations 
issued by the Secretary or his delegate shall provide, such information 
as may be necessary to enable the Secretary or his delegate to deter-
mine the location and extent of the premises, the type of operations 
to be conducted on such premises, and whether the operations will be 
in conformity with law and regulations. 
SEC. 5357. PREMISES. 
Bonded wine cellar premises, including noncontiguous portions 
thereof, shall be so located, constructed and equipped, as to afford 
adequate protection to the revenue, as regulations prescribed by the 
Secretary or his delegate may provide. 
PART II—OPERATIONS 
Sec. 5361. Bonded wine cellar operations. 
Sec. 5362. Removals of wine from bonded premises. 
Sec. 5363. Taxpaid wine bottling house operations. 
Sec. 5364. Standard wine premises. 
Sec. 5365. Segregation of operations. 
Sec. 5366. Supervision. 
Sec. 5367. Records. 
Sec. 5368. Gauging, marking, and stamping. 
Sec. 5369. Inventories. 
Sec. 5370. Losses. 
Sec. 5371. Insurance coverage. 
Sec. 5372. Sampling. 
Sec. 5373. Wine spirits. 
SEC. 5361. BONDED WINE CELLAR OPERATIONS. 
In addition to the operations described in section 5351, the pro-
prietor of a bonded wine cellar may, subject to regulations prescribed 
by the Secretary or his delegate, on such premises receive unmer-
chantable taxpaid wine for return to bond, reconditioning, or destruc-
tion ; prepare for market and store commercial fruit products and by-
products not taxable as wines; produce or receive distilling material or 
vinegar stock; produce or receive heavy bodied blending wines, 
Spanish-type blending sherries, and similar wine products made from 
fruit, with or without added wine spirits, and without added sugar, 
subject to tax as wine but not for sale or consumption as beverage 
wine; and such other operations as may be conducted in a manner 
that will not jeopardize the revenue or conflict with wine operations. 
§ 5354 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
665 
SEC. 5362. REMOVALS OF WINE FROM BONDED PREMISES. 
Wine may be removed from bonded wine cellars subject to payment 
of the tax. 
Wine may also be removed from the premises without 
liability for tax being incurred by reason of such removal, under such 
regulations and bonds as the Secretary or his delegate may deem 
necessary to protect the revenue, for the following purposes: 
(1) transfer to any bonded wine cellar; 
(2) export by the proprietor or by any authorized exporter; 'V 
(3) transfer to any foreign trade zone; 
(4) use on vessels and aircraft; 
(5) transfer to any class 6 customs manufacturing warehouse; 
(6) use in the production of vinegar; 
(7) distillation in any registered fruit distillery, registered dis-
tillery or industrial alcohol plant; 
(8) experimental or research purposes by any scientific uni-
versity, college of learning, or institution of scientific research; 
(9) use by or for the account of the proprietor or his agents for 
analysis or testing, organoleptically or otherwise; and 
(10) use by the Government of the United States or any agency 
thereof, and for use for analysis, testing, research, or experimenta-
tion by the governments of the several States and Territories and 
. the District of Columbia or of any subdivision thereof or by any 
agency of such governments. 
No bond shall be required of any 
such government or agency under this paragraph. 
SEC. 5363. TAXPAID WINE BOTTLING HOUSE OPERATIONS. 
In addition to the operations described in section 5352, the pro-
prietor of a taxpaid wine bottling house may, subject to regulations 
issued by the Secretary or his delegate, on such premises mix wine of 
the same kind and taxable grade to facilitate handling; preserve, filter, 
or clarify wine; and conduct operations not involving wine where such 
operations will not jeopardize the revenue or conflict with wine opera-
tions. 
This subchapter shall apply to any wine received in any recti-
fying plant or taxpaid distilled spirits bottling house for bottling, 
packaging, or repackaging, and to all operations relative thereto: 
Promded, That any blending, mixing, or treatment of taxpaid wine, 
other than as provided in this section or in section 5025 (e), shall 
constitute taxable rectification, 
SEC. 5364. STANDARD WINE PREMISES. 
Except as otherwise specifically provided in this subchapter, no 
proprietor of a bonded wine cellar or taxpaid wine bottling house 
engaged in producing, receiving, storing or using any standard wine, 
shall produce, receive, store, or use any wine other than standard wine. 
The limitation contained in the preceding sentence shall not prohibit 
the production or receipt of heavy bodied blending wine, Spanish-type 
blending sherry or similar wine products, high fermentation wines, 
distilling material, or vinegar stock in any bonded wine cellar, as 
authorized by section 5361. 
SEC. 5365. SEGREGATION OF OPERATIONS. 
The Secretary or his delegate may require by regulations such 
segregation of operations within the premises, by partitions or other-
wise, as may be necessary to prevent jeopardy to the revenue, to 
prevent confusion between untaxpaid wine operations and such other 
§5365 
49012°—54 
45 
666 
INTERNAL REVENUE CODE OF 1954 
f 
operations as are authorized in this subchapter, or to prevent sub-
stitution with respect to the several methods of producing effervescent 
wines. 
SEC. 5366. SUPERVISION. 
The Secretary or his delegate may by regulations require that 
operations at a bonded wine cellar or taxpaid wine bottling house be 
supervised by a Government officer where necessary for the protection 
of the revenue or for the proper enforcement of this subchapter. 
SEC. 5367. RECORDS. 
The proprietor of a bonded wine cellar or a taxpaid wine bottling 
house shall keep such records and file such returns, in such form and 
containing such information, as the Secretary or his delegate may 
by regulations provide. 
SEC. 5368. GAUGING, MARKING, AND STAMPING. 
(a) GAUGING AND MARKING.—Air wine or wine spirits shall be 
locked, sealed, gauged, marked, branded, labeled, or otherwise 
identified, in such manner as the Secretary or his delegate may by 
regulations prescribe. 
(b) STAMPING.—Wines shall be removed in such containers (in-
cluding vessels, vehicles and pipelines) bearing such marks, labels 
and stamps, evidencing compliance with this chapter, as the Secre-
tary or his delegate may by regulations prescribe. 
SEC. 5369. INVENTORIES. 
Each proprietor of premises subject to the provisions of this sub-
chapter shall take and report such inventories as the Secretary or his 
delegate may by regulations prescribe. 
SEC. 5370. LOSSES. 
(a) GENERAL.—Notwithstanding section 5041, no such tax shall be 
collected in respect of any wines lost or destroyed while in bond, 
except that such tax shall be collected— 
(1) THEFT.—In the case of loss by theft, unless the Secretary or 
his delegate shall find that the theft occurred without connivance, 
collusion, fraud, or negligence on the part of the proprietor or other 
person responsible for the tax, or the owner, consignor, consignee, 
bailee, or carrier, or the agents or employees of any of them; and 
(2) VOLUNTARY DESTRUCTION.—In the case of voluntary destruc-
tion, unless the wine was destroyed under Government supervision, 
or on such adequate notice to, and approval by, the Secretary or 
his delegate as regulations shall provide. 
(b) PROOF OF Loss.—In any case in which the wine is lost or 
destroyed, whether by theft or otherwise, the Secretary or his delegate 
may require by regulations the proprietor of the bonded wine cellar 
or other person responsible for the tax to file a claim for relief from 
the tax and submit proof as to the cause of such loss. In every case 
where it appears that the loss was by theft, the burden shall be on 
the proprietor or other person responsible for the tax to establish 
to the satisfaction of the Secretary or his delegate, that such loss did 
not occur as the result of connivance, collusion, fraud, or negligence 
on the part of the proprietor, owner, consignor, consignee, bailee, or 
carrier or the agents, or employees of any of them. 
5365 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
667 
SEC. 5371. INSURANCE COVERAGE. 
Any remission, abatement, refund, or credit of, or other relief from, 
taxes on wines or wine spirits authorized by law shall be allowed only 
to the extent that the claimant is not indemnified or recompensed for 
the tax. 
SEC. 5372. SAMPLING. 
Under regulations prescribed by the Secretary or his delegate, wine 
may be utilized in any bonded wine cellar for testing, tasting, or sam-
pling, free of tax. 
SEC. 5373. WINE SPIRITS. 
(a) I N GENERAL.—The wine spirits authorized for use in wine pro-
duction shall include spirits or brandy produced from the distilling ma-
terial authorized for use in fruit distillery operations under section 
5215, but shall not be reduced with water from distillation proof, nor 
be distilled, unless regulations otherwise provide, at less than 140 
degrees proof: Provided, That commercial brandy aged in wood for a 
period of not less than 2 years and barreled at not less than 100 
degrees proof shall be deemed wine spirits for the purpose of this 
subsection. 
(b) WITHDRAWAL OF WINE SPIRITS.— 
(1) The proprietor of any bonded wine cellar may withdraw and 
receive wine spirits without payment of tax from any registered 
fruit distillery or internal revenue bonded warehouse, or from any 
bonded wine cellar as provided in paragraph (2), for use in the 
production of natural wine, for addition to concentrated or un-
concentrated juice for use in wine production, or for such other 
uses as may be authorized in this subchapter. 
(2) Wine spirits so withdrawn, and not used in wine production 
''• or as otherwise authorized in this subchapter, may, as provided by 
regulations prescribed by the Secretary or his delegate, be trans-
ferred to any internal revenue bonded warehouse or bonded wine 
cellar, or may be tax paid and removed as provided by law. 
(3) On such use, transfer, or taxpayment, the Secretary or his 
delegate shall credit the proprietor with the amount of wine spirits 
so used or transferred or taxpaid and, in addition, with such portion 
of wine spirits so withdrawn, as may have been lost either in 
transit or on the bonded wine cellar premises, to the extent allow-
able under section 5011 (a). 
Where the proprietor has used 
wine spirits in actual wine production but in violation of the require-
ments of this subchapter, the Secretary or his delegate shall also 
extend such credit to the wine spirits so used if the proprietor satis-
factorily shows that such wine spirits were not knowingly used in 
violation of law. 
(4) Suitable samples of brandy or wine spirits may, under regu-
lations prescribed by the Secretary or his delegate, be withdrawn 
free of tax from any registered fruit distillery, internal revenue 
bonded warehouse, bonded wine cellar, or authorized experimental 
premises, for analysis or testing. 
§ 5373(b)(4) 
668 
INTERNAL REVENUE CODE OF 1954 /
^
^ 
^ 
PART III—CELLAR TREATMENT AND CLASSIFICATION OF 
WINE 
Sec. 5381. Natural wine. 
Sec. 5382. Cellar treatment of natural wine. 
Sec. 5383. Amelioration 
and sweetening limitations for 
natural 
grape wines. 
Sec. 5384. Amelioration and sweetening limitations for natural fruit 
and berry wines. 
Sec. 5385. Specially sweetened natural wines. 
Sec. 5386. Special natural wines. 
Sec. 5387. Agricultural wines. 
Sec. 5388. Designation of wines. 
SEC. 5381. NATURAL WINE. 
Natural wine is the product of the juice or must of sound, ripe 
grapes or other sound, ripe fruit, made with such cellar treatment as 
may be authorized under section 5382 and containing not more than 
21 percent by weight of total solids. 
Any wine conforming to such 
definition except for having become substandard by reason of its 
condition shall be deemed not to be natural wine and shall, unless the 
condition is corrected, be removed in due course for distillation, 
destroyed under Government supervision, or transferred to premises 
in which wines other than natural wine may be stored or used. 
SEC. 5382. CELLAR TREATMENT OF NATURAL WINE. 
(a) GENERAL.—Proper cellar treatment of natural wine constitutes 
those practices and procedures in the United States and elsewhere, 
whether historical or newly developed, of using various methods and 
materials to correct or stabilize the wine, or the fruit juice from which 
it is made, so as to produce a finished product acceptable in good 
commercial practice. 
Where a particular treatment has been used in 
customary commercial practice, it shall continue to be recognized as 
a proper cellar treatment in the absence of regulations prescribed by 
the Secretary or his delegate finding such treatment not to be a proper 
cellar treatment within the meaning of this subsection. 
(b) SPECIFICALLY AUTHORIZED TREATMENTS.—The practices and 
procedures specifically enumerated in this subsection shall be deemed 
proper cellar treatment for natural wine: 
(1) The preparation and use of pure concentrated or unconcen-
trated juice or must. 
Concentrated juice or must reduced with 
water to its original density or to not less than 22 degrees Brix or 
unconcentrated juice or must reduced with water to not less than 
22 degrees Brix shall be deemed to be juice or must, and shall 
include such amounts of water to clear crushing equipment as regu-
lations prescribed by the Secretary or his delegate may provide; 
(2) The addition to natural wine, or to concentrated or uncon-
centrated juice or must, from one kind of fruit, of wine spirits 
(whether or not taxpaid) distilled in the United States from the 
same kind of fruit: Provided, That the wine, juice, or concentrate 
shall not have an alcoholic content in excess of 24 percent by volume 
after the addition of wine spirits, and that, in the case of still wines, 
wine spirits may be added only to natural wines of the winemaker's 
own production made without added sugar or reserved as provided 
in sections 5383 (b) and 5384 (b). 
§5381 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
669 
(3) Amelioration and sweetening of natural grape wines in 
accordance with section 5383. 
(4) Amelioration and sweetening of natural wines from fruits 
other than grapes in accordance with section 5384. 
(5) In the case of effervescent wines such preparations for refer-
mentation and for dosage as may be acceptable in good commercial 
practice: Provided, That the alcoholic content of the finished prod-
uct shall not exceed 14 percent by volume. 
(6) The natural darkening of the sugars or other elements in 
juice, must or wine due to storage, concentration, heating processes. 
Or natural oxidation. 
(7) The blending of natural wines with each other or with heavy-
bodied blending wine, concentrated or unconcentrated juice con-
taining wine spirits, from the same kind of fruit. 
(8) The use of acids to correct natural deficiencies and to 
stabilize the wine as may be acceptable in good commercial practice. 
(c) OTHER AUTHORIZED TREATMENT.—The Secretary or his dele-
gate may by regulations prescribe limitations on the preparation and 
use of clarifying, stabilizing, preserving, fermenting, and corrective 
methods or materials, to the extent that such preparation or use is 
not acceptable in good commercial practice. 
SEC. 5383. AMELIORATION AND SWEETENING LIMITATIONS FOR NAT. 
URAL GRAPE WINES. 
(a) SWEETENING OF GRAPE WINES,—Any natural grape wine made 
under this section may, if not in reserve inventory as hereinafter 
provided, be sweetened after fermentation and before taxpayment 
with pure dry sugar if the sugar solids content of the finished wine 
does not exceed 10 percent of the weight of the wine and the alcoholic 
content of the finished wine after sweetening is less than 14 percent 
by volume. 
(b) HIGH ACID W I N E S . — 
(1) Any natural grape wine of a winemaker's own production 
may, under this subsection, be ameliorated to correct high acid 
content, and, whether or not ameliorated, may be reserved as 
herein provided. 
(2) To wines produced under this subsection there may be added 
to the juice or to the wine, or both, before or during fermentation 
(including wines held pursuant to regulation in intermediate storage 
for completion of amelioration), ameliorating material consisting of 
either water, or pure dry sugar, or a combination of water and pure 
dry sugar, in such total volume as may be necessary to reduce the 
natural fixed acid content of the mixture of juice and such amelio-
rating material to a minimum of 5 parts per thousand (calculated 
before fermentation and as tartaric acid), but in no event shall the 
volume of such ameliorating material exceed 35 percent of the total 
volume of such ameliorated juice (calculated exclusive of pulp); and 
the wine so made shall be transferred to a reserve inventory estab-
lished as regulation issued by the Secretary or his delegate shall 
require: Provided, That such wine containing less than 14 percent 
alcohol by volume after complete fermentation or after complete 
fermentation and sweetening, need not be transferred into reserve 
inventory if all claim to further amelioration is waived. 
§ 5383(b)(2) 
670 
INTERNAL REVENUE CODE OF 1954 
I
I
.
' 
(3) The wines in the reserve inventory may be sweetened with 
dry sugar in an amount not exceeding, for the aggregate of the 
inventory— 
(i) the dry sugar equivalent of any volume of authorized 
ameliorating material not used for wine so transferred, plus 
(ii) nine-tenths pound of dry sugar for each gallon of wine so 
transferred and such unused ameliorating material combined. 
(4) Wines so reserved may be blended together, sweetened with 
pure dry sugar to the extent provided in paragraph (3) or with 
concentrated or unconcentrated grape juice, and may have wine 
spirits added if such wine contains less than 14 percent of alcohol 
by volume at the time of such addition (unless wine spirits were 
previously added). 
Any wines withdrawn from reserve inventory 
shall have an alcoholic content of less than 14 percent by volume 
and a total solids content not exceeding 21 percent by weight, 
except that, if wine spirits have been added and the alcoholic con-
tent is 14 percent by volume or more, the sugar solids content shall 
not exceed 15 percent by weight. 
(5) The winemaker shall maintain and balance for his reserve 
inventory such accounts as regulations issued by the Secretary or 
his delegate shall prescribe. 
SEC. 5384. AMELIORATION AND SWEETENING LIMITATIONS FOR NAT-
URAL FRUIT AND BERRY WINES. 
(a) I N GENERAL.—To natural wine made from berries or fruit other 
than grapes, pure dry sugar may be added to the juice in the fermenter, 
or to the wine after fermentation: Provided, That such wine shall have 
less than 14 percent alcohol by volume after complete fermentation 
or after complete fermentation and sweetening, and a total solids 
content not in excess of 21 percent by weight. 
(b) RESERVE FRUIT AND BERRY W I N E S . ^ 
(1) Any natural fruit or berry wine (other than grape wine) of 
a winemaker's own production may, if not made under subsection 
(a) of this section, be ameliorated to correct high acid content, 
and, whether or not ameliorated, may be reserved as herein pro-
vided. 
Separate reserve inventories shall be established for wines 
made from each different kind of fruit, 
(2) To wines made under this subsection there may be added, 
for the purpose of correcting natural deficiencies, sufficient pure 
dry sugar to adjust the juice to a total solids content, prior to fer-
mentation, of not more than 23 degrees (Brix). 
Thereafter the 
wine shall be treated and accounted for as provided in section 
5383 (b), covering the production of reserved high acid grape 
wines, except that—• 
(A) Natural fixed acid shall be calculated as malic acid for 
apple wine and as citric acid for other fruit and berry wines, 
instead of tartaric acid; 
(B) Juice adjusted with pure dry sugar as provided in this 
paragraph shall be treated in the same manner as original 
natural juice under the provisions of section 5383 (b); 
(C) Wines made under this subsection may be withdrawn from 
reserve inventory with a total solids content of not more than 
21 percent by weight, whether or not wine spirits have been 
added; 
§ 5383(b)(3) 
' 
' 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
671 
'(• 
(D) Wines made exclusively from loganberries, currants, or 
gooseberries, shall be entitled to a volume of ameliorating material 
not in excess of 60 percent (in lieu of 35 percent). 
SEC. 5385. SPECIALLY SWEETENED NATURAL WINES. 
(a) Specially sweetened natural wine is the product made by 
adding to natural wine of the winemaker's own production a sufficient 
quantity of pure dry sugar, or juice or concentrated juice from the 
same kind of fruit, separately or in combination, to produce a finished 
product having a sugar solids content in excess of 15 percent by 
weight and an alcoholic content of less than 14 percent by volume, 
and shall include extra sweet kosher wine and similarly heavily 
sweetened wines. 
(b) The winemaker may blend specially sweetened natural wine 
from the same kind of fruit either before or after the special sweeten-
ing, or with additional natural wine or heavy bodied blending wine 
from the same kind of fruit in the further production of specially 
sweetened natural wine only, and may cellar treat any such wines as 
provided in section 5382 (c). 
Wine spirits may not be added to 
specially sweetened natural wine, nor may such wine be blended 
except to produce a specially sweetened natural wine. 
SEC. 5386. SPECIAL NATURAL WINES. 
(a) Special natural wines are the products made, pursuant to a 
formula approved under this section, from a base of natural wine 
(including heavy bodied blending wine) exclusively, with the addition, 
before, during or after fermentation, of natural herbs, spices, fruit 
juices, aromatics, essences, and other natural flavorings in such 
quantities or proportions as to enable such products to be distinguished 
from any natural wine not so treated, and with or without carbon 
dioxide naturally or artificially added, and with or without the 
addition, separately or in combination, of pure dry sugar or a solution 
of pure dry sugar and water, or caramel. 
No added wine spirits or 
alcohol or other spirits shall be used in any wine under this section 
except as may be contained in the natural wine (including heavy 
bodied blending wine) used as a base or except as may be necessary 
in the production of approved essences or similar approved flavorings. 
The Brix degree of any solution of pure dry sugar and water used 
may be Hmited by regulations prescribed by the Secretary or his 
delegate in accordance with good commercial practice. 
(b) Special natural wines may be cellar treated as provided in 
section 5382 (c). 
SEC. 5387. AGRICULTURAL WINES. 
(a) Wines made from agricultural products other than the juice of 
fruit shall be made in accordance with good commercial practice as 
may be prescribed by the Secretary or his delegate by regulations. 
Wines made in accordance with such regulations shall be classed as 
"standard agricultural wines". 
Wines made under this section may 
be cellar treated as provided in section 5382 (c). 
(b) No wine spirits may be added to wines produced under this 
section, nor shall any coloring material or herbs or other flavoring 
material (except hops in the case of honey wine) be used in their pro-
duction. 
§ 5387(b) 
672 
INTERNAL REVENUE CODE OF 1954 
(c) Wine from different agricultural commodities shall not be 
blended together. 
SEC. 5388. DESIGNATION OF WINES. 
(a) Standard wines may be removed from premises subject to the 
provisions of this subchapter and be marked, transported, and sold 
under their proper designation as to kind and origin, or, if there is no 
such designation known to the trade or consumers, then under a truth-
ful and adequate statement of composition. 
(b) Wines other than standard wines may be removed for consump-
tion or sale and be marked, transported or sold only under such desig-
nation as to kind and origin as adequately describe the true composi-
tion of such products and as adequately distinguish them from stand-
ard wines, as regulations prescribed by the Secretary or his delegate 
shall provide. 
PART IV—GENERAL 
Sec. 5391. Exemption from rectifying and spirits taxes. 
Sec. 5392. Definitions. 
SEC. 5391. EXEMPTION FROM RECTIFYING AND SPIRITS TAXES. 
Notwithstanding any other provision of law, the taxes imposed by 
sections 5001 and 5021 on distilled spirits generally and on rectified 
spirits and wines shall not, except as provided in this subchapter, be 
assessed, levied, or collected from the proprietor of any bonded wine 
cellar with respect to his use or treatment of wine, or use of wine spirits 
in wine production, in such premises: Provided, That whenever wine or 
wine spirits are used in violation of this subchapter the appropriate tax 
shall be collected unless the proprietor satisfactorily shows that such 
wine or wine spirits were not knowingly used in violation of law. 
SEC. 5392. DEFINITIONS. 
(a) STANDARD WINE,—For purposes of this subchapter the term 
"standard wine" means natural wine, specially sweetened natural 
wine, special natural wine and standard agricultural wine, produced 
in accordance with the provisions of sections 5381, 5385, 5386, and 
5387, respectively. 
(b) HEAVY BODIED BLENDING WINE.—For purposes of this sub-
chapter the term "heavy bodied blending wine" means wine made 
from fruit without added sugar, and with or without added wine 
spirits, and conforming to the definition of natural wine in all respects 
except as to maximum total solids content. 
(c) PURE SUGAR.—For purposes of this subchapter the term "pure 
sugar" means pure refined cane or beet sugar, or pure refined anhy-
drous or monohydrate dextrose sugar, of not less than 95 percent 
purity calculated on a dry basis: Provided, That invert sugar syrup 
produced from such pure sugar by recognized methods of inversion 
may be used to prepare any sugar syrup, or solution of water and 
pure sugar, authorized in this subchapter. 
(d) TOTAL SOLIDS.—For purposes of this subchapter the term 
"total solids", in the case of wine, means the degrees Brix of the 
dealcoholized wine, 
(e) SAME KIND OF FRUIT.—For purposes of this subchapter the 
term "same kind of fruit" includes, in the case of grapes, all of the 
several species and varieties of grapes. 
In the case of fruits other 
§ 538r(c) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
673 
than grapes, this term includes all of the several species and varieties 
of any given kind: Provided, That this shall not preclude a more 
precise identification of the composition of the product for the purpose 
of its designation. 
(f) OWN PRODUCTION.—For purposes of this subchapter the term 
"own production", when used with reference to wine in a bonded 
wine cellar, means wine produced by fermentation in the same bonded 
wine cellar. 
IIJ T 
h2i'i!^"*i'wd I)/»ft bnid hAS id iaiciio'j 
.SeO« HolJao? •:. 
6392(f) 
674 
INTERNAL REVENUE CODE OF 1954 
Subchapter G—Breweries 
Part I. Establishment. 
. 
Part II. Operations. 
PART I—ESTABLISHMENT 
Sec. 5401. Qualifying documents. 
Sec. 5402. Definitions. 
- 
> 
Sec. 5403. Cross references. 
SEC. 5401. QUALIFYING DOCUMENTS. 
(a) NOTICE.—Every brewer shall, before commencing or continuing 
business, file with the officer designated for that purpose by the Sec-
retary or his delegate a notice in writing, in such form and containing 
such information as the Secretary or his delegate shall by regulations 
prescribe as necessary to protect and insure collection of the revenue. 
(b) BONDS.—Every brewer, on filing notice as provided by sub-
section (a) of his intention to commence business, shall execute a 
bond to the United States in such reasonable penal sum as the Secre-
tary or his delegate shall by regulation prescribe as necessary to 
protect and insure collection of the revenue. 
The bond shall be 
conditioned that the brewer shall pay, or cause to be paid, as herein 
provided, the tax required by law on all beer, including all beer 
removed for transfer to the brewery from other breweries owned by 
him as provided in section 5414; and that he shall pay or cause to 
be paid the tax on all beer removed free of tax for export as provided 
in section 5053 (a), which beer is not exported or returned to the 
brewery; and that he shall in all respects faithfully comply, without 
fraud or evasion, with all requirements of law relating to the pro-
duction and sale of any beer aforesaid. 
Once in every 4 years, or 
whenever required so to do by the Secretary or his delegate, the 
brewer shall execute a new bond in the penal sum prescribed in 
pursuance of this section, and conditioned as above provided, which 
bond shall be in lieu of any former bond or bonds of such brewer in 
respect to all liabilities accruing after its approval. 
SEC. 5402. DEFINITIONS. 
(a) BREWERY.—The brewery shall consist of the land and buildings 
described in the brewer's notice. 
(b) 
BREWER.— 
For definition of brewer, see section 5092. 
- 
' 
SEC. 5403. CROSS REFERENCES. 
(1) For authority of Secretary or his delegate to disapprove brewers' 
bonds, see section 5551. 
(2) For authority of Secretary to require the installation and use of 
meters, tanks, and other apparatus, see section 5552. 
(3) For deposit of United States bonds or notes in lieu of sureties, see 
6 U. S. C. 15. 
§ 5401 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
675 
PART II—OPERATIONS 
, 
Sec. 5411. Use of brewery. 
' 
Sec. 5412. Removal of beer in containers or by pipeline. 
Sec. 5413. Brewers procuring beer from other brewers. 
Sec. 5414. Removals from one brewery to another belonging to the 
same brewer. 
Sec. 5415. Records and returns. 
Sec. 5416. Definitions of bottle and bottling. 
SEC. 5411. USE OF BREWERY. 
The brewery shall be used under regulations to be prescribed by the 
Secretary or his delegate only for the purpose of producing beer, 
cereal beverages containing less than one-half of 1 percent of alcohol 
by volume, vitamins, ice, malt, malt sirup, and other by-products; of 
bottling beer and cereal beverages; of drying spent grain from the 
brewery; of recovering carbon dioxide and yeast; of producing and 
bottling soft drinks; and for such other purposes as the Secretary or 
his delegate by regulation may find will not jeopardize the revenue. 
The bottling of beer and cereal beverages shall be conducted only in 
the brewery bottle house which shall consist of a separate portion of 
the brewery designated for that purpose. 
SEC. 5412. REMOVAL OF BEER IN CONTAINERS OR BY PIPELINE. 
Beer may be removed from the brewery for consumption or sale 
only in hogsheads, barrels, kegs, bottles, and similar containers, 
marked, branded, and labeled in such manner as the Secretary or his 
delegate may by regulation require: Provided, That beer may be re-
moved from the brewery by pipeline to contiguous industrial alcohol 
plants under section 5309. 
SEC. 5413. BREWERS PROCUlftNG BEER FROM OTHER BREWERS. 
A brewer, under such regulations as the Secretary or his delegate 
shall prescribe, may obtain beer in his own hogsheads, barrels, and 
kegs, marked with his name and address, from another brewer, with 
taxpayment thereof to be by the producer in the manner prescribed 
by section 5055. 
SEC. 5414. REMOVALS FROM ONE BREWERY TO ANOTHER BELONG-
ING TO THE SAME BREWER. 
Beer may be removed from one brewery to another brewery belong-
ing to the same brewer, without payment of tax, and may be mingled 
with the beer of the second brewery, subject to such conditions, includ-
ing payment of tax, and in such containers, as the Secretary or his 
delegate by regulations shall prescribe. 
SEC. 5415. RECORDS AND RETURNS. 
(a) RECORDS.—Every brewer shall keep records, in such form and 
containing such information as the Secretary or his delegate shall 
prescribe by regulation as necessary for protection of the revenue. 
These records shall be preserved for a period of at least two years 
after the date of the transactions to which they relate, and shall be 
available during business hours for examination and taking of abstracts 
therefrom by any internal revenue ofl&cer. 
(b) RETURNS.—Every brewer shall make true and accurate returns 
of his operations and transactions in the form, at the times, and for 
such periods as the Secretary or his delegate shall by regulation 
prescribe. 
§ 5415(b) 
676 
INTERNAL REVENUE CODE OF 1954 
SEC. 5416. DEFINITIONS OF BOTTLE AND BOTTLING. 
For purposes of this subchapter, the word "bottle" means a bottle, 
can, or similar container, and the word "bottling" means the filling of 
bottles, cans, and similar containers. 
§5416 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
677 
Subchapter H—Miscellaneous Plants and Warehouses 
Part 
I. Vinegar factories. 
. ;. , 
Part II. Volatile fruit-flavor concentrate plants. 
Part III. Manufacturing bonded warehouses. 
PART I—VINEGAR FACTORIES 
J 
Sec. 5501. Establishment and operation. 
Sec. 5502. Distilled vinegar. 
SEC. 5501. ESTABLISHMENT AND OPERATION. 
For provisions pertaining to the establishment and operation of vinegar 
factories, see section 5216. 
SEC. 5502. DISTILLED VINEGAR. 
Nothing in this chapter shall require manufacturers of distilled 
vinegar to raise the proof of any alcohol used in such manufacture or 
to denature the same. 
PART II—VOLATILE FRUIT-FLAVOR CONCENTRATE PLANTS 
Sec. 5511. Establishment and operation. 
Sec. 5512. Control of products after tax-free manufacture. 
SEC. 5511. ESTABLISHMENT AND OPERATION. 
This chapter (other than sections 5171, 5173 (c), and 5174 and 
other than sections 5196 (b), (c), and (d), and 5552) shall not be 
applicable with respect to the manufacture, by any process which 
includes evaporations from the mash or juice of any fruit, of any 
volatile fruit-flavor concentrate if— 
(1) such concentrate, and the mash or juice from which it is 
produced, contains no more alcohol than is reasonably unavoidable 
in the manufacture of such concentrate; and 
(2) such concentrate is rendered unfit for use as a beverage before 
removal from the place of manufacture; and 
(3) the manufacturer thereof keeps such records, renders such 
reports, files such bonds, and complies with such other regulations 
with respect to the production, removal, sale, transportation, and 
use of such concentrate and of the mash or juice from which such 
concentrate is produced, as the Secretary or his delegate may 
prescribe as necessary for the protection of the revenue imposed 
by this chapter. 
SEC. 5512. CONTROL OF PRODUCTS AFTER TAX-FREE MANUFACTURE. 
For applicability of all provisions of this chapter pertaining to distilled 
spirits and wines, including those requiring payment of tax, to volatile 
fruit-flavor concentrates sold, transported, or used in violation of law or 
regulations, see section 5001 (a) (7). 
Bin. 
§5512 
678 
INTERNAL REVENUE CODE OF 19 54 
PART III—MANUFACTURING BONDED WAREHOUSES 
Sec. 5521. Establishment and operation. 
Sec. 5522. Withdrawal of distilled spirits to manufacturing 
bonded 
warehouse. 
Sec. 5523. Special provisions relating to distilled spirits and wines 
rectified in manufacturing bonded warehouses. 
SEC. 5521. ESTABLISHMENT AND OPERATION. 
(a) ESTABLISHMENT.—All medicines, preparations, compositions, 
perfumery, 
cosmetics, cordials, and other liquors 
manufactured 
wholly or in part of domestic spirits, intended for exportation, as 
provided by law, in order to be manufactured and sold or removed, 
without being charged with duty and without having a stamp affixed 
thereto, shall, under such regulations as the Secretary or his delegate 
may prescribe, be made and manufactured in warehouses similarly 
constructed to those known and designated in Treasury regulations 
as bonded warehouses, class six: Provided, That such manufacturer 
shall first give satisfactory bonds to the Secretary or his delegate for 
the faithful observance of all the provisions of law and the regulations 
as aforesaid, in amount not less than half of that required by the 
regulations of the Secretary or his delegate from persons allowed 
bonded warehouses. 
(b) SUPERVISION.—All labor performed and services rendered under 
this section shall be under the supervision of an officer of the customs, 
and at the expense of the manufacturer. 
(c) MATERIALS FOR MANUFACTURE.— 
(1) EXPORTABLE FREE OF TAX.—Any manufacturer of the articles 
specified in subsection (a), or of any of them, having such bonded 
warehouse, shall be at liberty, under such regulations as the Secre-
tary or his delegate may prescribe, to convey therein any materials 
to be used in such manufacture which are allowed by the provisions 
of law to be exported free from tax or duty, as well as the necessary 
materials, implements, packages, vessels, brands, and labels for the 
preparation, putting up, and export of such manufactured articles; 
and every article so used shall be exempt from the payment of 
stamp and excise duty by such manufacturer. 
Articles and ma-
terials so to be used may be transferred from any bonded ware-
house under such regulations as the Secretary or his delegate may 
prescribe, into any bonded warehouse in which such manufacture 
may be conducted, and may be used in such manufacture, and when 
so used shall be exempt from stamp and excise duty; and the 
receipt of the officer in charge shall be received as a voucher for 
the manufacture of such articles. 
(2) IMPORTED MATERIALS.—Any materials imported into the 
United States may, under such regulations as the Secretary or his 
delegate may prescribe, and under the direction of the proper officer, 
be removed in original packages from on shipboard, or from the 
bonded warehouse in which the same may be, into the bonded ware-
house in which such manufacture may be carried on, for the purpose 
of being used in such manufacture, without payment of duties there-
on, and may there be used in such manufacture. 
No article so re-
moved, nor any article manufactured in said bonded warehouse, 
shall be taken therefrom except for exportation, under the direction 
§5621 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
679 
of the proper officer having charge thereof, whose certificate, de-
scribing the articles by their mark or otherwise, the quantity, the 
date of importation, and name of vessel, with such additional par-
ticulars as may from time to time be required, shall be received by 
the collector of customs in cancellation of the bond, or return of 
the amount of foreign import duties, 
(d) 
REMOVALS.— 
(1) I N GENERAL.—Such goods, when manufactured in such 
warehouses, may be removed for exportation under the direction of 
the proper officer having charge thereof, who shall be designated by 
the Secretary or his delegate, without being charged with duty and 
without having a stamp affixed thereto. 
(2) TRANSPORTATION FOR EXPORT.—Any article manufactured 
in a bonded warehouse established under subsection (a) may be 
removed therefrom for transportation to a customs bonded ware-
house at any port, for the purpose only of being exported therefrom, 
under such regulations and on the execution of such bonds or other 
security as the Secretary or his delegate may prescribe. 
SEC. 5522. WITHDRAWAL OF DISTILLED SPIRITS TO MANUFACTUR-
ING BONDED WAREHOUSES 
(a) AUTHORIZATION.—Under such regulations and requirements as 
to stamps, bonds, and other security as shall be prescribed by the 
Secretary or his delegate, any manufacturer of medicines, prepara-
tions, compositions, perfumeries, cosmetics, cordials, and 
other 
liquors, for export, manufacturing the same in a duly constituted 
manufacturing warehouse, shall be authorized to withdraw, from any 
internal revenue bonded warehouse, so much distilled spirits as he 
may require for such purpose, without the payment of the internal 
revenue tax thereon. 
(b) ALLOWANCE FOR Loss OR LEAKAGE.—Section 5011 (a) (relating 
to distilled spirits lost or destroyed in bond) shall apply to spirits 
withdrawn for transportation to manufacturing bonded warehouses 
under subsection (a). 
SEC. 5523. SPECIAL PROVISIONS RELATING TO DISTILLED SPIRITS 
AND WINES RECTIFIED IN MANUFACTURING BONDED 
WAREHOUSES. 
Distilled spirits and wines which are rectified in manufacturing 
bonded warehouses, class six, and distilled spirits which are reduced in 
proof and bottled or packaged in such warehouses, shall be deemed 
to have been manufactured within the meaning of section 311 of the 
Tariff Act of 1930 (19 U. S. C. 1311), and may be withdrawn as pro-
vided in such section, and likewise for shipment in bond to Puerto 
Rico, subject to the provisions of such section, and under such regula-
tions as the Secretary or his delegate may prescribe, there to be with-
drawn for consumption or be rewarehoused and subsequently with-
drawn for consumption: Provided, That no internal revenue tax shall 
be imposed on distilled spirits and wines rectified in class six ware-
houses if such distilled spirits and wines are exported or shipped in 
accordance with such section, and that no person rectifying dis-
tilled spirits or wines in such warehouses shall be subject by reason of 
such rectification to the payment of special tax as a rectifier. 
5623 
680 
INTERNAL REVENUE CODE OF 1954 
Subchapter I—Miscellaneous General Provisions 
Sec. 5551. General provisions relating to bonds. 
Sec. 5552. Installation of meters, tanks, and other apparatus. 
Sec. 5553. Supervision of premises and operations. 
Sec. 5554. Pilot plant operations. 
Sec. 5555. Records, statements, and returns. 
Sec. 5556. Regulations. 
Sec. 5557. Other provisions applicable. 
SEC. 5551. GENERAL PROVISIONS RELATING TO BONDS. 
(a) APPROVAL AS CONDITION TO COMMENCING BUSINESS.—No indi-
vidual, firm, partnership, corporation, or association, intending to 
commence or to continue the business of a distiller, rectifier, brewer, 
or winemaker, shall commence or continue the business of a distiller, 
rectifier, brewer, or winemaker until all bonds in respect of such a 
business, required by any provision of law, have been approved by 
the Secretary or the officer designated by him. 
(b) DISAPPROVAL.—The Secretary or any officer designated by him 
may disapprove any such bond or bonds if the individual, firm, 
partnership, corporation, or association giving such bond or bonds, or 
owning, controlling, or actively participating in the management of 
the business of the individual or firm, partnership, corporation, or 
association giving such bond or bonds, shall have been previously 
convicted, in a court of competent jurisdiction, of— 
(1) any fraudulent noncompliance with any provision of any 
law of the United States, if such provision related to internal-
revenue or customs taxation of distilled spirits, wines, or beer, 
or if such an offense shall have been compromised with the indi-
vidual, firm, partnership, corporation, or association on payment 
of penalties or otherwise, or 
(2) any felony under a law of any State, Territory, or the District 
of Columbia, or the United States, prohibiting the manufacture, 
sale, importation, or transportation of distilled spirits, wine, beer, 
or other intoxicating liquor. 
(c) APPEAL FROM DISAPPROVAL.—In case the disapproval is by 
an officer designated by the Secretary to approve or disapprove such 
bonds, the individual, firm, partnership, corporation, or association 
giving the bond may appeal from such disapproval to the Secretary 
or an officer designated by him to hear such appeals, and the dis-
approval of the bond by the Secretary or officer designated to hear 
such appeals shall be final. 
SEC. 5552. INSTALLATION 
OF 
METERS, TANKS, AND 
OTHER 
AP-
PARATUS. 
The Secretary or his delegate is authorized to require at distilleries, 
breweries, rectifying plants, and at any other premises established 
pursuant to this chapter as in his judgment may be deemed advisable, 
the installation of meters, tanks, pipes, or any other apparatus for the 
purpose of protecting the revenue, and such meters, tanks, and pipes 
and all necessary labor incident thereto shall be at the expense of the 
§ 5551 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
681 
person on whose premises the installation is required. 
Any such 
person refusing or neglecting to install such apparatus when so re-
quired by the Secretary or his delegate shall not be permitted to con-
duct business on sach premises. 
SEC. 5553. SUPERVISION OF PREMISES AND OPERATIONS. 
(a) ASSIGNMENT OF STOREKEEPER-GAUGERS.—The Secretary 
or 
his delegate is authorized to assign to any premises established under 
the provisions of this chapter such number of storekeeper-gangers as 
may be deemed necessary. 
(b) FUNCTIONS OF STOREKEEPER-GAUGER.—When used in this 
chapter, the term "storekeeper-gauger" means the internal revenue 
officer assigned by the Secretary or his delegate to duties at premises 
established and operated under the provisions of this chapter. 
SEC. 5554. PILOT PLANT OPERATIONS. 
For the purpose of facilitating the development and testing of 
improved methods of governmental supervision (necessary for the 
protection of the revenue) over distilleries, internal revenue bonded 
warehouses, rectifying plants, industrial alcohol plants, industrial 
alcohol bonded warehouses, industrial alcohol denaturing plants, or 
similar premises established under this chapter or of chapter 26 of the 
Internal Revenue Code of 1939, the Secretary or his delegate is 
authorized to waive any regulatory provisions of this chapter for 
temporary pilot or experimental operations. Nothing in this section 
shall be construed as authority to waive the filing of any bond or the 
payment of any tax provided for in this chapter. 
The authority 
under this section shall terminate on December 31, 1955. 
SEC. 5555. RECORDS, STATEMENTS, AND RETURNS. 
(a) GENERAL.—Every person liable to any tax imposed by this 
chapter, or for the collection thereof, or for the affixing of any stamp 
required to be affixed by this chapter, shall keep such records, render 
such statements, make such returns, and comply with such rules and 
regulations, as the Secretary or his delegate may prescribe. 
(b) AUTHORITY TO WAIVE.—Whenever in this chapter any record 
is required to be made or kept, or statement or return is required to 
be made by any person, the Secretary or his delegate may by regula-
tion waive, in whole or in part, such requirement when he deems such 
requirement to no longer serve a necessary purpose: Provided, That 
this subsection shall not be construed as authorizing the waiver of 
the payment of any tax. 
SEC. 5556. REGULATIONS. 
The Secretary or his delegate shall prescribe all regulations neces-
sary for the enforcement of this chapter. 
SEC. 5557. OTHER PROVISIONS APPLICABLE. 
All provisions of subtitle F, insofar as applicable (and not incon-
sistent with the provisions of this subtitle), are hereby extended to 
and made a part of this subtitle. 
§5557 
49012°—54 
46 
682 
INTERNAL REVENUE CODE OF 1954 
.
.
J
i
o 
Subchapter J—Penalties, Seizures, and Forfeitures Relating 
to Liquors 
Part 
I. Penalty, seizure, and forfeiture provisions applicable to 
distilling, rectifying, and distilled and rectified products. 
Part II. Penalty and forfeiture provisions applicable to wine and 
wine production. 
Part III. Penalty, seizure, and forfeiture provisions applicable to 
beer and brewing. 
Part IV. Penalty, seizure, and forfeiture provisions common to 
liquors. 
Part 
V. Penalties and forfeitures applicable to occupational taxes. 
PART I—PENALTY, SEIZURE, AND FORFEITURE PROVISIONS 
APPLICABLE TO DISTILLING, RECTIFYING, AND DISTILLED 
AND RECTIFIED PRODUCTS 
Sec. 5601. Penalty and forfeiture for possession of unregistered still 
or distilling apparatus. 
Sec. 5602. Penalty and forfeiture for setting up still without permit. 
Sec. 5603. Penalty for failure or refusal of distiller or rectifier to 
give notice of intention to engage in such business. 
See. 5604. Penalty and forfeiture for failure or refusal of distiller to 
give bond. 
Sec. 6605. Penalty for improper approval of distiller's bond. 
Sec. 5606. Penalty and forfeiture for distilling without giving bond. 
Sec. 5607. Penalty for distilling on prohibited premises. 
Sec. 5608. Penalty for making or fermenting mash on unauthorized 
premises; illegal use of spirits; unlawful removal of 
vinegar; etc. 
Sec. 5609. Penalty relating to return of materials used in the man-
ufacture of distilled spirits. 
Sec. 5610. Penalty for using unregistered materials for producing 
spirits. 
Sec. 5611. Penalty for using false weights and measures. 
Sec. 5612. Penalty for using material or removing spirits without 
supervision. 
Sec. 5613. Penalty for distilling during prohibited hours. 
Sec. 5614. Penalty and forfeiture for removal of spirits during 
prohibited hours. 
. 
.. 
Sec. 5615. Penalty for refusal or neglect of distillers and rectifiers 
. 
to give assistance to officers. 
Sec. 5616. Penalty for obstructing or refusing to admit officer to 
distillery premises. 
Sec. 5617. Penalty for failure to keep distillery accessible. 
Sec. 5618. Penalty for failure of distiller to identify fixed pipes. 
Sec. 5619. Penalty for refusal or neglect to draw off water and clean 
condensers or worm tanks. 
Sec. 5620. Penalty and forfeiture for false or omitted entries in 
distiller's books and records. 
Sec. 5621. Penalty relating to records and returns of distiller as 
wholesaler dealers, rectifiers, and wholesale dealers. 
Sec. 5622. Disposal of forfeited equipment and material for distilling. 
Sec. 5623. Destruction of distilling apparatus. 
Sec. 5624. Release of distillery before judgment. 
Sec. 5625. Forfeiture of tax-paid distilled spirits remaining on dis-
tillery premises. 
Sec. 5626. Penalty and forfeiture for tax fraud by distiller. 
5601 
•lert^ 
i k u i ^ 
'•'•• 
10 jr. 
^
'
. 
8»: 
8'' .
. 
Sec. 
5632. 
Sec. 
5633. 
Sec. 
5634. 
Sec. 
5635. 
Sec. 
5636. 
Sec. 
5637. 
Sec. 
5638. 
Sec. 
5639. 
Sec. 
5640. 
Sec. 5641. 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
683 
Sec. 5627. Penalty for unlawful use of rectifying premises. 
Sec. 5628. Penalty for rectification without payment of tax, increas-
ing volume, etc. 
Sec. 5629. Penalty for unlawful rectifying. 
Sec. 5630. Penalty for noncompliance by rectifiers with provisions 
relating to rectifying, gauging, branding, and stamping. 
Sec. 5631. Penalty and forfeiture for failure to comply with ware-
housing and removal requirements. 
Penalty and forfeiture for unlawful removal or conceal-
ment of spirits. 
Penalty of officer in charge of warehouse for unlawful 
removal of spirits. 
Penalty and forfeiture for creation of fictitious proof. 
Penalty for buying or selling used casks bearing inspec-
tion marks. 
Sec. 5636. Penalty and forfeiture for failure to efface, etc., stamps 
and brands on emptied packages. 
Penalty for changing stamps or shifting spirits. 
Penalty and forfeiture for affixing imitation stamps on 
packages of distilled spirits. 
Forfeiture of distilled spirits in unstamped casks or 
packages. 
Forfeiture of spirits in unstamped containers. 
Sec. 5641. Penalty and forfeiture relating to containers of distilled 
spirits. 
Sec, 5642. Penalties for transporting, possessing, etc., distilled spirits 
,
^ 
in unstamped containers, or counterfeiting of stamps, 
'••i-- •: 
etc. 
Sec. 5643. Penalty and forfeiture for reuse of stamps or bottles, 
jt!. 
tampering and unlawful removal. 
^
J 
Sec. 5644. Penalty for counterfeiting bottled in bond stamps. 
Sec. 5645. Penalty for unlawful affixing, canceUing, or issue of 
stamps by officer. 
r 
Sec. 5646. Penalty for evasion of distilled spirits tax. 
Sec. 5647. Penalty and forfeiture for unlawful use or concealment 
. . 
of denatured alcohol. 
Sec. 5648. Penalty and forfeiture for fraudulent claims for export 
drawback or unlawful relanding. 
V
, 
Sec. 5649. Burden of proof in case of seizure of spirits. 
1 
Sec. 5650. Penalty and forfeiture for operating distillery after giving 
notice of suspension. 
SEC. 5601. PENALTY AND FORFEITURE FOR POSSESSION OF UNREG-
ISTERED STILL OR DISTILLING APPARATUS. 
Every still or distilling apparatus not registered as required by 
section 5174, together with all personal property in the possession 
or custody, or under the control of the person required by section 5174 
to register the still or distilling apparatus, and found in the building, 
or in any yard or inclosure connected with the building in which 
the same may be set up, shall be forfeited. 
Every person having 
in his possession or custody, or under his control, any still or distilling 
apparatus set up which is not registered, as required by section 5174, 
shall pay a penalty of $500, and shall be fined not more than $1,000, 
and imprisoned not more than 2 years. 
SEC. 5602. PENALTY AND FORFEITURE FOR SETTING UP STILL WITH-
OUT PERMIT. 
Any person who sets up any still, boiler, or other vessel, to be used 
for the purpose of distilling spirits, without first obtaining a permit 
from the Secretary or his delegate, as required by section 5105 (a), 
or who fails to give the notice required by such section, shall pay in 
either case the sum of $500, and shall forfeit the distilling apparatus 
thus removed or set up in violation of law. 
§5602 
684 
INTERNAL REVENUE CODE OF 1954 
HO 
SEC. 5603. PENALTY FOR FAILURE OR REFUSAL OF DISTILLER OR 
RECTIFIER TO GIVE NOTICE OF INTENTION TO ENGAGE 
IN SUCH BUSINESS. 
Every person engaged in, or intending to be engaged in, the busi-
ness of a distiller or rectifier, who fails or refuses to give notice, as 
required by sections 5175 (a) and 5271 (a), shall pay a penalty of 
$1,000 and shall be fined not more than $2,000; and every person 
who gives a false or fraudulent notice shall, in addition to such 
penalty or fine, be imprisoned not more than 2 years. 
SEC. 5604. PENALTY AND FORFEITURE FOR FAILURE OR REFUSAL OF 
DISTILLER TO GIVE BOND. 
Every person who fails or refuses to give the bond required by 
section 5176 (a), or to renew the same, or who gives any false, forged, 
or fraudulent bond, shall forfeit the distillery, distilling apparatus, 
and all real estate and premises connected therewith, and shall be 
fined not more than $5,000, and imprisoned not more than 2 years. 
SEC. 5605. PENALTY FOR IMPROPER 
APPROVAL OF 
DISTILLER'S 
BOND. 
Every ofiicer who approves the bond of any distiller in violation 
of section 5177 (a) shall forfeit and pay $2,000, and be dismissed from 
ofiice. 
SEC. 5606. PENALTY AND FORFEITURE FOR DISTILLING WITHOUT 
GIVING BOND. 
Any person who shall carry on the business of a distUler without 
having given bond as required by law, or who shall engage in or carry 
on the business of a distiller with intent to defraud the United States 
of the tax on the spirits distilled by him, or any part thereof, shall, 
for every such offense, be fined not more than $5,000 and imprisoned 
not more than 2 years. 
All distilled spirits or wines, and all stills or 
other apparatus, fit or intended to be used for the distillation or 
rectification of spirits, or for the compounding of liquors, owned by 
such person, wherever found, and all distilled spirits or wines and 
personal property found in the distillery or in any building, room, 
yard, or inclosure connected therewith, and used with or constituting 
a part of the premises, and all the right, title, and interest of such 
person in the lot or tract of land on which such distillery is situated, 
and all right, title, and interest therein of every person, who know-
ingly has suffered or permitted the business of a distiller to be there 
carried on, or has connived at the same; and all personal property 
owned by or in possession of any person who has permitted or suffered 
any building, yard, or inclosure, or any part thereof, to be used for 
purposes of ingress or egress to or from such distillery, which shall 
be found in any such building, yard, or inclosure, and all the right, 
title, and interest of every person in any premises used for ingress 
or egress to or from such distillery, who has knowingly suffered or 
permitted such premises to be used for such ingress or egress, shall 
be forfeited to the United States. 
SEC. 5607. PENALTY FOR DISTILLING ON PROHIBITED PREMISES. 
Every person who does any of the acts prohibited by section 5171 
(a), or aids or assists therein, or causes or procures the same to be 
done, shall be fined $1,000, and imprisoned not more than 2 years, 
in the discretion of the court, for each such offense. 
§ 5603 
-
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
685 
SEC. 5608. PENALTY FOR MAKING OR FERMENTING MASH ON UNAU-
THORIZED PREMISES; ILLEGAL USE OF SPIRITS; UNLAW-
FUL REMOVAL OF VINEGAR; ETC. 
(a) VIOLATION OF SECTION 5216.—Every person who violates any 
provision of section 5216 shall be fined for each offense not more 
than $5,000, and be imprisoned not more than 2 years. 
(b) UNLAWFUL REMOVAL OF VINEGAR.—Every person, who shall 
remove, or cause to be removed, from any vinegar factory or place 
where vinegar is made, any vinegar or other fluid or material con-
taining a greater proportion than 2 percent of proof spirits shall incur 
a forfeiture of the vinegar, fluid, or material containing such proof 
spirits. 
(c) APPLICABILITY OF SECTIONS 5615 AND 5616 TO MANUFACTURERS 
OF VINEGAR.—The penalties provided in sections 5615 and 5616 shall 
apply to persons carrying on the operations described in section 5216. 
SEC. 5609. PENALTY RELATING TO RETURN OF MATERIALS USED IN 
THE MANUFACTURE OF DISTILLED SPIRITS. 
Any person who willfully violates any provision of section 5213 (a), 
or of any rules or regulations issued thereunder, and any officer, 
director, or agent of any such person who knowingly participates in 
such violation, shall upon conviction be fined not more than $500 
or be imprisoned for not more than 1 year, or both. 
SEC. 5610. PENALTY FOR USING UNREGISTERED 
MATERIALS 
FOR 
PRODUCING SPIRITS. 
Any person who uses any molasses, beer, or other substance, 
whether fermented on the premises or elsewhere, for the purpose of 
producing spirits, without recording the receipt thereof as required 
under section 5197 (a) (1) (A), shall forfeit and pay the sum of $1,000 
for each such offense. 
SEC. 5611. PENALTY FOR USING FALSE WEIGHTS AND MEASURES. 
Every person who knowingly uses any false weights or measures in 
ascertaining, weighing, or measuring the quantities of grain, meal, or 
vegetable materials, molasses, beer, or other substances to be used 
for distillation, shall be fined not more than $5,000, and imprisoned 
not more than 3 years. 
SEC. 5612. PENALTY FOR USING MATERIAL OR REMOVING 
SPIRITS 
WITHOUT 
SUPERVISION. 
'] Every distiller or person employed in any distillery who uses, or 
causes or permits to be used, any material for the purpose of making 
mash, wort, or beer, or for the production of spirits, or removes any 
spirits, in the absence of such supervision by storekeeper-gaugers as 
may be prescribed under section 5192 (c), shall forfeit and pay double 
the amount of taxes on the spirits so produced, distilled, or removed, 
and in addition thereto be liable to a penalty of $1,000. 
SEC. 5613. PENALTY FOR DISTILLING DURING PROHIBITED HOURS. 
Every person who violates the provisions of section 5195 (a) shall 
be liable to a penalty of $1,000. 
SEC. 5614. PENALTY AND FORFEITURE FOR REMOVAL OF SPIRITS 
DURING PROHIBITED HOURS. 
Every person who violates section 5195 (b) shall be liable to a 
penalty of $100 for each cask, barrel, or package of spirits so removed; 
and such spirits, together with any package containing the same, and 
§ 6614 
686 
INTERNAL REVENUE CODE OF 1954 
Tm 
any vessel, vehicle or aircraft used in the removal thereof, shall be 
forfeited to the United States. 
SEC. 5615. PENALTY FOR REFUSAL OR NEGLECT OF DISTILLERS AND 
RECTIFIERS TO GIVE ASSISTANCE TO OFFICERS. 
Every distiller or rectifier who, on the demand of any internal 
revenue officer or agent, neglects or refuses to furnish facilities and 
give assistance for examination of premises as required by section 
5196 (c) shall pay a penalty of $500 for every refusal or neglect so to do, 
SEC. 5616. PENALTY FOR OBSTRUCTING OR REFUSING TO ADMIT 
OFFICER TO DISTILLERY PREMISES. 
Whenever any internal revenue officer, or any person called by him 
to his aid, is hindered, obstructed, or prevented by any distiller or 
by any workman, or other person acting for such distiller, or in his 
employ, from entering into any distillery or building or place which 
such officer is authorized to enter under section 5196 (b); or having 
demanded admittance and declared his name and office, is not ad-
mitted into the distillery or premises by the distiller or other person 
having charge thereof; or any such officer is by the distiller, or his 
workman, or any person in his employ, prevented or hindered from, 
or opposed, or obstructed, or molested in the performance of his duty 
under the internal revenue laws, in any respect, the distiller shall 
forfeit a sum of not more than $1,000. 
SEC. 5617. PENALTY FOR FAILURE TO KEEP DISTILLERY ACCESSIBLE. 
Every person who violates any of the provisions of section 5196 (a) 
by negligence or refusal, or otherwise, shall pay a penalty of $500. 
SEC. 5618. PENALTY FOR FAILURE OF DISTILLER TO IDENTIFY FIXED 
PIPES. 
Whenever any distiller uses fixed pipes which are not identified as 
required by section 5173 (a), or regulations issued thereunder, he shall 
forfeit the sum of $1,000. 
SEC. 5619. PENALTY FOR REFUSAL OR NEGLECT TO DRAW OFF WATER 
AND CLEAN CONDENSERS OR WORM TANKS. 
For any refusal or neglect to comply with any provision of section 
5196 (e) the distiller shall forfeit a sum of not more than $1,000. 
SEC. 5620. PENALTY AND FORFEITURE FOR FALSE OR OMITTED 
ENTRIES IN DISTILLER'S BOOKS AND RECORDS. 
Whenever any false entry is made in, or any entry required to be 
made is omitted from the records required under section 5197 (a) (1) 
with intent to defraud or to conceal from the revenue officers any fact 
or particular required to be stated and entered in such records, or to 
mislead in reference thereto; or any distiller omits or refuses to pro-
vide such records, or cancels, obliterates, or destroys any part of such 
records or any entry therein, with intent to defraud, or permits the 
same to be done, or willfully refuses to produce such records when 
required by any revenue officer, the distillery, distilling apparatus, 
and the lot or tract of land on which it stands, and all personal prop-
erty on said premises used in the business there carried on, shall be 
forfeited to the United States. 
And every person who makes such 
false entry, or omits to make any entry required to be made, with 
intent aforesaid, or who causes or procures the same to be done, or 
fraudulently cancels, obliterates, or destroys any part of said records, 
§5614 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
687 
or any entry therein, or willfully fails to produce such records, shall be 
fined not more than $5,000, and imprisoned not more than 2 years. 
SEC. 5621. PENALTY RELATING TO RECORDS AND RETURNS OF DIS-
TILLER AS WHOLESALE DEALERS, RECTIFIERS, AND 
WHOLESALE DEALERS. 
Every distiller, rectifier, and wholesale liquor dealer who refuses or 
neglects to keep the records required under sections 5197 (a) (2), 
5285 (b) or 5114 (a) in the form prescribed by the Secretary or his 
delegate, or to make entries therein, or cancels, alters, or obliterates 
any entry therein (except for the purpose of correcting errors) or 
destroys any part of such records, or any entry therein, or makes 
any false entry therein, or hinders or obstructs any internal revenue 
officer from inspecting such records or taking any abstracts there-
from, or neglects or refuses to preserve or produce such records as 
required by this chapter or by regulations issued pursuant thereto, 
shall pay a penalty of $100 and, on conviction, shall be fined not 
more than $5,000, and imprisoned not more than 3 years. 
Every 
distiller, rectifier, and wholesale liquor dealer who refuses or neglects 
to render transcripts or summaries of such records in the form 
required by the Secretary or his delegate shall, upon conviction, be 
fined not more than $100 for each such neglect or refusal. 
SEC. 5622. DISPOSAL OF FORFEITED EQUIPMENT AND MATERIAL 
FOR DISTILLING. 
V All boilers, stills, or other vessels, tools and implements, used in 
distilling or rectifying, and forfeited under any of the provisions of 
this chapter, and all condemned material, together with any engine 
or other machinery connected therewith, and all empty barrels, and 
all grain or other material suitable for distillation, shall, under the 
direction of the court in which the forfeiture is recovered, be sold at 
public auction, and the proceeds thereof, after deducting the expenses 
of sale, shall be disposed of according to law. 
SEC. 5623. DESTRUCTION OF DISTILLING APPARATUS. 
When a judgment of forfeiture, in any case of seizure, is recovered 
against any distillery used or fit for use in the production of distilled 
spirits, because no bond has been given, or against any distillery 
used or fit for use in the production of spirits, having a registered 
producing capacity of less than 150 gallons a day, for any violation 
of law, of whatever nature, every still, doubler, worm, worm tub, 
mash tub, and fermenting tub therein shall be so destroyed as to 
prevent the use of the same or of any part thereof for the purpose of 
distilling; and the materials shall be sold as in case of other forfeited 
property. 
In case of seizure of a still, doubler, worm, worm tub, 
mash tub, fermenting tub, or other distilling apparatus, for any 
offense involving forfeiture of the same, where it shall be impracticable 
to remove the same to a place of safe storage from the place where 
seized, the seizing officer is authorized to destroy the same only so 
far as to prevent the use thereof, or any part thereof, for the purpose 
of distilling (except in the case of a registered distillery). 
Such de-
struction shall be in the presence of at least one credible witness, and 
such witness shall unite with the said officer in a duly sworn report 
of said seizure and destruction, to be made to the Secretary or his 
delegate, in which report they shall set forth the grounds of the 
claim of forfeiture, the reasons for such seizure and destruction, their 
§5623 
688 
INTERNAL REVENUE CODE OF 1954 .xr') 
estimate of the fair cash value of the apparatus destroyed, and also 
of the materials remaining after such destruction, and a statement 
that, from facts within their own knowledge, they have no doubt 
whatever that said distilling apparatus was set up for use for dis-
tillation, redistillation or recovery of distilled spirits and not regis-
tered, or had been used in the unlawful distillation of spirits, and that 
it was impracticable to remove the same to a place of safe storage. 
Within 1 year after such destruction the owner of the apparatus so 
destroyed may make application to the Secretary or his delegate for 
reimbursement of the value of the same; and, unless it shall be made 
to appear to the satisfaction of the Secretary or his delegate that 
said apparatus had been used in the unlawful distillation of spirits, 
the Secretary or his delegate shall make an allowance to said owner, 
not exceeding the value of said apparatus, less the value of said 
materials as estimated in said report; and if the claimant shall 
thereupon satisfy the Secretary or his delegate that said unlawful 
use of the apparatus had been without his consent or knowledge, 
he shall still be entitled to such compensation, but not otherwise. 
In 
case of a wrongful seizure and destruction of property under this 
section, the owner thereof shall have right of action on the official 
bond of the officer who occasioned the destruction for all damages 
caused thereby. 
SEC. 5624. RELEASE OF DISTILLERY BEFORE JUDGMENT. 
Any distillery or distilling apparatus seized for any violation of law 
may, in the discretion of the court, be released before final judgment to 
a receiver appointed by the court to operate such distillery or ap-
paratus. 
Such receiver shall give bond, which shall be approved in 
open court, with two or more competent personal sureties, or one 
approved corporate surety, for the full appraised value of all the 
property seized, to be ascertained by three competent appraisers 
designated and appointed by the court. 
Funds obtained from such 
operation shall be impounded as the court shall direct pending such 
final judgment. 
SEC. 5625. FORFEITURE OF TAXPAID DISTILLED SPIRITS REMAINING 
ON DISTILLERY PREMISES. 
No distilled spirits on which the tax has been paid shall be stored or 
allowed to remain on any distillery or internal revenue bonded 
warehouse premises, under the penalty of a forfeiture of all spirits 
so found. 
SEC. 5626. PENALTY AND FORFEITURE FOR TAX FRAUD BY DISTILLER. 
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 of any part thereof, he shall— 
(1) forfeit the distillery and distilling apparatus used by him, 
and all distilled spirits and all raw materials for the production of 
distilled spirits found in the distillery and on the distillery premises, 
and— 
(2) be fined not more than $5,000, and imprisoned not more than 
3 years. 
No discontinuance or nolle prosequi of any prosecution under this 
subsection shall be allowed without the permission in writing of the 
Attorney General. 
§ 5623 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
689 
SEC. 5627. PENALTY FOR UNLAWFUL USE OF RECTIFYING PREMISES. 
Any rectifier who uses his rectifying premises contrary to the 
provisions of section 5273 (a) shall be fined not more than $50 with 
respect to each day upon which any such use occurs, but shall not, 
on account of such use, be subject to the penalties prescribed in 
section 5628. 
SEC. 5628. PENALTY FOR RECTIFICATION WITHOUT PAYMENT OF 
TAX, INCREASING VOLUME, ETC. 
Except as provided in section 5627, whoever violates any of the 
provisions of section 5021, 5022, 5272 or 5281 (a), or regulations 
issued thereunder, shall upon conviction, be fined not more than 
$1,000, or imprisoned not more than 2 years, and shall, in addition, 
be liable to double the tax evaded, together with the tax, to be 
collected by assessment or on any bond given. 
SEC. 5629. PENALTY FOR UNLAWFUL RECTIFYING. 
Every person who engages in, or carries on, the business of a 
rectifier with intent to defraud the United States of the tax on the 
spirits rectified by him, or any part thereof, or with intent to aid, 
abet, or assist any person or persons in defrauding the United States 
of the tax on any distilled spirits, or who shall purchase or receive or 
rectify any distilled spirits which have been removed from a distillery 
to a place other than the internal revenue bonded warehouse provided 
by law, knowing or having reasonable grounds to believe that the 
tax on said spirits has not been determined or paid as required by 
law, shall, for every such offense, be fined not more than $5,000, and 
imprisoned not more than 2 years. 
SEC. 5630. PENALTY FOR NON<:;OMPLIANCE BY RECTIFIERS WITH 
PROVISIONS RELATING TO RECTIFYING, GAUGING, 
BRANDING AND STAMPING. 
Every rectifier or wholesale liquor dealer who refuses or willfully 
neglects to comply with the requirements of sections 5282 (a) and (b) 
and 5115 (a) as to giving the notice or the return specified in such 
sections, and as to marking, branding, and stamping, in accordance 
with the law and the regulations made in pursuance thereof, the pack-
ages of spirits filled on his premises as aforesaid shall, for each such 
offense, be fined not more than $1,000. 
SEC. 5631. PENALTY AND FORFEITURE FOR FAILURE TO COMPLY 
WITH WAREHOUSING AND REMOVAL REQUIREMENTS. 
In case any distilled spirits removed from an internal revenue 
bonded warehouse for deposit in another internal revenue bonded 
warehouse shall fail to be so deposited or if any distilled spirits 
deposited in any internal revenue bonded warehouse shall be taken 
therefrom, for export or otherwise, without full compliance with the 
provisions of subchapter C (except section 5243), and with the require-
ments of any regulations made thereunder, and with the terms of any 
bond given on such removal, or if any distilled spirits which have been 
deposited in an internal revenue bonded warehouse shall be found 
elsewhere, not having been removed therefrom according to law, any 
person who shall be guilty of such failure, or any person who shall in 
any manner violate any provision of subchapter C (except section 
5243), shall be subject, on conviction, to a fine of not more than 
$5,000, or to imprisonment for not more than 3 years for each such 
§ 5631 
690 
INTERNAL REVENUE CODE OF 19 54'; Fin 
failure or violation; and the spirits as to which such failure or violation 
or unlawful removal shall take place shall be forfeited to the United 
States. 
SEC. 5632. PENALTY AND FORFEITURE FOR UNLAWFUL REMOVAL 
OR CONCEALMENT OF SPIRITS. 
AU distilled spirits found elsewhere than in a distillery or internal 
revenue bonded warehouse, not having been removed 
therefrom 
according to law, shall be forfeited to the United States. 
Whenever 
any person removes, or aids or abets in the removal of, any distilled 
spirits on which the tax has not been determined or paid, to a place 
other than the internal revenue bonded warehouse provided by law, or 
conceals or aids in the concealment of any spirits so removed, or 
removes, or aids or abets in the removal of, any distilled spirits from 
any such warehouse authorized by law, in any manner other than as 
provided by law, or conceals or aids in the concealment of any spirits 
so removed, he shall be liable to a penalty of double the tax imposed on 
such distilled spirits so removed or concealed, and shall be fined not 
more than $5,000, and imprisoned not more than 3 years. 
SEC. 5633. PENALTY OF OFFICER IN CHARGE OF WAREHOUSE FOR 
UNLAWFUL REMOVAL OF SPIRITS. 
Whenever any storekeeper-gauger or other person in the employ-
ment of the United States, having charge of a bonded warehouse, 
removes or allows to be removed therefrom any cask or other package, 
or removes or allows to be removed any part of the contents of any 
cask or package deposited therein, otherwise than as provided by law, 
he shall be immediately dismissed from office or employment, and be 
fined not more than $2,000, and imprisoned not more than 2 years. 
SEC. 5634. PENALTY AND FORFEITURE FOR CREATION OF FICTITIOUS 
PROOF. 
Every person who adds, or causes to be added, any ingredient or 
substance to any distilled spirits before the tax is paid thereon, or 
determined as provided by law, for the purpose of creating a fictitious 
proof, shall be fined not more than $1,000 for each cask or package 
so adulterated, and imprisoned not more than 2 years; and every 
such cask or package, with its contents, shall be forfeited to the 
United States. 
SEC. 5635. PENALTY FOR BUYING OR SELLING USED CASKS BEARING 
INSPECTION MARKS. 
Whenever any person knowingly purchases or sells, with inspection 
marks thereon, any cask or package, after the same has been used 
for distilled spirits, he shall forfeit and pay the sum of $200 for every 
such cask so purchased or sold. 
SEC. 5636. PENALTY AND FORFEITURE FOR FAILURE TO EFFACE, ETC. 
STAMPS AND BRANDS ON EMPTIED PACKAGES. 
Every cask or package from which the mark, brand, or stamp is 
not effaced and obliterated as required by section 5010 (c) shall be 
forfeited to the United States, and may be seized by any ofiicer of in-
ternal revenue, wherever found. 
And every railroad company or other 
transportation company, or person who receives or transports, or has 
in possession with intent to transport, or with intent to cause or 
procure to be transported, any such empty cask or package, or any 
part thereof, having thereon any brand, mark, or stamp, required by 
§5631 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
691 
law to be placed on any cask or package containing distilled spirits, 
shall forfeit $300 for each such cask or package, or any part thereof, 
so received or transported, or had in possession with the intent afore-
said; and every vessel, aircraft, railroad car, or other vehicle, and 
draft animal used in carrying or transporting the same, shall be 
forfeited to the United States. 
Every person who fails to efface and 
obliterate said mark, stamp, or brand, at the time of emptying such 
cask or package, or who receives any such cask or package, or any 
part thereof, with the intent aforesaid, or who transports the same, 
or knowingly aids or assists therein, or who removes any stamp pro-
vided by law from any cask or package containing, or which had con-
tained, distilled spirits, without defacing and destroying the same at 
the time of such removal, or who aids or assists therein, or who has 
in his possession any such stamp so removed as aforesaid, or has in 
his possession any canceled stamp, or any stamp which has been 
used, or which purports to have been used, upon any cask or package 
of distilled spirits, shall be deemed guilty of a felony, and shall be 
fined not more than $10,000, and imprisoned not more than 5 years. 
SEC. 5637. PENALTY FOR CHANGING STAMPS OR SHIFTING SPIRITS. 
Whenever any person changes or alters any stamp, mark, or brand 
on any cask or package containing distilled spirits, or puts into any 
cask or package spirits of greater strength than is indicated by the 
inspection-mark thereon, or fraudulently uses any cask or package 
having any inspection-mark or stamp thereon, for the purpose of 
selling other spirits, or spirits of quantity or quality different from the 
spirits previously inspected therein, he shall forfeit and pay the sum 
of $200 for every cask or package on which the stamp or mark is so 
changed or altered, or which is so fraudulently used, and shall be 
fined for each such offense not more than $1,000, and imprisoned not 
more than 1 year. 
SEC. 5638. PENALTY AND FORFEITURE FOR AFFIXING IMITATION 
STAMPS ON PACKAGES OF DISTILLED SPIRITS. 
If any person shall affix, or cause to be affixed, to or upon any cask 
or package containing, or intended to contain, distilled spirits, any 
imitation stamp or other engraved, printed, stamped, or photo-
graphed label, device, or token, whether the same be designed as a 
trade mark, caution notice, caution, or otherwise, and which shall 
be in the similitude or likeness of, or shall have the resemblance or 
general appearance of, any internal revenue stamp required by law to 
be affixed to or upon any cask or package containing distilled spirits, 
he shall, for each offense, be liable to a penalty of $100, and, on convic-
tion, shall be fined not more than $1,000, and imprisoned not more 
than 3 years, and the cask or package with its contents shall be for-
feited to the United States. 
SEC. 5639. FORFEITURE 
OF 
DISTILLED 
SPIRITS 
IN 
UNSTAMPED 
CASKS OR PACKAGES. 
All distilled spirits found in any cask or package containing 5 gallons 
or more, without having thereon each mark and stamp required 
therefor by law, shall be forfeited to the United States. 
SEC. 5640. FORFEITURE OF SPIRITS IN UNSTAMPED CONTAINERS. 
All distilled spirits found in any container required by this chapter 
to bear a stamp, which container is not stamped in compliance with 
§5640 
692 
INTERNAL REVENUE CODE OF 1954'; .H3 
this chapter and regulations issued thereunder, shall be forfeited to 
the United States. 
SEC. 5641. PENALTY AND FORFEITURE RELATING TO CONTAINERS 
OF DISTILLED SPIRITS. 
Whoever willfully violates the provisions of any regulation pre-
scribed, or the terms or conditions of any permit issued, pursuant to 
the authorization contained in section 5214, and any officer, director, 
or agent of any corporation who knowingly participates in such viola-
tion, shall, upon conviction, be fined not more than $1,000, or be im-
prisoned not more than 2 years, or both; and, notwithstanding any 
criminal conviction, the containers involved in such violation shall be 
forfeited to the United States, and may be seized and condemned by 
like proceedings as those provided by law for forfeitures, seizures, and 
condemnations for violations of the internal revenue laws, and any 
such containers so seized and condemned shall be destroyed and not 
sold. 
SEC. 5642. PENALTIES FOR TRANSPORTING, 
POSSESSING, 
ETC. 
DISTILLED SPIRITS IN UNSTAMPED CONTAINERS OR 
COUNTERFEITING OF STAMPS, ETC. 
Any person who violates any provision of section 5008 (b), or who, 
with intent to defraud, falsely makes, forges, alters, or counterfeits 
any stamp made or used under such section, or who uses, sells, or has 
in his possession any such forged, altered, or counterfeited stamp, or 
any plate or die used or which may be used in the manufacture thereof, 
or any stamp required to be destroyed by such section, or who makes, 
uses, sells, or has in his possession any paper in imitation of the paper 
used in the manufacture of any such stamp, or who reuses any stamp 
required to be destroyed by such section, or who places any distilled 
spirits in any bottle which has been filled and stamped under such 
section without destroying the stamp previously affixed to such bottle, 
or who affixes any stamp issued under such section to any container of 
distilled spirits on which any tax due is undetermined or unpaid, or 
who makes any false statement in any application for stamps under 
such section, or who has in his possession any such stamps obtained 
by him otherwise than as provided in section 5008 (b) (2), shall on 
conviction be punished by a fine of not more than $1,000, or by 
imprisonment at hard labor for not more than 5 years, or both. 
Any officer authorized to enforce any provision of law relating to 
internal revenue stamps is authorized to enforce this section and 
section 5644 (relating to the bottling of distilled spirits in bond). 
SEC. 5643. PENALTY AND FORFEITURE FOR REUSE OF STAMPS OR 
BOTTLES, TAMPERING AND UNLAWFUL REMOVAL. 
Any person who shall reuse any stamp provided under sections 5008 
and 5243 after the same shall have been once affixed to a bottle as 
provided therein, or who shall reuse a bottle for the purpose of con-
taining distilled spirits which has once been filled and stamped under 
the provisions of such sections without removing and destroying the 
stamp so previously affixed to such bottle, or who shall, contrary 
to the provisions of such sections or of the regulations issued there-
under remove or cause to be removed from any bonded warehouse 
any distilled spirits inspected or bottled under the provisions of such 
sections or who shall bottle or case any such spirits in violation of 
such sections or of any regulation issued thereunder, or who shall, 
§ 5640 
^ 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
693 
during the transportation and before the exportation of any such 
spirits, open or cause to be opened any case or bottle containing such 
spirits, or who shall willfully remove, change, or deface any stamp, 
brand, label, or seal affixed to any such case or to any bottle contained 
therein, shall for each such offense be fined not more than $1,000, and 
imprisoned not more than 2 years, in the discretion of the court, and 
such spirits shall be forfeited to the United States. 
SEC. 5644. PENALTY FOR COUNTERFEITING BOTTLED IN BOND 
STAMPS. 
Every person who, with intent to defraud, falsely makes, forges, 
alters, or counterfeits any stamp made or used under any provision 
of sections 5008 (a) and 5243 or who uses, sells, or has in his posses-
sion any such forged, altered, or counterfeited stamp, or any plate or 
die used or which may be used in the manufacture thereof, or who shall 
make, use, sell, or have in his possession any paper in imitation of the 
paper used in the manufacture of any stamp required by siich sections, 
shall on conviction be punished by a fine of not more than $1,000, 
or by imprisonment at hard labor not more than 5 years, or both. 
SEC. 5645. PENALTY FOR UNLAWFUL AFFIXING, CANCELLING, OR 
ISSUE OF STAMPS BY OFFICER. 
Whenever any revenue officer affixes or cancels, or causes or permits 
to be affixed or canceled, any stamp relating to distilled spirits pro-
vided for by law, in any other manner or in any other place, or issues 
the same to any other person than as provided by law, or by regulation 
made in pursuance thereof, or knowingly affixes, or permits to be 
affixed, any such stamp to any cask or package of spirits of which 
the whole or any part has been distilled, rectified, compounded, re-
nioved, or sold, in violation of law, or which has in any manner escaped 
payment of tax due thereon, he shall, for every such offense, be fined 
not more than $3,000, and imprisoned not more than 3 years. 
SEC. 5646. PENALTY FOR EVASION OF DISTILLED SPIRITS TAX. 
Whenever any person evades, or attempts to evade, the payment 
of the tax on any distilled spirits, in any manner whatever, he shall 
forfeit and pay double the amount of the tax so evaded or attempted 
to be evaded. 
SEC. 5647. PENALTY AND FORFEITURE FOR UNLAWFUL USE OR 
CONCEALMENT OF DENATURED ALCOHOL. 
Any person who withdraws alcohol free of tax under the provisions 
of section 5331 (a) and regulations made m pursuance thereof, and who 
removes or conceals same, or is concerned in removing, depositing, 
or concealing same for the purpose of preventing the same from 
being denatured under governmental supervision, and any person who 
uses alcohol withdrawn from bond under the provisions of said section 
for manufacturing any beverage or liquid medicinal preparation, or 
laiowingly sells any beverage or liquid medicinal preparation made in 
whole or in part from such alcohol, or knowingly violates any of the 
provisions of section 5331 (a) or 5332, or (except as provided in sec-
tion 5332) who shall recover or attempt to recover by redistillation 
or by any other process or means, any alcohol rendered unfit for bev-
erage or liquid medicinal purposes under the provisions of section 
5331 (a), or who knowingly uses, sells, conceals, or otherwise disposes 
of alcohol so recovered or redistilled, shall on conviction of each 
§5647 
69^4 
INTERNAL REVENUE CODE OF 1954'^ 
^^'> 
offense be fined not more than $5,000, or imprisoned not more than 
5 years, or both, and shall, in addition, forfeit to the United States 
all personal property used in connection with his business, together 
with the buildings and lots or parcels of ground constituting the 
premises on which said unlawful acts are performed or permitted to 
be performed. 
SEC. 5648. PENALTY AND FORFEITURE FOR FRAUDULENT CLAIMS 
FOR EXPORT DRAWBACK OR UNLAWFUL RELANDING. 
(a) FEAUDULENT 
CLAIM 
FOR DRAWBACK.—Every person 
who 
fraudulently claims, or seeks, or obtains an allowance of drawback on 
any distilled spirits, or fraudulently claims any greater allowance or 
drawback than the tax actually paid thereon, shall forfeit and pay to 
the Government of the United States triple the amount wrongfully 
and fraudulently sought to be obtained, and shall be imprisoned not 
more than 10 years; and every owner, agent, or master of any vessel 
or other person who knowingly aids or abets in the fraudulent collec-
tion or fraudulent attempts to collect any drawback upon, or know-
ingly aids or permits any fraudulent change in the spirits so shipped, 
shall be fined not exceeding $5,000 and imprisoned not more than 1 
year, and the ship or vessel on board of which such shipment was 
made or pretended to be made shall be forfeited to the United States, 
whether a conviction of the master or owner be had or otherwise, and 
proceedings may be had in admiralty by libel for such forfeiture. 
(b) UNLAWFUL KELANDING.—Every person who intentionally re-^ 
lands within the jurisdiction of the United States any distilled spirits 
which have been shipped for exportation under the provisions of this 
chapter, or who receives such relanded distilled spirits, and every per-
son who aids or abets in such relanding or receiving of such spirits, 
shall be fined not exceeding $5,000 and imprisoned not more than 3 
years; and all distilled spirits so relanded, together with the vessel 
irom which the same were relanded within the jurisdiction of the United 
States, and all vessels, vehicles, or aircraft used in relanding and re-
moving such distilled spirits, shall be forfeited to the United States. 
SEC. 5649. BURDEN OF PROOF IN CASES OF SEIZURE OF SPIRITS. 
Whenever seizure is made of any distilled spirits found elsewhere 
than in a distillery or internal revenue bonded warehouse or other ware-
house authorized by law, or than in the store or place of business of a 
rectifier, or of a wholesale liquor dealer, or than in transit from any one 
of said places; or of any distilled spirits found in any one of the places 
aforesaid, or in transit therefrom, which have not been received into or 
sent out therefrom in conformity to law, or in regard to which any of 
the entries required by law to be made in the books or records of the 
owner of such spirits, or of the storekeeper-gauger, wholesale dealer, 
or rectifier, have not been made at the time or in the manner required, 
or in respect to which the owner or person having possession, control, or 
charge of said spirits, has omitted to do any act required to be done, or 
has done or committed any act prohibited in regard to said spirits, the 
burden of proof shall be upon the claimant of said spirits to show that 
no fraud has been committed, and that all the requirements of the law 
in relation to the payment of the tax have been complied with. 
§5647 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
695 
SEC. 5650. PENALTY AND FORFEITURE FOR OPERATING DISTILLERY 
AFTER GIVING NOTICE OF SUSPENSION. 
Every distiller who, after the time fixed in the notice given under 
section 5191 (a) declaring his intention to suspend work, carries on 
the business of a distiller in the distillery covered by such notice, or 
has mash, wort, or beer in such distillery, or on any premises connected 
therewith, or has in his possession or under his control any mash, 
wort, or beer, with intent to distill the same on said premises, shall 
incur the forfeitures and be subject to the same punishment as pro-
vided for persons who carry on the business of a distiller without having 
given the bonds required by law. 
PART II—PENALTY AND FORFEITURE PROVISIONS APPLI-
CABLE TO WINE AND WINE PRODUCTION 
, j 
Sec. 5661. Penalty and forfeiture for violation of laws and regula-
; 
tions relating to wine. 
• 
Sec. 5662. Penalty for alteration of wine labels. 
Sec. 5663. Cross reference. 
SEC. 5661. PENALTY AND FORFEITURE FOR VIOLATION OF LAWS 
AND REGULATIONS RELATING TO WINE. 
(a) FRAUDULENT OFFENSES.—Whoever, with intent to defraud the 
United States, fails to pay any tax imposed upon wine or violates, or 
fails to comply with, any requirement of subchapter F or subpart C of 
part I of subchapter A, or regulations issued pursuant thereto, or 
recovers or attempts to recover any spirits from wine, shall, on con-
viction, be punished for each such offense by a fine not exceeding 
$5,000, or imprisonment for not more than 5 years, or both, and in 
addition thereto by a penalty of double the tax due, to be assessed, 
levied and collected in the same manner as taxes are collected, and all 
products and materials used in any such violation shall be forfeited to 
the United States. 
(b) OTHER OFFENSES.—Any proprietor of premises subject to the 
provisions of subchapter F, or any employee or agent of such pro-
prietor, or any other person, who otherwise than with intent to defraud 
the United States violates or fails to comply with any provision of 
subchapter F or subpart C of part I of subchapter A, or of any regula-
tions issued thereunder, or who aids or abets in any such violation, 
shall, upon conviction, be punished for each such offense by a fine not 
exceeding $1,000, or imprisonment for not more than 1 year, or both. 
SEC. 5662. PENALTY FOR ALTERATION OF WINE LABELS. 
Any person who, without the permission of the Secretary or his 
delegate, so alters as to materially change the meaning of any mark, 
brand, label, or stamp required to appear upon any wine upon its 
removal from premises subject to the provisions of subchapter F, or 
from customs custody, or who, after such removal, represents any 
wine, whether in its original containers or otherwise, to be of an 
identity or origin other than its proper identity or origin as shown 
by such brand, mark, label, or stamp, shall upon conviction, be pun-
ished for each such offense by a fine not exceeding $1,000, or imprison-
ment for not more than 1 year, or both. 
SEC. 5663. CROSS REFERENCE. 
For penalties of common application pertaining to liquors, including 
wines, see part IV and for penalties for rectified products, see part I. 
§5663 
696 
INTERNAL REVENUE CODE OF 1954<1 .IfO 
PART III—PEN 
ALTY, SEIZURE, AND FORFEITURE PROVISIONS 
APPLICABLE TO BEER AND BREWING 
Sec. 5671. Penalty and forfeiture for evasion of beer tax and fraudu-
lent noncompliance with requirements. 
Sec. 5672. Penalty for failure of brewer to comply with requirements 
and to keep records and file returns. 
Sec. 5673. Forfeiture forflagrant and willful removal of beer without 
is 
tax payment. 
Sec. 5674. Penalty for unlawful removal of beer. 
Sec. 5675. Penalty for intentional removal or defacement of brewer's 
marks and brands. 
Sec. 6676. Penalties relating to beer stamps. 
SEC. 5671. PENALTY AND FORFEITURE FOR EVASION OF BEER TAX 
AND FRAUDULENT NONCOMPLIANCE WITH REQUIRE-
MENTS. 
Whoever evades or attempts to evade any tax imposed by sections 
5051 and 5091, or fraudulently neglects or refuses to keep and file true 
and accurate records and returns as required by section 5415, shall, 
on conviction, be punished for each such offense by a fine of not 
exceeding $5,000, or imprisonment for not more than 5 years, or both, 
and shall forfeit for every such offense all the beer made by him or 
for him, and all the vessels, utensils, and apparatus used in making 
the same. 
SEC. 5672. PENALTY FOR FAILURE OF BREWER TO COMPLY WITH 
REQUIREMENTS AND TO KEEP RECORDS AND FILE 
RETURNS. 
Every brewer who, without intent to defraud, neglects or refuses 
to keep the records and file the returns required by section 5415, or 
refuses to permit the proper oflBcer to inspect his records in the manner 
provided, or violates any of the provisions of subchapter G or regu-
lations issued pursuant thereto shall, on conviction, be punished for 
each such offense by a fine of not exceeding $1,000, or imprisonment 
of not more than 1 year, or both. 
SEC. 5673. FORFEITURE FOR FLAGRANT AND WILLFUL REMOVAL OF 
BEER WITHOUT TAXPAYMENT. 
For flagrant and willful removal of taxable beer for consumption 
or sale, with intent to defraud the United States of the tax thereon, 
all the right, title, and interest of each person who has knowingly 
suffered or permitted such removal, or has connived at the same, in 
the lands and buildings constituting the brewery shall be forfeited 
by a proceeding in rem in the District Court of the United States 
having jurisdiction thereof. 
SEC. 5674. PENALTY FOR UNLAWFUL REMOVAL OF BEER. 
Any brewer or other person who removes or in any way aids in the 
removal from any brewery of beer without complying with require-
ments of section 5055 or regulations issued pursuant thereto shall be 
fined not more than $1,000, or imprisoned not more than 1 year, or 
both. 
SEC. 5675. PENALTY FOR INTENTIONAL REMOVAL OR DEFACEMENT 
OF BREWER'S MARKS AND BRANDS. 
Every person other than the owner, or his agent authorized so to do, 
who intentionally removes or defaces the marks and brands required 
by section 5412 shall be liable to a penalty of $50 for each barrel or 
§5671 
, 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
697 
other container from which the marks or brands are so removed or 
defaced. 
SEC. 5676. PENALTIES RELATING TO BEER STAMPS. 
If stamps or other devices evidencing the tax on beer or indicating 
comphance with the provisions of this chapter, are required by the 
Secretary under section 5055, the following subsections shall apply— 
*
" 
(1) PENALTY FOR SALE, REMOVAL, OR RECEIPT WITHOUT PROPER 
STAMP OR DEVICE.—Any brewer, or other person who sells, removes, 
V receives, or purchases, or in any way aids in the sale, removal, 
1 receipt, or purchase of, any beer contained in any hogshead, barrel, 
keg, or other container from any brewery upon which the stamp, or 
J,, device, in case of removal, has not been affixed, or on which a false 
or fraudulent stamp, or device, in case of removal, is affixed with 
T knowledge that it is such, or on which a stamp, or device, in case of 
removal, once cancelled, is used a second time, shall be fined not 
' 
more than $1,000, or imprisoned for not more than 1 year, or both. 
' 
(2) PENALTY 
FOR 
WITHDRAWAL 
FROM 
IMPROPERLY STAMPED 
CONTAINERS OR WITHOUT DESTROYING STAMPS OR DEVICES. 
ANY 
6 person who withdraws or aids in the withdrawal of any beer from 
^
- any hogshead, barrel, keg, or other container, without destroying 
or defacing the stamp or device affixed thereon, or withdraws or 
- aids in the withdrawal of any beer from any hogshead, barrel, keg, 
or other container, upon which the proper stamp or device has not 
been affixed or on which a false or fraudulent stamp or device is 
ji affixed, shall be fined not more than $1,000, or imprisoned not more 
-: than 1 year, or both. 
(3) PENALTY FOR COUNTERFEITING STAMPS AND DEVICES AND 
1 
TRAFFICKING IN USED STAMPS, OR DEVICES. 
^Every pcrsOD 
w h o 
! makes, sells, or uses any false or counterfeit stamp or device, or 
\V die for printing or making stamps or devices, which is in imitation 
I of or purports to be a lawful stamp or device, or die of the kind 
, 
mentioned in section 5055, or regulations issued pursuant thereto, 
% or who procures the same to be done, and every person who shall 
, 
remove, or cause to be removed, from any hogshead, barrel, keg, 
,i 
or other container of beer, any stamp or device required by regu-
r lations issued pursuant to section 5055, with intent to reuse such 
, 
stamp or device, or who, with intent to defraud the revenue, know-
y ingly uses, or permits to be used, any stamp or device removed 
i 
from another hogshead, barrel, keg, or other container, or receives, 
- buys, sells, gives away, or has in his possession any such stamp or 
, 
device so removed, or makes any fraudulent use of any such stamp 
* or device for beer, shall be fined not more than $5,000 or imprisoned 
i 
not more than 5 years, or both. 
' 
(4) FORFEITURE OF UNSTAMPED CONTAINERS.—The ownership or 
possession by any person of any beer in hogsheads, barrels, kegs, or 
other similar containers which do not bear the stamps or devices 
V required by regulations issued pursuant to section 5055 shall render 
j such hogsheads, barrels, kegs and other similar containers, and the 
J
. beer contained therein, liable to seizure wherever found and to 
- 
forfeiture. 
(5) PENALTY FOR REMOVAL OR DEFACEMENT OF STAMPS, DEVICES 
{ 
OR LABELS.—Every person who intentionally removes, alters or 
defaces any stamp, device or label required by section 5055 or 
§ 5676(5) 
49012°—54——47 
698 
INTERNAL REVENUE CODE OF 19 
54 
regulations issued thereunder to be placed on containers of beer, 
other than in the manner and at the time required by law or regu-
lations issued by the Secretary or his delegate, shall be liable to a 
fine of not more than $500 for each such container from which the 
stamp, device or label is removed, altered or defaced. 
PART IV—PENALTY, SEIZURE, AND FORFEITURE PROVISIONS 
COMMON TO LIQUORS 
Sec. 5681. Penalty and forfeiture for failure to post or unlawfully 
posting signs of distillers, rectifiers or wholesale liquor 
dealers. 
Sec. 5682. Penalty for breaking locks or gaining access. 
Sec. 5683. Penalty and forfeiture for removal of liquors or wines 
under improper brands. 
Sec. 5684. Penalties relating to the payment and collection of liquor 
taxes. 
Sec. 5685. Penalty and forfeiture relating to possession of devices 
for emitting gas, smoke, etc., explosives and firearms, 
when violating liquor laws. 
Sec. 5686. Miscellaneous penalties. 
Sec. 5687. Penalties and forfeitures applicable to distillers, rectifiers 
and wholesale liquor dealers for offenses not specifically 
covered. 
Sec. 5688. Disposition and release of seized property. 
Sec. 5689. Penalty and forfeiture for tampering with a stamp ma-
chine. 
Sec. 5690. Definition of the term "person". 
SEC. 5681. PENALTY AND FORFEITURE FOR FAILURE TO POST OR 
UNLAWFULLY POSTING SIGNS OF DISTILLERS, RECTI-
FIERS OR WHOLESALE LIQUOR DEALERS. 
Every person engaged in distilling or rectifying spirits, and every 
wholesale liquor dealer, who fails or refuses to post the sign required 
by sections 5116, 5180, or 5274 shall pay a penalty of $500. 
Every 
person, other than a rectifier or wholesale liquor dealer who has paid 
the special tax, or a distiller who has given bond as required by law, 
who puts up or keeps up the sign required by such sections, or any 
sign indicatiag that he may lawfully carry on the business of a distiller, 
rectifier, or wholesale liquor dealer, shall forfeit and pay $1,000, and 
shall be imprisoned not more than 6 months. 
Every person who works 
in &nj distillery, rectifying establishment, or wholesale liquor store, 
on which no such sign is placed and kept, as required by law, and every 
person who knowingly receives at, or carries or conveys any distilled 
spirits to or from, any such distillery, rectifying establishment, ware-
house, or store, or who knowingly carries and delivers any grain, 
molasses, or other raw material to any distillery on which such sign 
is not placed and kept, shall forfeit all vehicles, aircraft or vessels used 
in carrying or conveying such property, and shall be fined not more 
than $1,000, or imprisoned not more than 6 months. 
SEC. 5682. PENALTY FOR BREAKING LOCKS OR GAINING ACCESS. 
Every person who destroys, breaks, injm-es, or tampers with any 
lock or seal which may be placed on any room, building, tank, vessel 
or apparatus, by the duly authorized officers of the revenue, or opens 
said lock, seal, room, building, tank, vessel or apparatus, or in any 
manner gains access to the contents therein, in the absence of the 
proper officer, or otherwise than as authorized by law, shall be fined 
not more than $5,000 and imprisoned not more than 3 years. 
§ 5676(5) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
699 
SEC. 5683. PENALTY AND FORFEITURE FOR REMOVAL OF LIQUORS 
OR WINES UNDER IMPROPER BRANDS. 
Whenever any person ships, transports, or removes any spirituous 
liquors or beer or wines, under any other than the proper name or 
brand known to the trade as designating the kind and quality of 
the contents of the casks or packages containing the same, or causes 
such act to be done, he shaU forfeit such liquors or beer or wines, and 
casks or packages, and be subject to pay a fine of $500. 
SEC. 5684. PENALTIES RELATING TO THE PAYMENT AND COLLEC-
TION OF LIQUOR TAXES. 
(a) Any person required to pay, or to collect, account for and pay 
over any tax on distiUed spirits, wines, or beer, or required by law 
or regulations made under authority thereof to make a return or 
supply any information for the purposes of the computation, assess-
ment or collection of any such tax, who fails to pay, collect, or truly 
account for and pay over any such tax, make any such return or 
supply any such information at the time or times required by law 
or regulation shall in addition to other penalties provided by law 
be subject to a penalty of not more than $1,000. 
(b) Any person who willfully refuses to pay, collect, or truly ac-
count for and pay over any such tax, make such return or supply 
such information at the time or times required by law or regulation, 
or who willfully attempts in any manner to evade such tax shall be 
guilty of a misdemeanor and in addition to other penalties provided 
by law shall be fined not more than $10,000, or imprisoned not more 
than 1 year, or both, together with the costs of prosecution. 
(c) Any person who willfully refuses to pay, collect, or truly ac-
count for and pay over any such tax shall in addition to other penal-
ties provided by law be liable to a penalty of the amount of the tax 
evaded, or not paid, collected, or accounted for and paid over, to be 
assessed and collected in the same manner as taxes are assessed and 
collected: Provided, however, That no penalty shall be assessed under 
this subsection for any offense for which a penalty may be assessed 
under authority of section 5628, or 5661, or 6651 (a), or 6653 (b), or 
for any offense for which a penalty has been recovered under section 
5646. 
SEC. 5685. PENALTY AND FORFEITURE RELATING TO POSSESSION 
OF DEVICES FOR EMITTING GAS, SMOKE, ETC., EX-
PLOSIVES AND FIREARMS, WHEN VIOLATING LIQUOR 
LAWS. 
(a) PENALTY FOR POSSESSION OF DEVICES FOR EMITTING GAS, 
SMOKE, ETC.—Whoever, when violating any law of the United States, 
or of any Territory or possession of the United States, or of the 
District of Columbia, in regard to the manufacture, taxation, or 
transportation of or traffic in distilled spirits, wines, or beer, or when 
aiding in any such violation, has in his possession or in his control any 
device capable of causing emission of smoke, gas, or fumes, and which 
may be used for the purpose of hindering, delaying, or preventing 
pursuit or capture, any explosive, or any firearm (as defined in section 
5848), except a machine gun, or a shotgun or rifle having a barrel or 
barrels less than 18 inches in length, shall be fined not more than 
$5,000 or imprisoned not more than 10 years, or both, and all per-
sons engaged in any such violation or in aiding in any such violation 
§ 5685(a) 
700 
INTERNAL REVENUE CODE 
OF 
1954 " 
• 
shall be held to be in possession or control of such device, firearm, or 
explosive. 
(b) PENALTY FOR POSSESSION OF MACHINE GUN, ETC.—Whoever, 
when violating any such law, has in his possession or in his control a 
machine gun, or any shotgun or rifle having a barrel or barrels less 
than 18 inches in length, shall be punished by imprisonment for not 
more than 20 years; and all persons engaged in any such violation or 
in aiding in any such violation shall be held to be in possession and 
control of such machine gun, shotgun, or rifle. 
(c) FORFEITURE OF FIREARMS, DEVICES, ETC.—Every such firearm 
or device for emitting gas, smoke, or fumes, and every such explosive, 
machine gun, shotgun, or rifle, in the possession or control of any 
person when violating any such law, shall be seized and shall be 
forfeited and disposed of in the manner provided by section 5862. 
(d) DEFINITION OF MACHINE GUN.—As used in this section the 
term "machine gun" means any weapon which shoots, or is designed 
to shoot, automatically or semiautomatically, more than one shot, 
without manual reloading, by a single function of the trigger. 
SEC. 5686. MISCELLANEOUS PENALTIES. 
(a) FOR OFFENSES AS TO OPERATION OF INDUSTRIAL ALCOHOL OR 
DENATURING 
PLANTS OR UNLAWFUL 
WITHDRAWAL OF TAXABLE 
ALCOHOL.—Whoever operates an industrial alcohol plant or a denatur-
ing plant without complying with the provisions of part I of sub-
chapter E and lawful regulations made thereunder, or whoever with-
draws or attempts to withdraw or secure tax-free any alcohol subject 
to tax, or whoever otherwise violates any of the provisions of such 
part or of regulations lawfully made thereunder, shall be liable to a 
fine not to exceed $5,000, or to imprisonment for not more than 1 
year, or both. It shall be lawful for the Secretary or his delegate in 
all cases of second or cognate offense to refuse to issue for a period of 
1 year a permit for the manufacture or use of alcohol upon the premises 
of any person responsible in any degree for the violation. Any person 
violating the provisions of such part I of subchapter E or of any 
regulations issued thereunder, for which offense a special penalty is 
not prescribed, shall be liable to the penalty or penalties prescribed 
in this subsection. 
(b) PENALTY FOR HAVING, 
POSSESSING OR USING LIQUOR OR 
PROPERTY INTENDED T O B E USED IN VIOLATING PROVISIONS OF THIS 
CHAPTER.—It shall be unlawful to have or possess any liquor or 
property intended for use in violating the provisions of this chapter, 
or regulations prescribed thereunder, or which has been so used, and 
every person so having or possessing or using such liquor or property, 
shall be liable to a fine not to exceed $5,000, or to imprisonment for 
not more than 1 year, or both. 
(c) CROSS REFERENCE.— 
For seizure and forfeiture of liquor and property had, possessed or 
used in violation of subsections (a) and (b), see section 7302. 
SEC. 5687. PENALTIES AND FORFEITURES 
APPLICABLE TO DIS-
TILLERS, RECTIFIERS AND WHOLESALE LIQUOR DEAL-
ERS FOR OFFENSES NOT SPECIFICALLY COVERED. 
If any distiller, rectifier, or wholesale liquor dealer, shall knowingly 
or willfully omit, neglect or refuse to do or cause to be done any of 
the things required by law in the carrying on or conducting of his 
§ 5685(a) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
701 
business, or shall do anything by this title prohibited, if there be no 
specific penalty or punishment imposed by any other section of this 
title for the neglecting, omitting or refusing to do, or for the doing 
or causing to be done the thing required or prohibited, he shall pay 
a penalty of $1,000; and all distilled spirits or liquors owned by him 
or in which he has any interest as owner, shall be forfeited to the 
United States. 
SEC. 5688. DISPOSITION AND RELEASE OF SEIZED PROPERTY. 
, 
(a) FORFEITURE.— 
(1) DELIVERY.—All distilled spirits, wine, and beer forfeited, 
summarily or by order of court, under any law of the United States, 
^ shall be delivered to the Administrator of General Services to be 
disposed of as hereinafter provided. 
^ 
(2) DISPOSAL.—The Administrator of General Services shall 
^ dispose of all distilled spirits, wine, and beer which have been 
' 
delivered to him pursuant to paragraph (1)— 
^ 
(A) by delivery to such Government agencies as, in his opinion, 
' 
have a need for such distilled spirits, wine, or beer for medicinal, 
scientific, or mechanical purposes; or 
' 
(B) by gifts to such eleemosynary institutions as, in his opinion, 
' 
have a need for such distilled spirits, wine, or beer for medicinal 
* 
purposes; or 
(C) by destruction. 
'• 
(3) LIMITATION ON DISPOSAL.—Except as otherwise provided by 
", law, no distilled spirits, wine, or beer which have been seized under 
: any law of the United States may be disposed of in any manner 
^ whatsoever except after forfeiture and as provided in this subsection. 
(4) REGULATIONS.—The Administrator of General Services is 
authorized to make all rules and regulations necessary to carry out 
•!; the provisions of this subsection. 
,e 
(5) REMISSION OR MITIGATION OF FORFEITURES.—Nothing in 
1; this section shall affect the authority of the Secretary or his dele-
gate, under the customs or internal revenue laws, to remit or miti-
gate the forfeiture, or alleged forfeiture, of such distilled spirits, 
( wine, or beer, or the authority of the Secretary or his delegate, to 
compromise any civil or criminal case in respect of such distilled 
spirits, wines, or beer prior to commencement of suit thereon, or 
e the authority of the Secretary or his delegate to compromise any 
claim under the customs laws in respect to such distilled spirits, 
wines, or beer. 
(b) DISTRAINT OR JUDICIAL PROCESS.—Except as provided in sec-
tion 5333, all distilled spirits sold by order of court, or under process 
of distraint, shall be sold subject to tax; and the purchaser shall im-
mediately, and before he takes possession of said spirits, pay the tax 
thereon, pursuant to the applicable provisions of this chapter and in 
accordance with regulations to be prescribed by the Secretary or his 
delegate. 
(c) RELEASE OF SEIZED VESSELS OR VEHICLES BY COURTS.—Not-
withstanding any provisions of law relating to the return on bond of 
any vessel or vehicle seized for the violation of any law of the United 
States, the court having jurisdiction of the subject matter may, in its 
discretion and upon good cause shown by the United States, refuse to 
order such return of any such vessel or vehicle to the claimant thereof. 
§ 5688(c) 
702 
INTERNAL REVENUE CODE OF 1954 
As used in this subsection, the word "vessel" includes every descrip-
tion of watercraft used, or capable of being used, as a means of trans-
portation in water or in water and air; and the word "vehicle" includes 
every animal and description of carriage or other contrivance used, 
or capable of being used, as a means of transportation on land or 
through the air. 
(d) 
KELEASE OF SEIZED PROPERTY BY SECRETARY OR H I S D E L E -
GATE.—When any property is seized for violation of part I of sub-
chapter E, it may be released to the claimant or to any intervening 
party, in the discretion of the Secretary or his delegate, on a bond 
given and approved. 
SEC. 5689. PENALTY AND FORFEITURE FOR TAMPERING WITH A 
STAMP MACHINE. 
Whoever manufactures, procures, possesses, uses, or tampers with 
a tax-stamp machine which may be required under section 5061 (b) 
with intent to evade the internal revenue tax imposed upon alcohol, 
distilled spirits, rectified spirits, wines and beer, and whoever, with 
intent to defraud, makes, alters, simulates, or counterfeits any stamp 
of the character imprinted by such stamp machines, or who procures, 
possesses, uses, or sells any forged, altered, counterfeited, or simulated 
tax stamp, or any plate, die, or device intended for use in forging, 
altering, counterfeiting, or simulating any such stamps, shall pay a 
penalty of $5,000, and shall be fined not more than $10,000 or im-
prisoned not more than 5 years, or both, and any machine, device, 
equipment, or materials used in violation of this section shall be for-
feited to the United States and after condemnation shall be destroyed. 
But this provision shall not exclude any other penalty or forfeiture 
provided by law. 
SEC. 5690. DEFINITION OF THE TERM "PERSON". 
The term "person", as used in this subchapter, includes an officer or 
employee of a corporation or a member or employee of a partnership, 
who as such officer, employee, or member is under a duty to perform 
the act in respect of which the violation occurs. 
PART V—PENALTIES AND FORFEITURES APPLICABLE TO 
OCCUPATIONAL TAXES 
Sec. 5691. Penalties and forfeitures for nonpayment of special taxes 
relating to liquors. 
Sec. 5692. Penalty relating to records of retail liquor dealers. 
Sec. 5693. Penalties relating to posting of special tax stamps. 
SEC. 5691. PENALTIES AND FORFEITURES FOR NONPAYMENT OF 
SPECIAL TAXES RELATING TO LIQUORS. 
Any person who shall carry on the business of a brewer, rectifier, 
wholesale dealer in liquors, retail dealer in liquors, wholesale dealer 
in beer, retail dealer in beer, or manufacturer of stills, and willfully 
fails to pay the special tax as required by law, shall, for every such 
offense, be fined not more than $5,000, and imprisoned not more 
than 2 years. 
All distilled spirits or wines, and all stills or other 
apparatus, fit or intended to be used for the distillation or rectifica-
tion of spirits, or for the compounding of liquors, owned by such 
person, wherever found, and all distilled spirits or wines and personal 
§ 5688(c) 
CH. 51—DISTILLED SPIRITS, WINES, AND BEER 
703 
property found in the distillery or rectifying establishment, or in any 
building, room, yard, or enclosure connected therewith and used with 
or constituting a part of the premises, shall be forfeited to the United 
States. 
SEC. 5692. PENALTY RELATING TO RECORDS OF RETAIL LIQUOR 
DEALERS. 
For each willful violation of the provisions of section 5124 the 
retailer shall be subject to a fine of $25. 
SEC. 5693. PENALTIES RELATING TO POSTING OF SPECIAL TAX 
STAMPS. 
For penalty for failure to post special tax stamps, see section 7273 (a). 
5693 
•
. f {. 
. 'i.<.' 
CH. 5 2—TOBACCO AND MANUFACTURES 
705 
CHAPTER 
52—TOBACCO, 
CIGARS, 
CIGARETTES, 
AND 
CIGARETTE 
PAPERS 
AND 
TUBES 
•,• 
SUBCHAPTER A. Definitions; rate and payment of tax; exemption 
f 
from tax; and refund and drawback of tax. 
SUBCHAPTER B. Qualification requirements for manufacturers of 
articles and dealers in tobacco materials. 
'
!
<
= ' ' 
SUBCHAPTER C. Operations by manufacturers of articles. 
J 
SUBCHAPTER D . Operations by dealers in tobacco materials. 
SUBCHAPTER E . Records of manufacturers of articles and dealers in 
tobacco materials. 
^' 
SUBCHAPTER F . General provisions. 
SUBCHAPTER G. Fines, penalties and forfeitures. 
Subchapter A—Definitions; Rate and Payment of Tax; Ex-
emption From Tax; and Refund and Drawback of Tax 
? 
Sec. 5701. Rate of tax. 
1: 
Sec. 5702. Definitions. 
^ 
Sec. 6703. Liability for tax and method of payment. 
•*" ' 
Sec. 5704. Exemption from tax. 
Sec. 5705. Refund or allowance of tax. 
>-':'' 
Sec. 5706. Drawback of tax. 
j : 
Sec. 5707. Floor stocks refund on cigarettes. 
SEC. 5701. 
BATE OF TAX. 
. ,...^^,-.,..^^ 
(a) TOBACCO.—On tobacco, manufactured in or imported into the 
United States, there shall be imposed a tax of 10 cents per pound. 
(b) CiGAES.—On cigars, manufactured in or imported into the 
United States, there shall be imposed the following taxes: 
(1) SMALL CIGARS.—On cigars, weighing not more than 3 pounds 
; per thousand, 75 cents per thousand; 
(2) LARGE CIGARS.—On cigars, weighing more than 3 pounds per 
, thousand; 
(A) If removed to retail at not more than 2J^ cents each, $2.50 
; 
per thousand; 
' 
(B) If removed to retail at more than 2)^ cents each and not 
' 
more than 4 cents each, $3 per thousand; 
' 
(C) If removed to retail at more than 4 cents each and not 
more than 6 cents each, $4 per thousand; 
• 
(D) If removed to retail at more than 6 cents each, and not 
more than 8 cents each, $7 per thousand; 
l 
(E) If removed to retail at more than 8 cents each and not 
more than 15 cents each, $10 per thousand; 
(F) If removed to retail at more than 15 cents each and not 
more than 20 cents each, $15 per thousand; 
(G) If removed to retail at more than 20 cents each, $20 per 
thousand. 
In determining the retail price, for tax purposes, regard shall be 
had to the ordinary retail price of a single cigar in its principal market. 
§ 5701(b) 
706 
INTERNAL REVENUE CODE OF 1954 
(c) CiGAEETTES.—On cigarettes, manufactured in or imported into 
the United States, there shall be imposed the following taxes: 
(1) SMALL CIGARETTES.—On cigarettes, weighing not more than 
3 pounds per thousand, $4 per thousand until April 1, 1955, and 
$3.50 per thousand on and after April 1, 1955; 
(2) LARGE CIGARETTES.—On cigarettes, weighing more than 3 
pounds per thousand, $8.40 per thousand; except that, if more than 
Qji inches in length, they shall be taxable at the rate prescribed for 
cigarettes weighing not more than 3 pounds per thousand, counting 
each 2yi inches, or fraction thereof, of the length of each as one 
cigarette. 
(d) CIGARETTE PAPERS.—On cigarette papers, manufactured in or 
imported into the United States, there shall be imposed, on each 
package, book, or set containing more than 25 papers, a tax of K cent 
for each 50 papers or fractional part thereof; except that, if cigarette 
papers measure more than 6}^ inches in length, they shall be taxable 
at the rate prescribed, counting each 2% inches, or fraction thereof, 
of the length of each as one cigarette paper. 
(e) CIGARETTE TUBES.—On cigarette tubes, manufactured in or 
imported into the United States, there shall be imposed a tax of 1 
cent for each 50 tubes or fractional part thereof, except that if cigarette 
tubes measure more than 6}^ inches in length, they shall be taxable at 
the rate prescribed, counting each 2% inches, or fraction thereof, of 
the length of each as one cigarette tube. 
(f) IMPORTED ARTICLES.—The taxes imposed on articles by this 
section shall be in addition to any import duties imposed on such 
articles. 
SEC. 5702. 
DEFINITIONS. 
(a) MANUFACTURED TOBACCO.—^''Manufactured tobacco" means 
all tobacco, other than cigars and cigarettes, prepared, processed, 
manipulated, or packaged for consumption by smoking or for use in 
the mouth or nose. 
Any other tobacco not exempt from tax under 
this chapter, which is sold or delivered to any person contrary to this 
chapter and regulations prescribed thereunder, shall be regarded as 
manufactured tobacco. 
(b) MANUFACTURER 
OF TOBACCO,—"Manufacturer 
of 
tobacco" 
means any person who manufactures tobacco by any method of 
preparing, processing, or manipulating, except for his own personal 
consumption or use; or who packages any tobacco for consumption 
by smoking or for use in the mouth or nose; or who sells or delivers 
any tobacco, not exempt from tax under this chapter, to any person, 
contrary to the provisions of this chapter and regulations prescribed 
thereunder. 
The term "manufacturer of tobacco" shall not include— 
(1) a farmer or grower of tobacco who sells leaf tobacco of his 
own growth or raising, or a bona fide association of farmers or 
growers of tobacco which sells only leaf tobacco grown by farmer 
or grower members, if the tobacco so sold is in the condition as 
cured on the farm; or 
(2) a dealer in tobacco materials who handles tobacco solely for 
sale, shipment, or delivery, in bulk, to another dealer in such 
materials or to a manufacturer of tobacco products, or to a foreign 
country, Puerto Rico, the Virgin Islands, or a possession of the 
United States. 
§ 5701(c) 
CH. 52—TOBACCO AND MANUFACTURES 
707 
(c) CIGAR.—"Cigar" means any roll of tobacco wrapped in tobacco. 
(d) CIGARETTE.—"Cigarette" means any roll of tobacco, wrapped 
in paper or any substance other than tobacco. 
(e) MANUFACTURER 
OF CIGARS AND CIGARETTES.—"Manufacturer 
of cigars and cigarettes" means every person who produces cigars or 
cigarettes, except for his own personal consumption. 
(f) TOBACCO PRODUCTS.—"Tobacco products" means manufac-
tured tobacco, cigars, and cigarettes. 
(g) CIGARETTE PAPER.—"Cigarette paper" means paper, or any 
other material except tobacco, prepared for use as a cigarette wrapper. 
(h) CIGARETTE TUBE.—"Cigarette 
tube" means cigarette paper 
made into a hollow cylinder for use in making cigarettes. 
(i) MANUFACTURER OF CIGARETTE PAPERS AND TUBES.—"Manu-
facturer of cigarette papers and tubes" means any person who makes 
up cigarette paper into packages, books, sets, or tubes, except for his 
own personal use or consumption. 
(j) ARTICLES.—"Articles" means manufactured tobacco, cigars, 
cigarettes, and cigarette papers and tubes. 
(k) TOBACCO MATERIALS.—"Tobacco materials" means tobacco in 
process, leaf tobacco, and tobacco scraps, cuttings, clippings, siftings, 
dust, stems, and waste. 
(1) DEALER IN TOBACCO MATERIALS.—^"Dealer in tobacco mate-
rials" means any person who handles tobacco materials for sale, 
shipment, or delivery solely to another dealer in such materials, to 
a manufacturer of tobacco products, or to a foreign country, Puerto 
Rico, the Virgin Islands, or a possession of the United States, but 
shall not include— 
(1) an operator of a warehouse who stores tobacco materials 
solely for a dealer in tobacco materials, for a manufacturer of 
,••' tobacco products, for a farmer or grower of tobacco, or for a bona 
fide association of farmers or growers of tobacco; or 
(2) a farmer or grower of tobacco who sells leaf tobacco of his 
own growth or raising, or a bona fide association of farmers or 
growers of tobacco which sells only leaf tobacco grown by farmer 
or grower members, if the tobacco so sold is in the condition as 
cured on the farm. 
(m) REMOVAL OR REMOVE.—"Removal" or "remove" means re-
moval of articles from the factory or from internal revenue bond, as 
the Secretary or his delegate shall, by regulation, prescribe, or from 
customs custody, and shall also include the smuggling or other unlaw-
ful importation of articles into the United States. 
(n) IMPORTER.—"Importer" means any person in the United States 
to whom nontaxpaid articles manufactured in a foreign country, 
Puerto Rico, the Virgin Islands, or a possession of the United States 
are shipped or consigned, and any person who smuggles or otherwise 
unlawfully brings such nontaxpaid articles into the United States. 
SEC. 5703. LIABILITY FOR TAX AND METHOD OF PAYMENT. 
(a) PERSONS LIABLE TO MAKE RETURN AND PAY TAX.—The taxes 
imposed by section 5701 shall be determined at the time of removal of 
the articles and shall be paid by the manufacturer or the importer 
thereof by return. 
The Secretary or his delegate shall, by regulation, 
prescribe the period for which the return shall be made, the informa-
tion to be furnished on such return, the time for making such return, 
§ 5703(a) 
708 
INTERNAL REVENUE CODE OF 
1954 
and the time for payment of such tax: Provided, however, That not-
withstanding the provisions of this section the tax shall continue to be 
paid by stamp until the Secretary or his delegate shall, by regulation, 
provide for the payment of the tax by return. 
All administrative 
and penal provisions of this title, insofar as applicable, shall apply to 
any tax imposed by section 5701. 
(b) STAMPS TO EVIDENCE THE TAX.—If the Secretary or his delegate 
shall, by regulation, require the use of stamps to evidence the tax or 
indicate compliance with this chapter, the Secretary or his delegate 
shall cause to be prepared suitable stamps to be issued to manufac-
turers and importers of articles, to be used and accounted for, in 
accordance with such regulations as the Secretary or his delegate 
shall prescribe. 
(c) U S E OF GOVERNMENT DEPOSITARIES.—The Secretary or his 
delegate may authorize Federal Reserve banks, and incorporated 
banks or trust companies which are depositaries or financial agents 
of the United States, to receive any tax imposed by this chapter, in 
such manner, at such times, and under such conditions as he may 
prescribe; and he shall prescribe the manner, time, and condition 
under which the receipt of such tax by such banks and trust companies 
is to be treated as payment for tax purposes. 
(d) ASSESSMENT.—Whenever any tax required to be paid by this 
chapter is not paid in full at the time required for such payment, it 
shall be the duty of the Secretary or his delegate, subject to the limita-
tions prescribed in section 6501, on proof satisfactory to him, to deter-
mine the amount of tax which has been omitted to be paid, and to 
make an assessment therefor against the person liable for the tax. 
The tax so assessed shall be in addition to the penalties imposed by 
law for failure to pay such tax when required: Provided, however, 
That no such assessment shall be made until and after the person 
liable for the tax has been afforded reasonable notice and opportunity 
to show cause, in writing, against such assessment. 
SEC. 5704. EXEMPTION FROM TAX. 
^ 
(a) TOBACCO 
PRODUCTS 
FURNISHED 
FOR EMPLOYEE 
U S E OR 
EXPERIMENTAL PURPOSES.—Tobacco products may be furnished by 
a manufacturer of such products, without payment of tax, for use or 
consumption by employees or for experimental purposes, in such 
quantities, and in such manner as the Secretary or his delegate shall, 
by regulation, prescribe. 
(b) ARTICLES TRANSFERRED OR REMOVED IN BOND FROM DOMESTIC 
FACTORIES.—A manufacturer may transfer articles produced by 
him, without payment of tax, to the bonded premises of another manu-
facturer, or remove such articles, without payment of tax, for use of 
the United States, or for shipment to a foreign country, Puerto Rico, 
the Virgin Islands, or a possession of the United States, or for con-
sumption beyond the jurisdiction of the internal revenue laws of the 
United States, in accordance with such regulations and upon the filing 
of such bonds as the Secretary or his delegate shall prescribe. 
(c) TOBACCO MATERIALS SHIPPED OR DELIVERED IN BOND.—A 
dealer in tobacco materials or a manufacturer of tobacco products 
may ship or deliver tobacco materials, without payment of tax, to 
another such dealer or manufacturer, or to a foreign country, Puerto 
Rico, the Virgin Islands, or a possession of the United States, in 
§ 5703(a) 
CH. 52—^TOBACCO AND MANUFACTURES 
709 
accordance with such regulations and upon the filing of such bonds 
as the Secretary or his delegate shall prescribe. 
(d) AETICLES AND TOBACCO MATERIALS RELEASED IN BOND FROM 
CUSTOMS CUSTODY,—Articles and tobacco materials imported or 
brought into the United States may be released from customs custody, 
without payment of tax, for delivery to the bonded premises of a 
manufacturer of articles and such tobacco materials may be similarly 
released for delivery to the bonded premises of a dealer in tobacco 
materials, in accordance with such regulations and upon the filing of 
such bond as the Secretary or his delegate shall prescribe. 
SEC. 5705. REFUND OR ALLOWANCE OF TAX. 
(a) REFUND.—Refund of any tax imposed by this chapter shall be 
made to the manufacturer or importer on proof satisfactory to the 
Secretary or his delegate that the claimant manufacturer or importer 
has paid the tax on articles withdrawn by him from the market; oron 
articles which are lost (otherwise than by theft) or destroyed, by fire, 
casualty, or act of God, while in the possession or ownership of the 
claimant; or where the tax has been paid in error. 
(b) ALLOWANCE.—If the tax has not yet been paid on articles proved 
to have been lost or destroyed as aforesaid, relief from the tax on such 
articles may be extended upon the filing, with the return, of a claim 
for allowance of loss in the same manner as a claim for refund. 
(c) LIMITATION.—Claims for refund of tax imposed by this chapter 
shall be filed within 3 years of the date of payment of tax, and shall be 
in such form and contain such information as the Secretary or his 
delegate shall by regulation prescribe. 
SEC. 5706. D R A W B A C K OF TAX. 
There shall be an allowance of drawback of tax paid on articles, 
when shipped from the United States, in accordance with such regu-
lations and upon the filing of such bond as the Secretary or his 
delegate shall prescribe. 
SEC. 5707. FLOOR STOCKS REFUND ON CIGARETTES. 
(a) I N GENERAL.—With respect to cigarettes, weighing not more 
than 3 pounds per thousand, upon which the tax imposed by sub-
section (c) (1) of section 5701 has been paid, and which, on April 1, 
1955, are held by any person and intended for sale, or are in transit 
from foreign countries or insular possessions of the United States to 
any person in the United States for sale, there shall be credited or 
refunded to such person (without interest), subject to such regulations 
as shall be prescribed by the Secretary or his delegate, an amount 
equal to the difference between the tax paid on such cigarettes and 
the tax made applicable to such articles on April 1, 1955, if claim for 
such credit or refund is filed with the Secretary or his delegate before 
July 1, 1955. 
(b) LIMITATIONS ON ELIGIBILITY FOR CREDIT OR REFUND.—No 
person shall be entitled to credit or refund under subsection (a) of 
this section unless such person, for such period or periods both before 
and after April 1, 1955 (but not extending beyond 1 year thereafter), 
as the Secretary or his delegate shall, by regulation, prescribe, makes 
and keeps, and files with the Secretary or his delegate such records of 
inventories, sales, and purchases as shall be prescribed in such regu-
lations. 
§ 5707(b) 
710 
INTERNAL REVENUE CODE OF 1954 
(c) PENALTY AND ADMINISTRATIVE PROCEDURES.—All provisions 
of law, including penalties, applicable in respect of internal revenue 
taxes on cigarettes shall, insofar as applicable and not inconsistent 
with this section, be applicable in respect of the credits and refunds 
provided for in this section to the same extent as if such credits or 
refunds constituted credits or refunds of such taxes. 
Ji. 
• .i.»i -
"§ 5707(c) 
CH. 52—TOBACCO AND MANUFACTURES 
711 
Subchapter B—Qualification Requirements for Manufac-
turers of Articles and Dealers in Tobacco Materials 
Yji V. 
Sec. 5711. Bond. 
Sec. 5712. Application for permit. 
Sec. 5713. Permit. 
SEC. 5711. BOND. 
(a) WHEN REQUIRED.—Every person, before commencing business 
as a manufacturer of articles or dealer in tobacco materials, shall file 
such bond, conditioned upon compliance with this chapter and 
regulations issued thereunder, in such form, amount, and manner as 
the Secretary or his delegate shall by regulation prescribe. 
A new 
or additional bond may be required whenever the Secretary or his 
delegate considers such action necessary for the protection of the 
revenue. 
(b) APPROVAL OR DISAPPROVAL.—No person shall engage in such 
business until he receives notice of approval of such bond. 
A bond 
may be disapproved, upon notice to the principal on the bond, if the 
Secretary or his delegate determines that the bond is not adequate to 
protect the revenue. 
(c) CANCELLATION.—Any bond filed hereunder may be canceled, 
upon notice to the principal on the bond, whenever the Secretary or his 
delegate determines that the bond no longer adequately protects the 
revenue. 
SEC. 5712. APPLICATION FOR PERMIT. 
Every person, before commencing business as a manufacturer of 
articles or dealer in tobacco materials, and at such other time as the 
Secretary or his delegate shall by regulation prescribe, shall make 
application for the permit provided for in section 5713. 
The applica-
tion shall be in such form as the Secretary or his delegate shall prescribe 
and shall set forth, truthfully and accurately, the information called 
for on the form. 
Such application may be rejected and the permit 
denied if the Secretary or his delegate, after notice and opportunity 
for hearing, finds that— 
(1) the premises on which it is proposed to conduct the business 
are not adequate to protect the revenue; or 
(2) such person (including, in the case of a corporation, any 
ofl&cer, director, or principal stockholder and, ia the case of a partner-
ship, a partner) is, by reason of his business experience, financial 
standing, or trade connections, not likely to maintain operations in 
compliance with this chapter, or has failed to disclose any material 
information required or made any material false statement in the 
application therefor. 
No person subject to this section, who is engaged in business on the 
effective date of this chapter, shall be denied the right to carry on such 
business pending reasonable opportunity to make application for 
permit and final action thereon. 
§5712 
712 
INTERNAL REVENUE CODE OF 1954 
SEC. 5713. PERMIT. 
(a) ISSUANCE.—A person shall not engage in business as a manu-
facturer of articles or dealer in tobacco materials without a permit or 
permits to engage in such business. 
Such permit, conditioned upon 
compliance with this chapter and regulations issued thereunder, 
shall be issued in such form and in such manner as the .Secretary or 
his delegate shall by regulation prescribe, to every person properly 
qualified under sections 5711 and 5712. 
A new permit may be 
required at such other time as the Secretary or his delegate shall by 
regulation prescribe. 
(b) POSTING.—Such permit shall be posted in accordance with such 
regulations as the Secretary or his delegate shall prescribe. 
(c) REVOCATION.—If the Secretary or his delegate has reason to 
believe that any person holding a permit has not in good faith com-
plied with this chapter, or with any other provision of this title 
involving intent to defraud, or has violated the conditions of such 
permit, failed to disclose any material information required or made 
any material false statement in the application for such a permit, or 
has failed to maintain his premises in such manner as to protect the 
revenue, the Secretary or his delegate shall issue an order, stating 
the facts charged, citing such person to show cause why his permit 
should not be suspended or revoked. 
If, after hearing, the Secretary 
or his delegate finds that such person has not in good faith complied 
with this chapter, or with other provisions of this title involving 
intent to defraud, or has violated the conditions of such permit, 
failed to disclose any material information required or made any 
material false statement in the application therefor, or has failed 
to maintain his premises in such manner as to protect the revenue, 
such permit shall be revoked or suspended for such period as to the 
Secretary or his delegate may seem proper. 
(d) LIMITATION.—No permit shall be issued to any person within 1 
year after revocation of an existing permit or after rejection of an 
application. 
.iiO-yvHii 
r-'-irj-H 
§ 5713 
CH. 52—TOBACCO AND MANUFACTURES 
713 
Subchapter C—Operations by Manufacturers of Articles 
Sec. 5721. Inventories. 
Sec. 5722. Reports. 
Sec. 5723. Packages, labels, notices, and stamps. 
SEC. 5721. INVENTORIES. 
Every manufacturer of articles shall make a true and accurate 
inventory at the time of commencing business, at the time of con-
cluding business, and at such other times, in such manner and form, 
and to include such items, as the Secretary or his delegate shall by 
regulation prescribe. 
Such inventories shall be subject to verification 
by any revenue officer. 
SEC. 5722. REPORTS. 
Every manufacturer of articles shall make reports containing such 
information, in such form, at such times, and for such periods as 
the Secretary or his delegate shall by regulation prescribe. 
SEC. 5723. PACKAGES, LABELS, NOTICES, AND STAMPS. 
(a) PACKAGES, LABELS, NOTICES, AND STAMPS.—All articles shall, 
before removal, be put up in packages having such labels, notices, 
and stamps as the Secretary or his delegate shall by regulation pre-
scribe. 
(b) LOTTERY FEATURES.—No certificate, coupon, or other device 
purporting to be or to represent a ticket, chance, share, or an interest 
in, or dependent on, the event of a lottery shall be contained in, 
attached to, or stamped, marked, written, or printed on any package 
of articles. 
(c) INDECENT OR IMMORAL MATERIAL PROHIBITED.—No indecent 
or immoral picture, print, or representation shall be contained in, 
attached to, or stamped, marked, written, or printed on any package 
of articles. 
(d) EXCEPTIONS.—Tobacco products furnished for employee use or 
consumption or for experimental purposes, and articles removed for 
shipment to a foreign country, Puerto Rico, the Virgin Islands, or a 
possession of the United States, and so shipped, may be exempted 
from subsections (a) and (b) in accordance with such regulations as 
the Secretary or his delegate shall prescribe. 
§ 5723(d) 
49012°—54 
48 
714 
INTERNAL REVENUE CODE OF 
1954 
Subchapter D—Operations by Dealers in Tobacco Materials 
Sec. 5731. Shipments and deliveries restricted. 
'''' 
Sec. 5732. Statement of shipments and deliveries. 
SEC. 5731. SHIPMENTS AND DELIVERIES RESTRICTED. 
Every dealer in tobacco materials shall make all shipments or 
deliveries of tobacco materials in accordance with such regulations 
as the Secretary or his delegate shall prescribe. 
Tobacco materials 
shipped or delivered in violation of such regulations shall be regarded 
as manufactured tobacco and subject to tax, and the dealer shipping 
or delivering the same shall be regarded as a manufacturer of tobacco 
and subject, as such, to this chapter. 
SEC. 5732. STATEMENT OF SHIPMENTS AND DELIVERIES. ^ 
' 
A dealer in tobacco materials shall furnish, upon demand of any 
revenue officer, a true and complete statement of the quantity of 
such materials shipped or delivered to any person named in such 
demand. 
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§5731 
^eroci 
CH. 52—TOBACCO AND MANUFACTURES 
715 
Subchapter E—^Records of Manufacturers of Articles and 
iMte 
Dealers in Tobacco Materials 
Sec. 5741. Records to be maintained. 
SEC. 5741. RECORDS TO BE MAINTAINED. 
Every manufacturer of articles and dealer in tobacco materials 
shall keep such records in such form as the Secretary or his delegate 
shall by regulation prescribe. 
C O / O . ' •"•« 
I.. 
§6741 
716 
INTERNAL REVENUE CODE OF 1954 
Subchapter F—General Provisions 
3 
Sec. 5751. Purchase, receipt, possession, or sale of articles, after 
removal, not exempt from tax. 
Sec. 5752. Restrictions relating to used labels, stamps, and packages. 
Sec. 5753. Disposal of forfeited, condemned, and abandoned articles 
and tobacco materials. 
SEC. 5751. PURCHASE, RECEIPT, POSSESSION, OR SALE OF ARTICLES, 
AFTER REMOVAL, NOT EXEMPT FROM TAX. 
(a) RESTRICTION.—No person shall purchase, receive, possess, sell, 
or offer for sale any articles not exempt from tax, after removal, which 
are not put up in packages bearing the labels, notices, or stamps, 
prescribed by the Secretary or his delegate: Provided, however, That 
this section is not intended to prevent the sale of articles at retail, 
directly from proper packages, nor to apply to such articles when so 
sold. 
(b) LIABILITY TO TAX.—Any person who possesses articles in viola-
tion of subsection (a) of this section, shall incur liability to the tax 
thereon in addition to the penalties prescribed elsewhere in this title. 
SEC. 5752. RESTRICTIONS RELATING TO USED LABELS, STAMPS, AND 
PACKAGES. 
If the Secretary or his delegate shall, by regulation, prescribe that a 
label or stamp be affixed to any package of articles, no person shall— 
(1) empty any such package without destroying such label or 
stamp; or 
(2) remove, or cause to be removed, any such label or stamp, or 
purchase, receive, possess, sell, or dispose of, by gift or otherwise, 
any such label or stamp which has been so removed; or 
(3) purchase, receive, possess, sell, or dispose of, by gift or other-
wise, any such package which has been emptied, upon which the 
label or stamp has not been destroyed. 
SEC. 5753. DISPOSAL OF FORFEITED, CONDEMNED, AND ABANDONED 
ARTICLES AND TOBACCO MATERIALS. 
If it appears that any forfeited, condemned, or abandoned articles 
and tobacco materials, when offered for sale, will not bring a price 
equal to the tax due and payable thereon, and the expenses incident 
to the sale thereof, such articles and tobacco materials shall not be 
sold for consumption in the United States but shall be disposed of in 
accordance with such regulations as the Secretary or his delegate shall 
prescribe. 
§5751 
CH. 52 
TOBACCO AND MANUFACTURES 
717 
Subchapter G—Fines, Penalties, and Forfeitures 
'V 
Sec. 5761. Civil penalties. 
Sec. 5762. Criminal penalties. 
Sec. 5763. Forfeitures. 
SEC. 5761. CIVIL PENALTIES. 
(a) OMITTING THINGS EEQUIRED OR DOING THINGS FORBIDDEN.— 
Whoever willfully omits, neglects, or refuses to comply with any 
duty imposed upon him by this chapter, or to do, or cause to be 
done, any of the things required by this chapter, or does anything 
prohibited by this chapter, shall, in addition to any other penalty 
provided in this title, be liable to a penalty of $1,000, to be recovered, 
with costs of suit, in a civil action, except where a penalty under 
subsection (b) of this section or under section 6651, 6652, or 6653 may 
be collected from such person by assessment. 
(b) WILLFULLY FAILING TO PAY TAX.—Whoever willfully omits, 
neglects, or refuses to pay any tax imposed by this chapter, or attempts 
in any manner to evade or defeat any such tax or the payment thereof, 
shall, in addition to any other penalty provided in this title, be liable 
to a penalty of the amount of tax evaded, or not paid, which penalty 
shall be added to the tax and assessed and collected at the same time, 
in the same manner, and as a part of the tax. 
(c) FAILING TO PAY TAX.—Whoever fails to pay tax at the time 
prescribed shall, in addition to any other penalty provided in this 
title, be liable to a penalty of 5 percent of the tax due but unpaid, 
together with interest at the rate of 6 percent per annum upon such 
tax from the time the tax became due; but no interest for a fraction 
of a month shall be demanded. 
The penalties provided in this sub-
section shall be added to the tax and assessed and collected at the 
same time, in the same manner, and as a part of the tax. 
SEC. 5762. CRIMINAL PENALTIES. 
(a) Whoever, with intent to defraud the United States— 
t 
(1) ENGAGING IN BUSINESS UNLAWFULLY.—Engages in business 
/ as a manufacturer of articles or dealer in tobacco materials without 
•
3 filing the bond and obtaining the permit required by this chapter or 
. regulations thereunder; or 
i 
(2) FAILING TO FURNISH INFORMATION OR FURNISHING FALSE 
1 INFORMATION.—Fails to keep or make any record, return, report, 
inventory, or statement, or keeps or makes any false or fraudulent 
(, record, return, report, inventory, or statement, required by this 
. 
chapter or regulations thereunder; or 
(3) KEFUSING TO PAY OR EVADING TAX.—Refuses to pay any tax 
imposed by this chapter, or attempts in any manner to evade or 
. 
defeat the tax or the payment thereof; or 
(4) REMOVING ARTICLES UNLAWFULLY.—Removes any articles 
t subject to tax under this chapter, contrary to this chapter or 
regulations thereunder; or 
§ 5762(a)(4) 
718 
INTERNAL REVENUE CODE OF 1954 
(5) PURCHASING, RECEIVING, POSSESSING, OR SELLING ARTICLES 
UNLAWFULLY.—Purchases, receives, possesses, or sells articles not 
exempt from tax under this chapter, upon which the tax has not 
been paid in the manner and at the time prescribed by this chapter 
or regulations thereunder, or which, after removal, are not put up 
in packages bearing proper labels, stamps, or notices, prescribed; or 
(6) AFFIXING IMPROPER LABELS OR STAMPS.—Affixes 
to 
any 
package containing articles subject to tax any improper or counter-
feit label or stamp, or a label or stamp, prescribed by this chapter 
or regulations thereunder, which has been previously used on a 
package; or 
(7) PACKAGING WITH IMPROPER NOTICES.—Puts articles subject 
to tax into any package bearing an improper notice to evidence the 
tax; or 
• 
(8) REFILLING PACKAGES BEARING LABELS, STAMPS, OR NOTICES.— 
Puts articles subject to tax into any package which previously 
contained such articles, without destroying the label, stamp, or 
notice, prescribed by this chapter or regulations thereunder, and 
affixing a new one thereto; or 
(9) REMOVING LABELS OR STAMPS OR POSSESSING USED LABELS OR 
STAMPS.—Removes, or causes to be removed, from any package any 
label or stamp, prescribed by this chapter or regulations thereunder, 
or purchases, receives, or has in his possession any such label or 
stamp which has been so removed, with intent to reuse the same; or 
(10) POSSESSING EMPTIED PACKAGES BEARING LABELS, STAMPS, 
OR NOTICES.—Purchases, receives, or has in his possession any 
emptied package which previously contained articles subject to 
tax, upon which the label, stamp, or notice, prescribed by this 
chapter or regulations thereunder, has not been destroyed, with 
intent to reuse the same, 
shall, for each such offense, be fined not more than $10,000, or impris-
oned not more than 5 years, or both, 
(b) Whoever otherwise violates any provision of this chapter, or 
of regulations prescribed thereunder, shall, for each such offense, be 
fined not more than $1,000, or imprisoned not more than 1 year, or 
both. 
SEC. 5763. FORFEITURES. 
(a) ARTICLES UNLAWFULLY POSSESSED.—All articles not exempt 
from tax which, after removal, are possessed with intent to defraud, 
or which, regardless of intent, are not put up in packages bearing proper 
labels, notices, and stamps, prescribed pursuant to section 5723, 
shall be forfeited to the United States: Provided, however, That this 
section shall not apply to articles sold at retail directly from proper 
packages. 
(b) PERSONAL PROPERTY OF QUALIFIED MANUFACTURERS AND 
DEALERS WITH INTENT TO DEFRAUD.—All articles, tobacco materials, 
packages, internal revenue stamps, machinery, fixtures, equipment, 
and all other materials and personal property on the premises of any 
qualified manufacturer of articles or dealer in tobacco materials who, 
with intent to defraud, fails to keep or make any record, return, report, 
inventory, or statement, or keeps or makes any false or fraudulent 
record, return, report, inventory, or statement, required by this 
chapter; or refuses to pay any tax imposed by this chapter, or at-
§ 5762(a)(5) 
CH. 52—TOBACCO AND MANUFACTURES 
719 
tempts in any manner to evade or defeat the tax or the payment 
thereof; or removes any articles subject to tax under this chapter, 
contrary to any provision of this chapter, shall be forfeited to the 
United States. 
(c) REAL AND PERSONAL PROPERTY OF ILLICIT OPERATORS.—All 
articles, tobacco materials, machinery, fixtures, equipment, and other 
materials and personal property on the premises of any person engaged 
in business as a manufacturer of articles or dealer in tobacco materials, 
without filing the bond and obtaining the permit required by this 
chapter, together with all his right, title, and interest in the building 
in which such business is conducted, and the lot or tract of ground on 
which the building is located, shall be forfeited to the United States. 
(d) GENERAL.—All property intended for use in violating the pro-
visions of this chapter, or which has been so used, shall be forfeited to 
the United States as provided in section 7302. 
§ 5763(d) 
J ' t 
' 
-%, 
CH. 53—FIREARMS 
721 
CHAPTER 53—MACHINE GUNS AND CERTAIN OTHER 
FIREARMS 
SUBCHAPTER A. Taxes. 
SUBCHAPTER B . General provisions; 
SUBCHAPTER C. Unlawful acts. 
SUBCHAPTER D . Penalties and forfeitures. 
Subchapter A—Taxes 
Bfi'l 
ff. 
Part 
I. Special (occupational) taxes. 
Part II. Transfer tax. 
Part III. Tax on making firearms. 
Part IV, Other taxes. 
PART 
I—SPECIAL (OCCUPATIONAL) 
TAXES 
? 
' 
Sec. 5801. Tax. 
'V 
Sec. 5802. Registration. 
Sec. 5803. Exemptions. 
SEC. 5801. TAX. 
(a) RATE.—On first engaging in business, and thereafter on or be-
fore the first day of July of each year, every importer, manufacturer, 
and dealer in firearms shall pay a special tax at the following rates: 
(1) IMPORTERS OR MANUFACTURERS.—Importers or manufac-
•
' turers, $500 a year; 
(2) DEALERS OTHER THAN PAWNBROKERS.—Dealers, other than 
pawnbrokers, $200 a year; 
(3) PAWNBROKERS.—Pawnbrokers, $300 a year: 
Provided, That manufacturers and dealers in guns with combination 
shotgun and rifle barrels, 12 inches or more but less than 18 inches in 
length, from which only a single discharge can be made from either 
barrel without manual reloading, guns designed to be held in one 
hand when fired and having a barrel 12 inches or more but less than 
18 inches in length, from which only a single discharge can be made 
without manual reloading, or guns of both types, shall pay the follow-
ing taxes: Manufacturers, $25 a year; dealers, $1 a year. 
(b) COMPUTATION OF TAX.—Where the tax is payable on the first 
day of July in any year it shall be computed for 1 year; where the 
tax is payable on any other day it shall be computed proportionately 
from the first day of the month in which the liability to the tax 
accrued to the first day of July following. 
(c) CROSS REFERENCE.— 
For license to transport, ship, or receive firearms or ammunition under 
the Federal Firearms Act, see section 3 of the Act of June 30, 1938 (52 
Stat. 1251; 15 U. S. C. 903). 
SEC. 5802. REGISTRATION. 
IMPORTERS, MANUFACTURERS, AND DEALERS.—On first engaging 
in business, and thereafter on or before the first day of July of each 
§ 5802 
722 
INTERNAL REVENUE CODE OF 
1954 
year, every importer, manufacturer, and dealer in firearms shall 
register with the Secretary or his delegate in each internal revenue 
district in which such business is to be carried on his name or style, 
principal place of business, and places of business in such district. 
SEC. 5803. EXEMPTIONS. 
For provisions exempting certain transfers, see section 5812. 
PART II—TRANSFER TAX 
Sec. 5811. Tax. 
Sec. 5812. Exemptions. 
Sec. 5813. Stamps. 
Sec. 5814. Order forms. 
SEC. 5811. TAX. 
(a) RATE.—There shall be levied, collected, and paid on firearms 
transferred in the United States a tax at the rate of $200 for each 
firearm: Provided, That the transfer tax on any gun with combination 
shotgun and rifle barrels, 12 inches or more but less than 18 inches in 
length, from which only a single discharge can be made from either 
barrel without manual reloading, or any gun designed to be held in 
one hand when fired and having a barrel 12 inches but less than 18 
inches in length from which only a single discharge can be made 
without manual reloading, shall be at the rate of $L 
The tax imposed 
by this section shall be in addition to any import duty imposed on 
such firearm. 
(b) B Y WHOM PAID.—Such tax shall be paid by the transferor. 
(c) How PAID.— 
(1) STAMPS.—Payment of the tax herein provided shall be 
represented by appropriate stamps to be provided by the Secretary 
or his delegate. 
(d) CROSS REFERENCE,— 
(1) For assessment in case of omitted taxes payable by stamp, see 
sections 6155 (a), 6201 (a) (2) (A), 6601 (c) (4), and 6201 (a). 
(2) For requirements as to registration and special tax, see sections 
5801 and 5802. 
(3) For excise tax on pistols, revolvers, and firearms, see section 4181. 
SEC. 5812. EXEMPTIONS. 
(a) TRANSFERS EXEMPT.—This chapter shall not apply to the trans-
fer of firearms— 
(1) to the United States Government, any State, Territory, or 
possession of the United States, or to any political subdivision 
thereof, or to the District of Columbia; 
(2) to any peace officer or any Federal officer designated by 
regulations of the Secretary or his delegate; 
(3) to the transfer of any firearm which is unserviceable and 
which is transferred as a curiosity or ornament. 
(b) NOTICE OP EXEMPTION.—If the transfer of a firearm is exempted 
as provided in subsection (a), the person transferring such firearm shall 
notify the Secretary or his delegate of the name and address of the 
applicant, the number or other mark identifying such firearm, and the 
date of its transfer, and shall file with the Secretary or his delegate 
such documents in proof thereof as the Secretary or his delegate may 
by regulations prescribe. 
§ 5802 
-
CH. 5 3—FIREARMS 
723 
(c) EXEMPTION FROM OTHER TAXES.— 
For exemption from excise tax on pistols, revolvers, and firearms, see 
section 4182(a). 
SEC. 5813. STAMPS. 
(a) AFFIXING.—The stamps provided for in section 5811 (c) (1) 
shall be affixed to the order for such firearm, provided for in section 
5814. 
(b) OTHER LAWS APPLICABLE.— 
For provisions relating to the engraving, issuance, sale, accountability, 
cancellation, and distribution of taxpaid stamps, see section 5846. 
SEC. 5814. ORDER FORMS. 
(a) GENERAL REQUIREMENTS.—It shall be unlawful for any person 
to transfer a firearm except in pursuance of a written order from the 
person seeking to obtain such article, on an application form issued 
in blank in duplicate for that purpose by the Secretary or his delegate. 
Such order shall identify the applicant by such means of identification 
as may be prescribed by regulations under this chapter: Provided, 
That, if the applicant is an individual, such identification shall include 
fingerprints and a photograph thereof. 
(b) CONTENTS OF ORDER FORM.—Every person so transferring a 
firearm shall set forth in each copy of such order the manufacturer's 
number or other mark identifying such firearm, and shall forward a 
copy of such order to the Secretary or his delegate. The originitil 
thereof, with stamp affixed, shall be returned to the applicant. 
(c) DOCUMENTS TO ACCOMPANY TRANSFERS.—No person shall 
transfer a firearm unless such person, in addition to complying with 
subsection (b), transfers therewith (in compliance with such regu-
lations as may be prescribed under this chapter for proof of payment 
of all taxes on such firearm)— 
(1) for each prior transfer of such firearm which was subject to 
=
;
, the tax imposed by section 5811(a), the stamp-affixed order pro-
vided in this section, and 
(2) for any making of such firearm which was subject to the 
J tax imposed by section 5821(a), the stamp-affixed 
declaration 
provided in section 5821. 
(d) EXEMPTION IN CASE OF REGISTERED IMPORTERS, MANUFAC-
TURERS, AND DEALERS.—Importers, manufacturers, and dealers who 
have registered and paid the tax as provided for in this chapter shall 
not be required to conform to the provisions of this section with 
respect to transactions in firearms with dealers or manufacturers if 
such dealers or manufacturers have registered and have paid such 
tax, but shall keep such records and make such reports regarding 
such transactions as may be prescribed by regulations under this 
chapter. 
(e) SUPPLY.—The Secretary or his delegate shall cause suitable 
forms to be prepared for the purposes of subsection (a), and shall 
cause the same to be distributed to officers designated by him. 
§ 5814(e) 
724 
INTERNAL REVENUE CODE OF 
1954 
PART III.—TAX ON MAKING FIREARMS 
Sec. 5821. Rate, exceptions, etc. 
SEC. 5821. RATE, EXCEPTIONS, ETC. 
(a) RATE.—There shall be levied, collected, and paid upon the 
making in the United States of any firearm (whether by manufacture, 
putting together, alteration, any combination thereof, or otherwise) 
a tax at that rate provided in section 5811 (a) which would apply to 
any transfer of the firearm so made. 
(b) EXCEPTIONS.—The tax imposed by subsection (a) shall not 
apply to the making of a firearm— 
(1) by any person who is engaged within the United States in the 
business of manufacturing firearms; 
(2) from another firearm with respect to which a tax has been 
paid, prior to such making, under either section 5811 (a) or under 
subsection (a) of this section; or 
(3) for the use of— 
(A) the United States Government, any State, Territory, or 
possession of the United States, any political subdivision thereof, 
or the District of Columbia, or 
(B) any peace officer or any Federal officer designated by 
regulations of the Secretary or his delegate. 
Any person who makes a firearm in respect of which the tax imposed 
by subsection (a) does not apply by reason of the preceding sentence 
shall make such report in respect thereof as the Secretary or his dele-
gate may by regulations prescribe. 
(c) B Y WHOM PAID; WHEN PAID.—The tax imposed by subsection 
(a) shall be paid by the person making the firearm. Such tax shall 
be paid in advance of the making of the firearm. 
(d) How PAID.—Payment of the tax imposed by subsection (a) 
shall be represented by appropriate stamps to be provided by the 
Secretary or his delegate. 
(e) DECLARATION.—It shall be unlawful for any person subject to 
the tax imposed by subsection (a) to make a firearm unless, prior 
to such making, he has declared in writing his intention to make a 
firearm, has affixed the stamp described in subsection (d) to the 
original of such declaration, and has filed such original and a copy 
thereof. 
The declaration required by the preceding sentence shall be 
filed at such place, and shall be in such form and contain such in-
formation, as the Secretary or his delegate may by regulations pre-
scribe. 
The original of the declaration, with the stamp affixed, 
shall be returned to the person making the declaration. 
If the person 
making the declaration is an individual, there shall be included as 
part of the declaration the fingerprints and a photograph of such 
individual. 
PART IV—OTHER TAXES 
SEC. 5831. CROSS REFERENCE. 
For excise tax on pistols, revolvers, and firearms, see section 4181. 
§ 5821 
CH. 5 3—FIREARMS 
725 
Subchapter B—General Provisions 
Sec. 5841. Registration of persons in general. 
Sec. 5842. Books, records and returns. 
B^iZi-; 
See. 5843. Identification of firearms. 
Sec. 5844. Exportation, 
Sec. 5845. Importation. 
Sec. 5846. Other laws applicable. 
^ 
Sec. 5847. Regulations. 
Sec. 5848. Definitions. 
SEC. 5841. REGISTRATION OF PERSONS IN GENERAL. 
Every person possessing a firearm shall register, with the Secretary 
or his delegate, the number or other mark identifying such firearm, 
together with his name, address, place where such firearm is usually 
kept, and place of business or employment, and, if such person is 
other than a natural person, the name and home address of an exec-
utive officer thereof. 
No person shall be required to register under 
this section with respect to a firearm which such person acquired by 
transfer or importation or which such person made, if provisions of 
this chapter applied to such transfer, importation, or making, as the 
case may be, and if the provisions which applied thereto were com-
plied with. 
SEC. 5842. BOOKS, RECORDS AND RETURNS. 
Importers, manufacturers, and dealers shall keep such books and 
records and render such returns in relation to the transactions in 
firearms specified in this chapter as the Secretary or his delegate may 
by regulations require. 
SEC. 5843. IDENTIFICATION OF FIREARMS. 
Each manufacturer and importer of a firearm shall identify it with 
a number or other identification mark approved by the Secretary 
or his delegate, such number or mark to be stamped or otherwise 
placed thereon in a manner approved by the Secretary or his delegate. 
SEC. 5844. EXPORTATION. 
Under such regulations as the Secretary or his delegate may 
prescribe, and upon proof of the exportation of any firearm to 
any foreign country (whether exported as part of another article or 
not) with respect to which the transfer tax under section 5811 has 
been paid by the manufacturer, the Secretary or his delegate shall 
refund to the manufacturer the amount of the tax so paid, or, if the 
manufacturer waives all claim for the amount to be refunded, the 
refund shall be made to the exporter. 
SEC. 5845. IMPORTATION. 
No firearm shall be imported or brought into the United States or 
any territory under its control or jurisdiction, except that, under 
regulations prescribed by the Secretary or his delegate, any firearm 
may be so imported or brought in when— 
(1) the purpose thereof is shown to be lawful and 
(2) such firearm is unique or of a type which cannot be obtained 
within the United States or such territory. 
§ 5845(2) 
726 
INTERNAL REVENUE CODE OF 1954 
SEC. 5846. OTHER LAWS APPLICABLE. 
All provisions of law (including those relating to special taxes, to 
the assessment, collection, remission, and refund of internal revenue 
taxes, to the engraving, issuance, sale, accountability, cancellation, 
and distribution of taxpaid stamps provided for in the internal reve-
nue laws, and to penalties) applicable with respect to the taxes im-
posed by sections 4701 and 4721, and all other provisions of the 
internal revenue laws shall, insofar as not inconsistent with the 
provisions of this chapter, be applicable with respect to the taxes 
imposed by sections 5811 (a), 5821 (a) and 5801. 
SEC. 5847. REGULATIONS. 
The Secretary or his delegate shall prescribe such regulations as 
may be necessary for carrying the provisions of this chapter into effect. 
SEC. 5848. DEFINITIONS. 
For purposes of this chapter— 
(1) FIREARM.—The term "firearm" means a shotgun or rifle 
having a barrel of less than 18 inches in length, or any other weapon, 
except a pistol or revolver, from which a shot is discharged by an 
explosive if such weapon is capable of being concealed on the person, 
or a machine gun, and includes a muffler or silencer for any firearm 
whether or not such firearm is included within the foregoing defini-
tion, but does not include any rifle which is within the foregoing 
provisions solely by reason of the length of its barrel if the caliber 
of such rifle is .22 or smaller and if its barrel is 16 inches or more in 
length. 
(2) MACHINE GUN.—The term "machine gun" means any weapon 
which shoots, or is designed to shoot, automatically or semiauto-
matically, more than one shot, without manual reloading, by a 
single function of the trigger. 
(3) RIFLE.—The term "rifle" means a weapon designed or rede-
signed, made or remade, and intended to be fired from the shoulder 
and designed and made to use the energy of the explosive in a 
fixed metallic cartridge to fire only a single projectile through a 
rifled bore for each single pull of the trigger. 
(4) SHOTGUN.—The term "shotgun" means a weapon designed or 
redesigned, made or remade, and intended to be fired from the shoul-
der and designed and made to use the energy of the explosive in a 
fixed shotgun shell to fire through a smooth bore either a number of 
ball shot or a single projectile for each single pull of the trigger. 
(5) ANY OTHER WEAPON.—The term "any other weapon" means 
any weapon or device capable of being concealed on the person from 
which a shot can be discharged through the energy of an explosive, 
but such term shall not include pistols or revolvers or weapons de-
signed, made or intended to be fired from the shoulder and not 
capable of being fired with fixed ammunition. 
(6) IMPORTER.—The term "importer" means any person who 
imports or brings firearms into the United States for sale. 
(7) MANUFACTURER.—The term "manufacturer" 
means any 
person who is engaged within the United States in the manufacture 
of firearms, or who otherwise produces therein any firearm for 
sale or disposition. 
§ 5846 
. - . r ^ 
/••' ' 
CH. 53—FIREARMS 
727 
(8) DEALER.—^The term "dealer" means any person not a manu-
facturer or importer, engaged within the United States in the 
business of selhng firearms. The term "dealer" shall include whole-
salers, pawnbrokers, and dealers in used firearms. 
(9) INTERSTATE COMMERCE.—The term "interstate commerce" 
means transportation from any State or Territory or District, or 
any insular possession of the United States, to any other State or to 
the District of Columbia. 
(10) To TRANSFER OR TRANSFERRED.—The term "to transfer" 
or "transferred" shall include to sell, assign, pledge, lease, loan, 
give away, or otherwise dispose of. 
(11) PERSON.—The term "person" includes a partnership, com-
pany, association, or corporation, as well as a natural person. 
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§ 5848(11) 
728 
INTERNAL REVENUE CODE OF 1954 
Subchapter C—Unlawful Acts 
Sec. 5851. Possessing firearms unlawfully transferred or made. 
Sec. 5852. Removing or changing identification marks. 
Sec. 5853. Importing firearms illegally. 
Sec. 5854. In case of failure to register and pay special tax. 
SEC. 5851. POSSESSING FIREARMS UNLAWFULLY 
TRANSFERRED OR 
MADE. 
It shall be unlawful for any person to receive or possess any firearm 
which has at any time been transferred in violation of sections 5811, 
5812 (b), 5813, 5814, 5844, or 5846, or which has at any time been 
made in violation of section 5821. Whenever on trial for a violation 
of this section the defendant is shown to have or to have had posses-
sion of such firearm, such possession shall be deemed sufficient evi-
dence to authorize conviction, unless the defendant explains such 
possession to the satisfaction of the jury. 
SEC. 5852. REMOVING OR CHANGING IDENTIFICATION MARKS. 
It shall be unlawful for anyone to obliterate, remove, change, or 
alter the number or other identification mark required by section 
5843. 
Whenever on trial for a violation of this section the defendant 
is shown to have or to have had possession of any firearm upon which 
such number or mark shall have been obliterated, removed, changed, 
or altered, such possession shall be deemed sufficient evidence to 
authorize conviction, unless the defendant explains such possession 
to the satisfaction of the jury. 
SEC. 5853. IMPORTING FIREARMS ILLEGALLY. 
It shall be unlawful— 
(1) fraudulently or knowingly to import or bring any firearm into 
the United States or any territory under its control or jurisdiction, 
in violation of the provisions of this chapter; or 
(2) knowingly to assist in so doing; or 
(3) to receive, conceal, buy, sell, or in any manner facilitate the 
transportation, concealment, or sale of any such firearm after being 
imported or brought in, knowing the same to have been imported 
or brought in contrary to law. 
Whenever on trial for a violation of this section the defendant is shown 
to have or to have had possession of such firearm, such possession 
shall be deemed sufficient evidence to authorize conviction, unless the 
defendant explains such possession to the satisfaction of the jury. 
SEC. 5854. IN CASE OF FAILURE TO REGISTER AND PAY SPECIAL 
TAX. 
(a) IMPORTATION, MANUFACTURE OR DEALING IN FIREARMS.—It 
shall be unlawful for any person required to register under the 
provisions of section 5802 to import, manufacture, or deal in firearms 
without having registered and paid the tax imposed by section 5801. 
(b) TRANSPORTATION IN INTERSTATE 
COMMERCE.—It shall be 
unlawful for any person who is required to register as provided in 
section 5841 and who shall not have so registered, or any other 
person who has not in his possession a stamp-affixed order as provided 
in section 5814 or a stamp-affixed declaration as provided in section 
5821, to ship, carry, or deliver any firearm in interstate commerce. 
§ 6851 
CH. 53—FIREARMS 
729 
Subchapter D—Penalties and Forfeitures 
Sec. 5861. Penalties. 
Sec. 5862. Forfeitures. 
SEC. 5861. PENALTIES. 
Any person who violates or fails to comply with any of the require-
ments of this chapter shall, upon conviction, be fined not more than 
$2,000, or be imprisoned for not more than 5 years, or both, in the 
discretion of the court. 
SEC. 5862. FORFEITURES. 
(a) LAWS APPLICABLE.—Any firearm involved in any violation of 
the provisions of this chapter or any regulation promulgated thereunder 
shall be subject to seizure and forfeiture, and (except as provided in 
subsection (b)) all the provisions of internal revenue laws relating to 
searches, seizures, and forfeiture of unstamped articles are extended 
to and made to apply to the articles taxed under this chapter, and the 
persons to whom this chapter applies. 
(b) DISPOSAL.—In the case of the forfeiture of any firearm by 
reason of a violation of this chapter: No notice of public sale shall 
be required; no such firearm shall be sold at public sale; if such fire-
arm is forfeited for a violation of this chapter and there is no remission 
or mitigation of forfeiture thereof, it shall be delivered by the Secre-
tary or his delegate to the Administrator of General Services, General 
Services Administration, who may order such firearm destroyed or 
may sell it to any State, Territory, or possession, or political sub-
division thereof, or the District of Columbia, or at the request of the 
Secretary or his delegate may authorize its retention for official use 
of the Treasury Department, or may transfer it without charge to 
any executive department or independent establishment of the 
Government for use by it. 
§ 5862(b) 
49012°—54 
49 
XJ 
C H . 61—INFORMATION AND RETURNS 
731 
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Subtitle F—Procedure and Administration 
CHAPTER 61. Information and returns. 
CHAPTER 62. Time and place for paying tax. '"' " ' ^' 
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CHAPTER 63. Assessment. 
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CHAPTER 64. Collection. 
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CHAPTER 65. Abatements, credits^ and refunds. 
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CHAPTER 66. Limitations. 
CHAPTER 67. Interest. 
CHAPTER 68. Additions to the tax, additional amounts, and assess-
^ 
able penalties. 
'• 
CHAPTER 69. General provisions relating to stamps. 
j] 
CHAPTER 70. Jeopardy, bankruptcy and receiverships. 
.i, _ 
_ 
CHAPTER 71. Transferees and 
fiduciaries. 
- 
CHAPTER 72. Licensing and registration. 
CHAPTER 73. Bonds. 
*)" 
CHAPTER 74. Closing agreements and compromises. 
e 
CHAPTER 75. Crimes, other offenses, and forfeitures. 
' ' 
CHAPTER 76. Judicial proceedings. 
"'^'"'•' 
CHAPTER 77. Miscellaneous provisions. 
CHAPTER 78. Discovery of liability and enforcement of title. 
CHAPTER 79. Definitions. 
00 
CHAPTER 80. General Rules. 
CHAPTER 
61—INFORMATION 
AND 
RETURNS 
SUBCHAPTER A. Returns and records. 
,,-,; 
SUBCHAPTER B . Miscellaneous provisions. 
'.t. 
Subchapter A—Returns and Records 
Part 
I. Records, statements, and special returns. 
.;| 
Part 
II. Tax returns or statements. 
" 
Part I I I . Information returns. 
imvAii 
Part IV. Signing and verifying of returns and other documents. 
Part 
V. Time for filing returns and other documents. 
c- 
Part VI. Extension of time for filing returns. 
'I 
Part VII. Place for filing returns or other documents. 
PART 
I—RECORDS, STATEMENTS, 
AND 
SPECIAL 
RETURNS 
Sec. 6001. Notice or regulations requiring records, statements, and 
special returns. 
SEC. 6001. NOTICE OR REGULATIONS REQUIRING RECORDS, STATE-
MENTS, AND SPECIAL RETURNS. 
Every person liable for any tax imposed by this title, or for the 
collection thereof, shall keep such records, render such statements, 
make such returns, and comply with such rules and regulations as 
the Secretary or his delegate may from time to time prescribe. 
When-
ever in the judgment of the Secretary or his delegate it is necessary, 
he ma^^ require any person, by notice served upon such person or by 
regulations, to make such returns, render such statements, or keep 
such records, as the Secretary or his delegate deems sufficient to show 
whether or not such person is liable for tax under this title. 
§ 6001 
732 
INTERNAL REVENUE CODE OF 
1954 
PART 
II—TAX 
RETURNS 
OR 
STATEMENTS 
Subpart A. General requirement. 
Subpart B. Income tax returns. 
Subpart C. Estate and gift tax returns. 
Subpart D. Miscellaneous provisions. 
Subpart A—General Requirement 
Sec. 6011. General requirement of return, statement, or list. 
SEC. 6011. GENERAL REQUIREMENT OF RETURN, STATEMENT, OR 
LIST, 
(a) GENERAL RULE.—When required by regulations prescribed by 
the Secretary or his delegate any person made liable for any tax im-
posed by this title, or for the collection thereof, shall make a return 
or statement according to the forms and regulations prescribed by the 
Secretary or his delegate. 
Every person required to make a return 
or statement shall include therein the information required by such 
forms or regulations. 
(b) IDENTIFICATION OF TAXPAYER.—The Secretary or his delegate 
is authorized to require such information with respect to persons 
subject to the taxes imposed by chapter 21 or chapter 24 as is neces-
sary or helpful in securing proper identification of such persons. 
(c) INCOME, ESTATE, AND GIFT TAXES.— 
For requirement that returns of income, estate, and gift taxes be 
made whether or not there is tax liability, see sections 6012 to 6019, 
inclusive. 
Subparts—Income Tax Returns 
Sec. 6012. Persons required to make returns of income. 
Sec. 6013. Joint returns of income tax by husband and wife. 
Sec. 6014. Income tax return—tax not computed by taxpayer. 
Sec. 6015. Declaration of estimated income tax by individuals. 
Sec. 6016. Declarations of estimated income tax by corporations. 
Sec. 6017. Self-employment tax returns. 
SEC. 6012. PERSONS REQUIRED TO MAKE RETURNS OF INCOME. 
(a) GENERAL RULE.—Returns with respect to income taxes under 
subtitle A shall be made by the following: 
(1) Every individual having for the taxable year a gross income 
of $600 or more (except that any individual who has attained the 
age of 65 before the close of his taxable year shall be required to 
make a return only if he has for the taxable year a gross income of 
$1,200 or more); 
(2) Every corporation subject to taxation under subtitle A; 
(3) Every estate the gross income of which for the taxable year 
is $600 or more; 
(4) Every trust having for the taxable year any taxable income, 
or having gross income of $600 or over, regardless of the amount 
of taxable income; and 
(5) Every estate or trust of which any beneficiary is a non-
resident alien; 
except that subject to such conditions, limitations, and exceptions 
and under such regulations as may be prescribed by the Secretary or 
his delegate, nonresident alien individuals subject to the tax imposed 
by section 871 and foreign corporations subject to the tax imposed by 
§6011 
CH. 61—INFORMATION AND RETURNS 
733 
section 881 may be exempted from the requirement of making re-
turns under this section. 
(b) RETURNS MADE BY FIDUCIARIES AND RECEIVERS— 
(1) RETURNS OF DECEDENTS.—If an individual is deceased, the 
return of such individual required under subsection (a) shall be 
made by his executor, administrator, or other person charged with 
the property of such decedent. 
(2) PERSONS UNDER A DISABILITY.—If an individual is unable 
to make a return required under subsection (a) or section 6015 (a), 
the return of such individual shall be made by a duly authorized 
agent, his committee, guardian, fiduciary or other person charged 
with the care of the person or property of such individual. 
The 
preceding sentence shall not apply in the case of a receiver appointed 
by authority of law in possession of only a part of the property 
of an individual. 
(3) RECEIVERS, TRUSTEES AND ASSIGNEES FOR CORPORATIONS.— 
In a-case where a receiver, trustee in bankruptcy, or assignee, by 
order of a court of competent jurisdiction, by operation of law or 
otherwise, has possession of or holds title to all or substantially all 
the property or business of a corporation, whether or not such 
property or business is being operated, such receiver, trustee, or 
assignee shall make the return of income for such corporation in the 
same manner and form as corporations are required to make such 
returns. 
(4) RETURNS OF ESTATES AND TRUSTS.—Returns of an estate or 
a trust shall be made by the fiduciary thereof. 
(5) JOINT FIDUCIARIES.—Under such regulations as the Secretary 
or his delegate may prescribe, a return made by one of two or more 
joint fiduciaries shall be sufficient compliance with the requirements 
of this section. 
A return made pursuant to this paragraph shall 
contain a statement that the fiduciary has sufficient knowledge of 
the affairs of the person for whom the return is made to enable 
him to make the return, and that the return is, to the best of his 
knowledge and belief, true and correct. 
(c) CONSOLIDATED RETURNS.— 
For provisions relating to consolidated returns by affiliated corpora-
tions, see chapter 6. 
SEC. 6013. JOINT RETURNS OF INCOME TAX BY HUSBAND AND 
WIFE. 
(a) JOINT RETURNS.—A husband and wife may make a single 
return jointly of income taxes under subtitle A, even though one of 
the spouses has neither gross income nor deductions, except as pro-
vided below: 
(1) no joint return shall be made if either the husband or wife 
at*any time during the taxable year is a nonresident alien; 
(2) no joint return shall be made if the husband and wife have 
different taxable years; except that if such taxable years begin 
on the same day and end on different days because of the death of 
either or both, then the joint return may be made with respect to 
the taxable year of each. 
The above exception shall not apply if 
the surviving spouse remarries before the close of his taxable year, 
nor if the taxable year of either spouse is a fractional part of a 
year under section 443 (a) (1); 
§ 6013(a)(2) 
734 
INTERNAL REVENUE CODE OF 
1954 
(3) in the case of death of one spouse or both spouses the joint 
return with respect to the decedent may be made only by his 
executor or administrator; except that in the case of the death of 
one spouse the joint return may be made by the surviving spouse 
with respect to both himself and the decedent if no return for the 
taxable year has been made by the decedent, no executor or admin-
istrator has been appointed, and no executor or administrator is 
appointed before the last day prescribed by law for filing the re-
turn of the surviving spouse. 
If an executor or administrator of 
the decedent is appointed after the making of the joint return by 
the surviving spouse, the executor or administrator may disaffirm 
such joint return by making, within 1 year after the last day 
prescribed by law for filing the return of the surviving spouse, a 
separate return for the taxable year of the decedent with respect 
to which the joint return was made, in which case the return made 
by the survivor shall constitute his separate return, 
(b) JOINT RETURN AFTER FILING SEPARATE RETURN.— 
• 
(1) I N GENERAL.—Except as provided in paragraph (2), if an 
individual has filed a separate return for a taxable year for which 
a joint return could have been made by him and his spouse under 
subsection (a) and the time prescribed by law for filing the return 
for such taxable year has expired, such individual and his spouse 
may nevertheless make a joint return for such taxable year, 
A 
joint return filed by the husband and wife under this subsection 
shall constitute the return of the husband and wife for such taxable 
year, and all payments, credits, refunds, or other repayments made 
or allowed with respect to the separate return of either spouse for 
such taxable year shall be taken into account in determining the 
extent to which the tax based upon the joint return has been paid. 
If a joint return is made under this subsection, any election (other 
than the election to file a separate return) made by either spouse 
in his separate return for such taxable year with respect to the 
treatment of any income, deduction, or credit of such spouse shall 
not be changed in the making of the joint return where such election 
would have been irrevocable if the joint return had not been made. 
If a joint return is made under this subsection after the death of 
either spouse, such return with respect to the decedent can be made 
only by his executor or administrator. 
(2) LIMITATIONS FOR MAKING OF ELECTION.—The election pro-
vided for in paragraph (1) may not be made— 
(A) unless there is paid in full at or before the time of the 
filing of the joint return the amount shown as tax upon such joint 
return; or 
(B) after the expiration of 3 years from the last date prescribed 
by law for filing the return for such taxable year (determined 
without regard to any extension of time granted to either 
spouse); or 
(C) after there has been mailed to either spouse, with respect 
to such taxable year, a notice of deficiency under section 6212, 
if the spouse, as to such notice, files a petition with the Tax 
Court of the United States within the time prescribed in such 
section; or 
§ 6013(a)(3) 
CH. 61—INFORMATION AND RETURNS 
735 
(D) after either spouse has commenced a suit in any court 
for the recovery of any part of the tax for such taxable year; or 
(E) after either spouse has entered into a closing agreement 
under section 7121 with respect to such taxable year, or after 
any civil or criminal case arising against either spouse with 
respect to such taxable year has been compromised under section 
7122. 
(3) W H E N RETURN DEEMED FILED.— 
(A) ASSESSMENT AND COLLECTION.—For purposes of section 
6501 (relating to periods of limitations on assessment and collec-
tion), and for purposes of section 6651 (relating to delinquent 
returns), a joint return made under this subsection shall be 
deemed to have been filed— 
(i) Where both spouses filed separate returns prior to making 
the joint return—on the date the last separate return was filed 
(but not earlier than the last date prescribed by law for filing 
the return of either spouse); 
—T 
(ii) Where only one spouse filed a separate return prior to 
the making of the joint return, and the other spouse had less 
than $600 of gross income ($1,200 in case such spouse was 65 
-
^ 
or over) for such taxable year—on the date of the filing of 
such separate return (but not earlier than the last date pre-
scribed by law for the filing of such separate return); or 
(iii) Wnere only one spouse filed a separate return prior to 
the making of the joint return, and the other spouse had gross 
-ZA 
income of $600 or more ($1,200 in case such spouse was 65 or 
over) for such taxable year—on the date of the filing of such 
joint return. 
(B) CREDIT OR REFUND.—For purposes of section 6511, a joint 
return made under this subsection shall be deemed to have been 
filed on the last date prescribed by law for filing the return for 
such taxable year (determined without regard to any extension 
of time granted to either spouse). 
(4) ADDITIONAL TIME FOR ASSESSMENT.—If a joint return is 
made under this subsection, the periods of limitations provided in 
sections 6501 and 6502 on the making of assessments and the be-
ginning of levy or a proceeding in court for collection shall with 
respect to such return include one year immediately after the date 
of the filing of such joint return (computed without regard to the 
provisions of paragraph (3)). 
(5) ADDITIONS TO THE TAX AND PENALTIES.— 
(A) ADDITIONS TO THE TAX.—Where the amount shown as 
the tax by the husband and wife on a joint return made under 
this subsection exceeds the aggregate of the amounts shown as 
the tax upon the separate return of each spouse— 
(i) NEGLIGENCE.—If any part of such excess is attributable 
to negligence or intentional disregard of rules and regulations 
(but without intent to defraud) at the time of the making of 
such separate return, then 5 percent of the total amount of 
such excess shall be added to the tax; 
(ii) FRAUD.—If any part of such excess is attributable to 
fraud with intent to evade tax at the time of the making of such 
separate return, then 50 percent of the total amount of such 
excess shall be added to the tax. 
§ 6013(b) (5) (A) (ii) 
736 
INTERNAL REVENUE CODE OF 1954 
(B) CRIMINAL PENALTY.—For purposes of section 7206 (1) and 
(2) and section 7207 (relating to criminal penalties in the case of 
fraudulent returns) the term "return" includes a separate return 
filed by a spouse with respect to a taxable year for which a joint 
return is made under this subsection after the filing of such 
separate return. 
(c) TREATMENT OF JOINT RETURN 
AFTER 
DEATH 
OF EITHER 
SPOUSE.—For purposes of sections 21, 443, and 7851 (a) (1) (A), 
where the husband and wife have different taxable years because of 
the death of either spouse, the joint return shall be treated as if the 
taxable years of both spouses ended on the date of the closing of the 
surviving spouse's taxable year. 
(d) DEFINITIONS.—For purposes of this section— 
(1) the status as husband and wife of two individuals having 
taxable years beginning on the same day shall be determined— 
(A) if both have the same taxable year—as of the close of such 
year; and 
(B) if one dies before the close of the taxable year of the other— 
as of the time of such death; and 
(2) an individual who is legally separated from his spouse under 
a decree of divorce or of separate maintenance shall not be con-
sidered as married; and 
(3) if a joint return is made, the tax shall be computed on the 
aggregate income and the liability with respect to the tax shall be 
joint and several. 
SEC. 6014. INCOME TAX RETURN—TAX NOT COMPUTED BY TAX-
PAYER. 
(a) ELECTION BY TAXPAYER.—An individual entitled to elect to 
pay the tax imposed b
}
?
^ section 3 whose gross income is less than 
$5,000 and includes no income other than remuneration for services 
performed by him as an employee, dividends or interest, and whose 
gross income other than wages, as defined in section 3401 (a), does not 
exceed $100, shall at his election not be required to show on the 
return the tax imposed by section 1. Such election shall be made 
by using the form prescribed for purposes of this section and shall 
constitute an election to pay the tax imposed by section 3. In such 
case the tax shall be computed by the Secretary or his delegate who 
shall mail to the taxpayer a notice stating the amount determined 
as payable. 
In determining the amount payable, the credit against 
such tax provided for by section 34 or 37 shall not be allowed. In the 
case of a head of household (as defined in section 1 (b)) or a surviving 
spouse (as defined in section 2 (b)) electing the benefits of this sub-
section, the tax shall be computed by the Secretary or his delegate 
without regard to the taxpayer's status as a head of household or as 
a surviving spouse. 
(b) REGULATIONS.—The Secretary or his delegate shall prescribe 
regulations for carrying out this section, and such regulations may 
provide for the application of the rules of this section to cases where 
the gross income includes items other than those enumerated by 
subsection (a), to cases where the gross income from sources other 
than wages on which the tax has been withheld at the source is more 
than $100 but not more than $200, and to cases where the gross in-
come is $5,000 or more but not more than $5,200. 
Such regulations 
§ 6013(b)(5)(B) 
CH. 61—INFORMATION AND RETURNS 
737 
shall provide for the application of this section in the case of husband 
and wife, including provisions determining when a joint return under 
this section may be permitted or required, whether the liability shall 
be joint and several, and whether one spouse may make return under 
this section and the other without regard to this section. 
SEC. 6015. DECLARATION OF ESTIMATED INCOME TAX B¥ 
INDI-
VIDUALS. 
(a) REQUIREMENT OF DECLARATION.—Every individual (other than 
a nonresident alien with respect to whose wages, as defined in section 
3401 (a), withholding under chapter 24 is not made applicable, but 
including every alien individual who is a resident of Puerto Rico 
during the entire taxable year) shall make a declaration of his 
estimated tax for the taxable year if— 
(1) the gross income for the taxable year can reasonably be 
expected to consist of wages (as defined in section 3401 (a)) and 
of not more than $100 from sources other than such wages, and 
can reasonably be expected to exceed— 
(A) $5,000, in the case of a single individual other than a head 
of a household (as defined in section 1 (b) (2)) or a surviving 
spouse (as defined in section 2 (b)) or in the case of a married 
individual not entitled to file a joint declaration with his spouse; 
(B) $10,000, in the case of a head of a household (as defined 
in section 1 (b) (2)) or a surviving spouse (as defined in section 
2(b)); or 
(C) $5,000 in the case of a married individual entitled under 
subsection (b) to file a joint declaration with his spouse, and the 
aggregate gross income of such individual and his spouse for 
the taxable year can reasonably be expected to exceed $10,000; or 
(2) the gross income can reasonably be expected to include more 
than $100 from sources other than wages (as defined in section 
3401 (a)) and can reasonably be expected to exceed the sum of— 
(A) the amount obtained by multiplying $600 by the number 
of exemptions to which he is entitled under section 151 plus 
(B) $400. 
(b) JOINT DECLARATION BY HUSBAND AND WIFE.—In the case of 
a husband and wife, a single declaration under this section may be 
made by them jointly, in which case the liability with respect to the 
estimated tax shall be joint and several. 
No joint declaration may 
be made if either the husband or the wife is a nonresident alien, if 
they are separated under a decree of divorce or of separate mainte-
nance, or if they have different taxable years. 
If a joint declaration 
is made but a joint return is not made for the taxable year, the esti-
mated tax for such year may be treated as the estimated tax of either 
the husband or the wife, or may be divided between them. 
(c) ESTIMATED TAX.—For purposes of this title, in the case of an 
individual, the term "estimated tax" means the amount which the 
individual estimates as the amount of the income tax imposed by 
chapter 1 for the taxable year, minus the amount which the individual 
estimates as the sum of any credits against tax provided by part IV 
of subchapter A of chapter 1. 
(d) CONTENTS OF DECLARATION.—The declaration shall contain 
such pertinent information as the Secretary or his delegate may by 
forms or regulations prescribe. 
§ 6015(d) 
738 
INTERNAL REVENUE CODE OF 
1954 
(e) AMENDMENT OF DECLARATION.—An individual may make 
amendments of a declaration filed during the taxable year under 
regulations prescribed by the Secretary or his delegate. 
(f) RETURN AS DECLARATION OR AMENDMENT.—If on or before 
January 31 (or February 15, in the case of an individual referred to 
in section 6073 (b), relating to income from farming) of the succeed-
ing taxable year the taxpayer files a return, for the taxable year for 
which the declaration is required, and pays in full the amount com-
puted on the return as payable, then, under regulations prescribed 
by the Secretary or his delegate— 
(1) if the declaration is not required to be filed during the taxable 
year, but is required to be filed on or before January 15, such 
return shall be considered as such declaration; and 
(2) if the tax shown on the return (reduced by the sum of the 
credits against tax provided by part IV of subchapter A of chapter 
1) is greater than the estimated tax shown in a declaration previ-
ously made, or in the last amendment thereof, such return shall be 
considered as the amendment of the declaration permitted by 
subsection (e) to be filed on or before January 15. 
(g) SHORT TAXABLE YEARS.—An individual with a taxable year of 
less than 12 months shall make a declaration in accordance with 
regulations prescribed by the Secretary or his delegate. 
(h) ESTATES AND TRUSTS.—The provisions of this section shall not 
apply to an estate or trust. 
(i) APPLICABILITY.—This section shall be applicable only with 
respect to taxable years beginning after December 31, 1954; and 
sections 58, 59, and 60 of the Internal Revenue Code of 1939 shall 
continue in force with respect to taxable years beginning before 
January 1, 1955. 
SEC. 6016. DECLARATIONS OF ESTIMATED INCOME TAX BY CORPO-
RATIONS. 
(a) REQUIREMENT OF DECLARATION.—Every corporation subject 
to taxation under section 11 or 1201 (a), or subchapter L of chapter 1 
(relating to insurance companies), shall make a declaration of esti-
mated tax under chapter 1 for the taxable year if its income tax im-
posed by section 11 or 1201 (a), or such subchapter L, for such taxable 
year, reduced by the credits against tax provided by part IV of sub-
chapter A of chapter 1, can reasonably be expected to exceed $100,000. 
(b) ESTIMATED TAX.—For purposes of this title, in the case of a 
corporation, the term "estimated tax" means the excess of— 
(1) the amount which the corporation estimates as the amount of 
the income tax imposed by section 11 or 1201 (a), or subchapter L 
of chapter 1, whichever is applicable, over 
(2) the sum of— 
(A) $100,000, and 
(B) the amount which the corporation estimates as the sum 
of any credits against tax provided by part IV of subchapter A of 
chapter 1. 
(c) CONTENTS OF DECLARATION.—The declaration shall contain 
such pertinent information as the Secretary or his delegate may by 
forms or regulations prescribe. 
§ 6015(e) 
CH. 61—INFORMATION AND RETURNS 
739 
(d) AMENDMENT 
OF DECLARATION.—A corporation may make 
amendments of a declaration filed during the taxable year under 
regulations prescribed by the Secretary or his delegate. 
(e) SHORT TAXABLE YEAR.—A corporation with a taxable year of 
less than 12 months shall make a declaration in accordance with 
regulations prescribed by the Secretary or his delegate. 
(f) APPLICABILITY.—This section shall apply only with respect to 
taxable years ending on or after December 31, 1955. 
SEC. 6017. SELF-EMPLOYMENT TAX RETURNS. 
Every individual (other than a nonresident alien individual) having 
net earnings from self-employment of $400 or more for the taxable 
year shall make a return with respect to the self-employment tax 
imposed by chapter 2. 
In the case of a husband and wife filing a 
joint return under section 6013, the tax imposed by chapter 2 shall 
not be computed on the aggregate income but shall be the sum of the 
taxes computed under such chapter on the separate self-employment 
income of each spouse. 
Subpart C—Estate and Gift Tax Returns 
ilJ]U 
Sec. 6018. Estate tax returns. 
Sec. 6019. Gift tax returns. 
SEC. 6018. ESTATE TAX RETURNS. 
(a) R E T U R N S BY E X E C U T O R . — 
(1) CITIZENS OR RESIDENTS.—In all cases where the gross estate 
at the death of a citizen or resident exceeds $60,000, the executor 
shall make a return with respect to the estate tax imposed by 
subtitle B. 
(2) NONRESIDENTS NOT CITIZENS OF THE UNITED STATES.—In 
the case of the estate of every nonresident not a citizen of the 
United States if that part of the gross estate which is'situated in 
the United States exceeds $2,000, the executor shall make a return 
with respect to the estate tax imposed by subtitle B. 
(b) RETURNS BY BENEFICIARIES.—If the executor is unable to make 
a complete return as to any part of the gross estate of the decedent, 
he shall include in his return a description of such part and the name 
of every person holding a legal or beneficial interest therein. 
Upon 
notice from the Secretary or his delegate such person shall in like 
manner make a return as to such part of the gross estate. 
SEC. 6019. GIFT TAX RETURNS. 
(a) I N GENERAL.—Any individual who in any calendar year makes 
any transfers by gift (except those which under section 2503 (b) are 
not to be included in the total amount of gifts for such year) shall 
make a return with respect to the gift tax imposed by subtitle B. 
(b) T E N A N C Y BY THE E N T I R E T Y . — 
For provisions relating to requirement of return in the case of elec-
tion as to the treatment of gift by creation of tenancy by the entirety, 
see section 2515 (c). 
§ 6019(b) 
740 
INTERNAL REVENUE CODE OF 1954 
Subpart D—Miscellaneous Provisions 
Sec. 6020. Returns prepared for or executed by Secretary. 
Sec. 6021. Listing by Secretary of taxable objects owned by non-
residents of internal revenue districts. 
SEC. 
6020. 
RETURNS PREPARED FOR OR EXECUTED BY SECRETARY. 
(a) PREPARATION OF RETURN BY SECRETARY.—If any person shall 
fail to make a return required by this title or by regulations prescribed 
thereunder, but shall consent to disclose all information necessary for 
the preparation thereof, then, and in that case, the Secretary or his 
delegate may prepare such return, which, being signed by such person, 
may be received by the Secretary or his delegate as the return of such 
person. 
(b) EXECUTION OP RETURN BY SECRETARY.— 
(1) AUTHORITY OF SECRETARY TO EXECUTE RETURN.—If 
any 
person fails to make any return (other than a declaration of esti-
mated tax required under section 6015 or 6016) required by any 
internal revenue law or regulation made thereunder at the time pre-
scribed therefor, or makes, willfully or otherwise, a false or fraudu-
lent return, the Secretary or his delegate shall make such return 
from his own knowledge and from such information as he can 
obtain through testimony or otherwise. 
(2) STATUS OF RETURNS.—Any return so made and subscribed 
by the Secretary or his delegate shall be prima facie good and 
sufficient for all legal purposes. 
SEC. 6021. LISTING BY SECRETARY OF TAXABLE OBJECTS 
OWNED 
BY NONRESIDENTS OF INTERNAL REVENUE DISTRICTS. 
Whenever there are in any internal revenue district any articles 
subject to tax, which are not owned or possessed by or under the care 
or control of any person within such district, and of which no list 
has been transmitted to the Secretary or his delegate, as required 
by law or by regulations prescribed pursuant to law, the Secretary 
or his delegate shall enter the premises where such articles are situated, 
shall make such inspection of the articles as may be necessary and 
make lists of the same, according to the forms prescribed. 
Such 
lists, being subscribed by the Secretary or his delegate, shall be 
sufficient lists of such articles for all purposes. 
6020 
CH. 61—INFORMATION AND RETURNS 
741 
PART III—INFORMATION RETURNS 
Subpart A. Information concerning persons subject to special pro-
visions. 
Subpart B. Information concerning transactions with other persons. 
Subpart C. Information regarding wages paid employees. 
Subpart A—Information Concerning Persons Subject to Special 
Provisions 
Sec. 6031. Return of partnership income. 
Sec. 6032. Returns of banks with respect to common trust funds. 
. 
Sec. 6033. Returns by exempt organizations. 
X^i 
Sec. 6034. Returns by trusts claiming charitable deductions under 
section 642 (c). 
Sec. 6035. Returns of officers, directors, and shareholders of foreign 
personal holding companies. 
Sec. 6036. Notice of qualification as executor or receiver. 
' 
Sec. 6037. Cross references. 
SEC. 6031. RETURN OF PARTNERSHIP INCOME. 
Every partnership (as defined in section 761 (a)) shall make a return 
for each taxable year, stating specifically the items of its gross income 
and the deductions allowable by subtitle A, and such other informa-
tion for the purpose of carrying out the provisions of subtitle A as 
the Secretary or his delegate may by forms and regulations prescribe, 
and shall include in the return the names and addresses of the indi-
viduals who would be entitled to share in the taxable income if dis-
tributed and the amount of the distributive share of each individual. 
SEC. 6032. RETURNS OF BANKS WITH RESPECT TO COMMON TRUST 
FUNDS. 
Every bank (as defined in section 581) maintaining a common 
trust fund shall make a return for each taxable year, stating specifi-
cally, with respect to such fund, the items of gross income and the 
deductions allowed by subtitle A, and shall include in the return the 
names and addresses of the participants who would be entitled to 
share in the taxable income if distributed and the amount of the pro-
portionate share of each participant. 
The return shall be executed 
in the same manner as a return made by a corporation pursuant to 
the requirements of sections 6012 and 6062. 
SEC. 6033. RETURNS BY EXEMPT ORGANIZATIONS. 
(a) GENERAL.—Every organization, except as hereinafter provided, 
exempt from taxation under section 501 (a) shall file an annual return, 
stating specifically the items of gross income, receipts, and dis-
bursements, and such other information for the purpose of carrying 
out the provisions of subtitle A as the Secretary or his delegate 
may by forms or regulations prescribe, and shall keep such records, 
render under oath such statements, make such other returns, and 
comply with such rules and regulations, as the Secretary or his 
delegate may from time to time prescribe, except that, in the discre-
tion of the Secretary or his delegate, an organization described in 
section 401 (a) may be relieved from stating in its return any infor-
mation which is reported in returns filed by the employer which 
established such organization. 
No such annual return need be filed 
under this subsection by any organization exempt from taxation under 
the provisions of section 501 (a)— 
§ 6033(a) 
742 
INTERNAL REVENUE CODE OF 1954 
(1) which is a religious organization described in section 501 
(c)(3); or 
(2) which is an educational organization described in section 
501 (c) (3), if such organization normally maintains a regular faculty 
and curriculum and normally has a regularly organized body of 
pupils or students in attendance at the place where its educational 
activities are regularly carried on; or 
(3) which is a charitable organization, or an organization for 
the prevention of cruelty to children or animals, described in sec-
tion 501 (c) (3), if such organization is supported, in whole or in 
part, by funds contributed by the United States or any State or 
political 
subdivision 
thereof, 
or 
is primarily 
supported 
by 
contributions of the general public; or 
(4) which is an organization described in section 501 (c) (3), if 
such organization is operated, supervised, or controlled by or in 
connection with a religious organization described in paragraph 
(1)5 or 
(5) which is an organization described in section 501 (c) (8); or 
(6) which is an organization described in section 501 (c) (1), if 
such organization is a corporation wholly owned by the United 
States or any agency or instrumentality thereof, or a wholly-owned 
subsidiary of such a corporation. 
(b) CERTAIN ORGANIZATIONS DESCRIBED IN SECTION 501 (c) (3).— 
Every organization described in section 501 (c) (3) which is subject to 
the requirements of subsection (a) shall furnish annually information, 
at such time and in such manner as the Secretary or his delegate may 
by forms or regulations prescribe, setting forth— 
(1) its gross income for the year, 
(2) its expenses attributable to such income and incurred within 
the year, 
(3) its disbursements out of income within the year for the 
purposes for which it is exempt, 
(4) its accumulation of income within the year, 
(5) its aggregate accumulations of income at the beginning of 
the year, 
(6) its disbursements out of principal in the current and prior 
years for the purposes for which it is exempt, and 
(7) a balance sheet showing its assets, liabilities, and net worth 
as of the beginning of such year. 
(c) CROSS REFERENCE.— 
For provisions relating to statements, etc., regarding exempt status 
of organizations, see section 6001. 
SEC. 6034. RETURNS BY TRUSTS CLAIMING CHARITABLE 
DEDUC-
TIONS UNDER SECTION 642 (c). 
(a) GENERAL RULE.—Every trust claiming a charitable, etc., 
deduction under section 642 (c) for the taxable year shall furnish 
such information with respect to such taxable year as the Secretary 
or his delegate may by forms or regulations prescribe, setting forth— 
(1) the amount of the charitable, etc., deduction taken under 
section 642 (c) within such year (showing separately the amount 
of such deduction which was paid out and the amount which was 
permanently set aside for charitable, etc., purposes during such 
year), 
§ 6033(a)(1) 
CH. 61—INFORMATION AND RETURNS 
743 
(2) the amount paid out within such year which represents 
amounts for which charitable, etc., deductions under section 642 (c) 
have been taken in prior years, 
(3) the amount for which charitable, etc., deductions have been 
taken in prior years but which has not been paid out at the begin-
ning of such year, 
(4) the amount paid out of principal in the current and prior 
years for charitable, etc., purposes, 
(5) the total income of the trust within such year and the ex-
penses attributable thereto, and 
(6) a balance sheet showing the assets, liabilities, and net worth 
of the trust as of the beginning of such year. 
(b) EXCEPTION.—This section shall not apply in the case of a 
taxable year if all the net income for such year, determined under the 
applicable principles of the law of trusts, is required to be distributed 
currently to the beneficiaries. 
SEC. 6035. RETURNS OF OFFICERS, DIRECTORS, AND SHAREHOLDERS 
OF FOREIGN PERSONAL HOLDING COMPANIES. 
(a) OFFICERS AND DIRECTORS.— 
(1) MONTHLY RETURNS.—On the 15th day of each month each 
individual who on such day is an officer or a director of a foreign 
corporation which, with respect to its taxable year preceding the 
taxable year in which such month occurs, was a foreign personal 
holding company (as defined in section 552), shall make a return 
setting forth with respect to the preceding calendar month the name 
and address of each shareholder, the class and number of shares 
held by each, together with any changes in stockholdings during 
, such period, the name and address of any holder of securities con-
vertible into stock of such corporation, and such other information 
with respect to the stock and securities of the corporation as the 
•Secretary or his delegate shall by forms or regulations prescribe as 
J necessary for carrying out the provisions of this title. 
The Secre-
i tary or his delegate may by regulations prescribe, as the period with 
respect to which returns shall be made, a longer period than a 
' month. 
In such case the return shall be due on the 15th day of 
' the succeeding period, and shall be made by the individuals who 
' on such day are officers or directors of the corporation. 
(2) ANNUAL RETURNS.—On the 60th day after the close of the 
taxable year of a foreign personal holding company (as defined in 
section 552), each individual who on such 60th day is an officer or 
•, director of the corporation shall make a return setting forth— 
(A) in complete detail the gross income, deductions and 
' 
credits, taxable income, and undistributed foreign personal hold-
^ 
ing company income of such foreign personal holding company for 
such taxable year; and 
(B) the same information with respect to such taxable year 
as is required in paragraph (1), except that if all the required 
'
^ 
returns with respect to such year have been filed under para-
i 
graph (1), no information under this subparagraph need be set 
forth in the return filed under this paragraph. 
(b) 
SHAREHOLDERS.— 
(1) MONTHLY RETURNS.—On the 15th day of each month each 
United States shareholder, by or for whom 50 percent or more in 
§ 6035(b)(1) 
744 
INTERNAL REVENUE CODE OF 1954 
value of the outstanding stock of a foreign corporation is owned 
directly or indirectly (including, in the case of an individual, stock 
owned by the members of his family as defined in section 544 (a) 
(2)), if such foreign corporation with respect to its taxable year 
preceding the taxable j^ear in which such month occurs was a 
foreign personal holding company (as defined in section 552), shall 
make a return setting forth with respect to the preceding calendar 
month the name and address of each shareholder, the class and 
number of shares held by each, together with any changes in 
stockholdings during such period, the name and address of any 
holder of securities convertible into stock of such corporation, and 
such other information with respect to the stock and securities of 
the corporation as the Secretary or his delegate shall by forms or 
regulations prescribe as necessary for carrying out the provisions 
of this title. 
The Secretary or his delegate may by regulations 
prescribe, as the period with respect to which returns shall be made, 
a longer period than a month. 
In such case the return shall be 
due on the 15th day of the succeeding period, and shall be made 
by the persons who on such day are United States shareholders. 
(2) ANNUAL RETURNS.—On the 60th day after the close of the 
taxable year of a foreign personal holding company (as defined in 
section 552) each United States shareholder by or for whom on 
such 60th day 50 percent or more in value of the outstanding 
stock of such company is owned directly or indirectly (including, 
in the case of an individual, stock owned by members of his family 
as defined in section 544 (a) (2)) shall make a return setting forth 
the same information with respect to such taxable year as is required 
in paragraph (1), except that, if all the required returns with respect 
to such year have been made under paragraph (1), no return shall 
be required under this paragraph. 
SEC. 6036. NOTICE OF QUALIFICATION AS EXECUTOR OR RECEIVER. 
Every receiver, trustee in bankruptcy, assignee for benefit of 
creditors, or other like fiduciary, and every executor (as defined in 
section 2203), shall give notice of his qualification as such to the 
Secretary or his delegate in such manner and at such time as may be 
required by regulations of the Secretary or his delegate. 
The Secre-
tary or his delegate may by regulation provide such exemptions from 
the requirements of this section as the Secretary or his delegate deems 
proper. 
SEC. 6037. CROSS REFERENCES. 
(1) For the notice required of persons acting in a fiduciary capacity 
for taxpayers or for transferees, see sections 6212, 6901 (g), and 6903. 
(2) For application by executor for determination of tax and discharge 
from personal liability therefor, see section 2204. 
(3) For the notice required of taxpayers for redetermination of taxes 
claimed as credits, see sections 905 (c) and 2016. 
(4) For exemption certificates required to be furnished to employers 
by employees, see section 3402 (f) (2), (3), (4), and (5). 
(5) For receipts, constituting information returns, required to be 
furnished to employees, see section 6051. 
(6) For the requirement to print the price of an admission on a 
ticket, see section 4234. 
(7) For information required with respect to the redemption of stamps, 
see section 6805. 
§ 6035(b)(1) 
CH. 61—INFORMATION AND RETURNS 
745 
(8) For the statement required to be filed by a corporation expecting 
a net operating loss carryback or unused excess profits credit carryback, 
see section 6164. 
(9) For the application, which a taxpayer may file for a tentative 
carryback adjustment of income taxes, see section 6411. 
Subpart B—Information Concerning Transactions With Other 
Persons 
Sec. 6041. Information at source. 
Sec. 6042. Returns regarding corporate dividends, earnings, and 
profits. 
Sec. 6043. Return regarding corporate dissolution or liquidation. 
Sec. 6044. Returns regarding patronage dividends. 
Sec. 6045. Returns of brokers. 
Sec. 6046. Returns as to formation or reorganization of foreign 
corporations. 
SEC. 6041. INFORMATION AT SOURCE. 
(a) PAYMENTS OF $600 OR MORE.—All persons engaged in a trade 
or business and making payment in the course of such trade or business 
to another person, of rent, salaries, wages, premiums, annuities, 
compensations, remunerations, emoluments, or other fixed or deter-
minable gains, profits, and income (other than payments described in 
section 6042 (1) or section 6045), of $600 or more in any taxable 
year, or, in the case of such payments made by the United States, the 
officers or employees of the United States having information as to 
such payments and required to make returns in regard thereto by the 
regulations hereinafter provided for, shall render a true and accurate 
return to the Secretary or his delegate, under such regulations and in 
such form and manner and to such extent as may be prescribed by 
the Secretary or his delegate, setting forth the amount of such gains, 
profits, and income, and the name and address of the recipient of 
such payment. 
(b) COLLECTION OF FOEEIGN ITEMS.—In the case of collections of 
items (not payable in the United States) of interest upon the bonds of 
foreign countries and interest upon the bonds of and dividends from 
foreign corporations by any person undertaking as a matter of busi-
ness or for profit the collection of foreign payments of such interest or 
dividends by means of coupons, checks, or bills of exchange, such 
person shall make a return according to the forms or regulations 
prescribed by the Secretary or his delegate, setting forth the amount 
paid and the name and address of the recipient of each such payment. 
(c) PAYMENTS OF INTEREST BY CORPORATIONS.—Every corpora-
tion making payments of interest, regardless of amounts, shall, when 
required by regulations of the Secretary or his delegate, make a return 
according to the forms or regulations prescribed by the Secretary or 
his delegate, setting forth the amount paid and the name and address 
of the recipient of each such payment. 
(d) RECIPIENT TO FURNISH NAME AND ADDRESS.—When necessary 
to make effective the provisions of this section, the name and ad-
dress of the recipient of income shall be furnished upon demand of 
the person paying the income. 
16041(d) 
49012°—54 
50 
746 
INTERNAL REVENUE CODE OF 1954 
SEC. 6042. RETURNS 
REGARDING 
CORPORATE 
DIVIDENDS, 
EARN-' 
INGS, AND PROFITS. 
Every corporation shall, when required by the Secretary or his 
delegate— 
(1) Make a return of its payments of dividends, stating the name 
and address of, the number of shares owned by, and the amount of 
dividends paid to, each shareholder; 
(2) Furnish to the Secretary or his delegate a statement of such 
facts as will enable him to determine the portion of the earnings or 
profits of the corporation (including gains, profits, and income not 
taxed) accumulated during such periods as the Secretary or his 
delegate may specify, which have been distributed or ordered to be 
distributed, respectively, to its shareholders during such taxable 
years as the Secretary or his delegate may specify; and 
(3) Furnish to the Secretary or his delegate a statement of its 
accumulated earnings and profits and the names and addresses of 
the individuals or shareholders who would be entitled to such ac-
cumulated earnings and profits if divided or distributed, and of the 
amounts that would be payable to each. 
SEC. 6043. RETURN 
REGARDING 
CORPORATE 
DISSOLUTION 
OR 
LIQUIDATION. 
Every corporation shall— 
-^ • 
(1) Within 30 days after the adoption by the corporation of a 
resolution or plan for the dissolution of the corporation or for the 
liquidation of the whole or any part of its capital stock, make a 
return setting forth the terms of such resolution or plan and such 
other information as the Secretary or his delegate shall by forms 
or regulations prescribe; and 
(2) When required by the Secretary or his delegate, make a 
return regarding its distributions in liquidation, stating the name 
and address of, the number and class of shares owned by, and the 
amount paid to, each shareholder, or, if the distribution is in 
property other than money, the fair market value (as of the date 
the distribution is made) of the property distributed to each 
shareholder. 
SEC. 6044. RETURNS REGARDING PATRONAGE DIVIDENDS. 
(a) PAYMENTS OF $100 OR MORE.—Any corporation allocating 
amounts as patroaage dividends, rebates, or refunds (whether in cash, 
merchandise, capital stock, revolving fund certificates, retain certificates, 
certificates of indebtedness, letters of advice, or in some other manner 
that discloses to each patron the amount of such dividend, refund, or 
rebate) shall make a return showing— 
(1) The name and address of each patron to whom it has made 
such allocations amounting to $100 or more during the calendar 
year; and 
(2) The amount of such allocations to each patron. 
(b) PAYMENTS 
KEGARDLESS 
OP AMOUNT.—If required 
by 
the 
Secretary or his delegate, any such corporation shall make a return 
of all patronage dividends, rebates, or refunds made during the 
calendar year to its patrons. 
(c) EXCEPTIONS.—This section shall not apply in the case of any 
corporation (including any cooperative or nonprofit corporation en-
gaged in rural electrification) described in section 501 (c) (12) or (15) 
§6042 
CH. 61—INFORMATION AND RETURNS 
747 
which is exempt from tax under section 501 (a), or in the case of any 
corporation subject to a tax imposed by subchapter L of chapter 1. 
SEC. 6045, RETURNS OF BROKERS. 
Every person doing business as a broker shall, when required by 
the Secretary or his delegate, make a return, in accordance with such 
regulations as the Secretary or his delegate may prescribe, showing 
the names of customers for whom such person has transacted any 
business, with such details regarding the profits and losses and such 
other information as the Secretary or his delegate may by forms or 
regulations require with respect to each customer as will enable the 
Secretary or his delegate to determine the amount of such profits or 
losses. 
SEC. 6046. RETURNS AS TO FORMATION OR REORGANIZATION 
OF 
FOREIGN 
CORPORATIONS. 
(a) REQUIREMENT.—Every attorney, accountant, fiduciary, bank, 
trust company, financial institution, or other person, who aids, assists, 
counsels, or advises in, or with respect to, the formation, organization, 
or reorganization of any foreign corporation, shall, within 30 days 
thereafter, make a return in accordance with regulations prescribed 
by the Secretary or his delegate. 
(b) FORM AND CONTENTS OP RETURN.—Such return shall be in 
such form, and shall set forth, in respect of each such corporation, to 
the full extent of the information within the possession or knowledge 
or under the control of the person required to make the return, such 
information as the Secretary or his delegate prescribes by forms or 
regulations as necessary for carrying out the provisions of the income 
tax laws. 
(c) PRIVILEGED COMMUNICATIONS.—Nothing in this section shall be 
construed to require the making of a return by an attorney-at-law 
with respect to any advice given or information obtained through the 
relationship of attorney and client. 
(d) CROSS REFERENCE.— 
For provisions relating to penalties for violations of this section, see 
section 7203. 
Subpart C—Information Regarding Wages Paid Employees 
Sec. 6051. Receipts for employees. 
SEC. 6051. RECEIPTS FOR EMPLOYEES. 
(a) REQUIREMENT.—^Every person required to deduct and withhold 
from an employee a tax under section 3101 or 3402, or who would have 
been required to deduct and withhold a tax under section 3402 if the 
employee had claimed no more than one withholding exemption, shall 
furnish to each such employee in respect of the remuneration paid by 
such person to such employee during the calendar year, on or before 
January 31 of the succeeding year, or, if his employment is terminated 
before the close of such calendar year, on the day on which the last 
payment of remuneration is made, a written statement showing the 
following: 
(1) the name of such person, 
(2) the name of the employee (and his social security account 
number if wages as defined in section 3121 (a) have been paid), 
§ 6051(a)(2) 
748 
INTERNAL REVENUE CODE OF 1954 
(3) the total amount of wages as defined in section 3401 (a), 
(4) the total amount deducted and withheld as tax under section 
3402, 
(5) the total amount of wages as defined in section 3121 (a), and 
(6) the total amount deducted and withheld as tax under section 
3101. 
(b) SPECIAL RULE AS TO COMPENSATION OF MEMBERS OF ARMED 
FORCES.—In the case of compensation paid for service as a member 
of the Armed Forces, the statement shall show, as wages paid during 
the calendar year, the amount of such compensation paid during the 
calendar year which is not excluded from gross income under chapter 
1 (whether or not such compensation constituted wages as defined in 
section 3401 (a)); such statement to be furnished if any tax was with-
held during the calendar year or if any of the compensation paid is 
includible under chapter 1 in gross income. 
(c) ADDITIONAL REQUIREMENTS.—The statements required to be 
furnished pursuant to this section in respect of any remuneration shall 
be furnished at such other times, shall contain such other informa-
tion, and shall be in such form as the Secretary or his delegate may 
by regulations prescribe. 
(d) STATEMENTS TO CONSTITUTE INFORMATION RETURNS,—A 
du-
plicate of any statement made pursuant to this section and in accord-
ance with regulations prescribed by the Secretary or his delegate 
shall, when required by such regulations, be filed with the Secretary or 
his delegate. 
PART IV—SIGNING AND VERIFYING OF RETURNS 
AND 
OTHER DOCUMENTS 
Sec. 6061. Signing of returns and other documents. 
Sec. 6062. Signing of corporation returns. 
Sec. 6063. Signing of partnership returns. 
Sec. 6064. Signature presumed authentic. 
Sec. 6065. Verification of returns. 
•' 
SEC. 6061. SIGNING OF RETURNS AND OTHER DOCUMENTS. 
Except as otherwise provided by sections 6062 and 6063, any re-
turn, statement, or other document required to be made under any 
provision of the internal revenue laws or regulations shall be signed in 
accordance with forms or regulations prescribed by the Secretary or 
his delegate. 
SEC. 6062. SIGNING OF CORPORATION RETURNS. 
The return of a corporation with respect to income shall be signed 
by the president, vice-president, treasurer, assistant treasurer, chief 
accounting officer or any other officer duly authorized so to act. 
In 
the case of a return made for a corporation by a fiduciary pursuant to 
the provisions of section 6012 (b) (3), such fiduciary shall sign the 
return. 
The fact that an individual's name is signed on the return 
shall be prima facie evidence that such individual is authorized to 
sign the return on behalf of the corporation. 
SEC. 6063. SIGNING OF PARTNERSHIP 
RETURNS. 
The return of a partnership made under section 6031 shall be 
signed by any one of the partners. 
The fact that a partner's name is 
§ 6051(a)(3) 
CH. 61—INFORMATION AND RETURNS 
749 
signed on the return shall be prima facie evidence that such partner 
is authorized to sign the return on behalf of the partnership. 
SEC. 6064. SIGNATURE PRESUMED 
AUTHENTIC. 
The fact that an individual's name is signed to a return, statement, 
or other document shall be prima facie evidence for all purposes that 
the return, statement, or other document was actually signed by him. 
SEC. 6065. VERIFICATION OF RETURNS. 
(a) PENALTIES OF PERJURY.—Except as otherwise provided by the 
Secretary or his delegate, any return, declaration, statement, or other 
document required to be made under any provision of the internal 
revenue laws or regulations shall contain or be verified by a written 
declaration that it is made under the penalties of perjury. 
(b) OATH.—The Secretary or his delegate may by regulations re-
quire that any return, statement, or other document required to be 
made under any provision of the internal revenue laws or regulations 
shall be verified by an oath. 
This subsection shall not apply to re-
turns and declarations with respect to income taxes made by indi-
viduals. 
PART V—TIME FOR FILING RETURNS AND OTHER 
DOCUMENTS 
Sec. 6071. Time for filing returns and other documents. 
Sec. 6072. Time for filing income tax returns. 
Sec. 6073. Time for filing declarations of estimated income tax 
'^v-ffp-'-- 
^^ individuals. 
^'*'- 
Sec. 6074. Time for filing declarations of estimated income tax 
' 
by corporations. 
Sec. 6075. Time for filing estate and gift tax returns. 
SEC. 6071. TIME FOR FILING RETURNS AND OTHER DOCUMENTS. 
(a) GENERAL RULE.—When not otherwise provided for by this 
title, the Secretary or his delegate shall by regulations prescribe the 
time for filing any return, statement, or other document required by 
this title or by regulations. 
(b) SPECIAL TAXES.^— 
For payment of special taxes before engaging in certain trades and 
businesses, see section 4901. 
SEC. 6072. TIME FOR FILING INCOME TAX RETURNS. 
(a) GENERAL RULE.—In the case of returns under section 6012, 
6013, 6017, or 6031 (relating to income tax under subtitle A), returns 
made on the basis of the calendar year shall be filed on or before the 
15th day of April following the close of the calendar year and returns 
made on the basis of a fiscal year shall be filed on or before the 15th 
day of the fourth month following the close of the fiscal year, except 
as otherwise provided in the following subsections of this section. 
(b) RETURNS OF CORPORATIONS.—Returns of corporations under 
section 6012 made on the basis of the calendar year shall be filed on 
or before the 15th day of March following the close of the calendar 
year, and such returns made on the basis of a fiscal year shall be 
filed on or before the 15th day of the third month following the close 
of the fiscal year. 
(c) RETURNS BY CERTAIN NONRESIDENT ALIEN INDIVIDUALS AND 
FOREIGN CORPORATIONS.—Returns made by nonresident alien in-
§ 6072(c) 
750 
INTERNAL REVENUE CODE OF 
1954 
dividuals (other than those whose wages are subject to withholding 
under chapter 24) and foreign corporations (other than those having 
an office or place of business in the United States) under section 6012 
on the basis of a calendar year shall be filed on or before the 15th day 
of June following the close of the calendar year and such returns made 
on the basis of a fiscal year shall be filed on or before the 15th day of 
the 6th month following the close of the fiscal year. 
(d) RETURNS OF EXEMPT COOPERATIVE ASSOCIATIONS.—In the case 
of income tax returns of exempt cooperative associations taxable 
under the provisions of section 522, returns made on the basis of a 
calendar year shall be filed on or before the 15th day of September 
following the close of the calendar year and returns made on the basis 
of a fiscal year shall be filed on or before the 15th day of the 9th 
month following the close of the fiscal year. 
(e) INCOME TAX D U E DATES POSTPONED IN CASE OF CHINA TRADE 
ACT CORPORATIONS.—In the case of any taxable year beginning after 
December 31, 1948, and ending before October 1, 1956, no Federal 
income tax return of any corporation organized under the China Trade 
Act, 1922 (42 Stat. 849, U. S. C , title 15, chapter 4), as amended, 
shall become due until December 31, 1956, but only with respect to 
any such corporation and any such taxable year which the Secretary 
or his delegate may determine reasonable under the circumstances in 
China pursuant to such regulations as may be prescribed. 
Such due 
date shall be subject to the power of the Secretary or his delegate to 
extend the time for filing such return, as in other cases. 
SEC. 6073. TIME FOR FILING DECLARATIONS OF ESTIMATED INCOME 
TAX BY INDIVIDUALS. 
(a) INDIVIDUALS OTHER THAN FARMERS.—Declarations of esti-
mated tax required by section 6015 from individuals not regarded 
as farmers for the purpose of that section shall be filed on or before 
April 15 of the taxable year, except that if the requirements of section 
6015 are first met— 
(1) After April 1 and before June 2 of the taxable year, the 
declaration shall be filed on or before June 15 of the taxable year, or 
(2) After June 1 and before September 2 of the taxable year, the 
declaration shall be filed on or before September 15 of the taxable 
year, or 
(3) After September 1 of the taxable year, the declaration shall 
be filed on or before January 15 of the succeeding taxable year. 
(b) FARMERS.—Declarations of estimated tax required by section 
6015 from individuals whose estimated gross income from farming 
(including oyster farming) for the taxable year is at least two-thirds 
of the total estimated gross income from all sources for the taxable 
year may, in lieu of the time prescribed in subsection (a), be filed at 
any time on or before January 15 of the succeeding taxable year. 
(c) AMENDMENT.—An amendment of a declaration may be filed in 
any interval between installment dates prescribed for that taxable 
year, but only one amendment may be filed in each such interval. 
(d) SHORT TAXABLE YEARS.—The application of this section to 
taxable years of less than 12 months shall be in accordance with 
regulations prescribed by the Secretary or his delegate. 
§ 6072(c) 
CH. 61 
INFORMATION AND RETURNS 
751 
(e) FISCAL YEAES.—In the application of this section to the case 
of a taxable year beginning on any date other than January 1, there 
shall be substituted, for the months specified in this section, the months 
which correspond thereto. 
SEC. 6074. TIME FOR FILING DECLARATIONS OF ESTIMATED INCOME 
TAX BY CORPORATIONS. 
(a) GENEEAL RULE.—The declaration of estimated tax required of 
corporations by section 6016 shall be filed on or before the 15th day of 
the 9th month of the taxable year, except that if the requirements of 
section 6016 are first met after the last day of the 8th month and 
before the 1st day of the 12th month of the taxable year, the declara-
tion shall be filed on or before the 15th day of the 12th month of the 
taxable year. 
(b) AMENDMENT.—If a declaration is filed before the 15th day of 
the 12 th month of the taxable year, an amendment of such declaration 
may be filed on or before such day. 
(c) SHOET TAXABLE YEAE.—The application of this section to 
taxable years of less than 12 months shall be in accordance with 
regulations prescribed by the Secretary or his delegate. 
SEC. 6075. TIME FOR FILING ESTATE AND GIFT TAX RETURNS. 
(a) ESTATE TAX RETUENS.—Returns made under section 6018 (a) 
(relating to estate taxes) shall be filed within 15 months after the date 
of the decedent's death. 
(b) GIFT TAX RETUENS.—Returns made under section 6019 (re-
lating to gift taxes) shall be filed on or before the 15 th day of April 
following the close of the calendar year. 
PART VI—EXTENSION OF TIME FOR FILING RETURNS 
Sec. 6081. Extension of time for filing returns. 
SEC. 6081. EXTENSION OF TIME FOR FILING RETURNS. 
(a) GENEEAL RULE.—The Secretary or his delegate may grant 
a reasonable extension of time for filing any return, declaration, 
statement, or other document required by this title or by regulations. 
Except in the case of taxpayers who are abroad, no such extension 
shall be for more than 6 months. 
(b) AUTOMATIC 
EXTENSION 
FOE 
COEPOEATION 
INCOME 
TAX 
RETUENS.—An extension of 3 months for the filing of the return of 
income taxes imposed by subtitle A shall be allowed any corporation if, 
in such manner and at such time as the Secretary or his delegate may 
by regulations prescribe, there is filed on behalf of such corporation 
the form prescribed by the Secretary or his delegate, and if such 
corporation pays, on or before the date prescribed for payment of the 
tax, the amount properly estimated as its tax or the first installment 
thereof required under section 6152; but this extension may be termi-
nated at any time by the Secretary or his delegate by mailing to the 
taxpayer notice of such termination at least 10 days prior to the date 
for termination fixed in such notice. 
(c) POSTPONEMENT BY REASON OF W A E . — 
For time for performing certain acts postponed by reason of war, see 
section 7508. 
§ 6081 (c) 
752 
INTERNAL REVENUE CODE OF 1954 
PART VII—PLACE FOR FILING RETURNS OR OTHER 
DOCUMENTS 
Sec. 6091. Place for filing returns or other documents. 
SEC. 6091. PLACE FOR FILING RETURNS OR OTHER DOCUMENTS. 
(a) GENERAL RULE.—When not otherwise provided for by this 
title, the Secretary or his delegate shall by regulations prescribe the 
place for the filing of any return, declaration, statement, or other docu-
ment, or copies thereof, required by this title or by regulations. 
(b) TAX RETURNS.—In the case of returns of tax required under 
authority of part II of this subchapter— 
(1) INDIVIDUALS.—Returns 
(other than corporation 
returns) 
shall be made to the Secretary or his delegate in the internal revenue 
district in which is located the legal residence or principal place of 
business of the person making the return, or, if he has no legal resi-
dence or principal place of business in any internal revenue district, 
then at such place as the Secretary or his delegate may by regula-
tions prescribe. 
(2) CORPORATIONS.—Returns of corporations shall be made to 
the Secretary or his delegate in the internal revenue district in 
which is located the principal place of business or principal office 
or agency of the corporation, or, if it has no principal place of 
business or principal office or agency in any internal revenue dis-
trict, then at such place as the Secretary or his delegate may by 
regulations prescribe. 
(3) ESTATE TAX RETURNS.—Returns of estate tax required under 
section 6018 shall be made to the Secretary or his delegate in the 
internal revenue district in which was the domicile of the decedent 
at the time of his death or, if there was no such domicile in an 
internal revenue district, then at such place as the Secretary or his 
delegate may by regulations prescribe. 
(4) EXCEPTIONAL CASES.—Notwithstanding paragraph (1), (2), 
or (3) of this subsection, the Secretary or his delegate may permit a 
return to be filed in any internal revenue district, and may require 
the return of any officer or employee of the Treasury Department to 
be filed in any internal revenue district selected by the Secretary 
or his delegate. 
§6091 
CH. 61—INFORMATION AND RETURNS 
753 
Subchapter B—Miscellaneous Provisions 
Sec. 6101. Period covered by returns or other documents, 
'•). 
Sec. 6102. Computations on returns or other documents. 
See. 6103. Publicity of returns and lists of taxpayers. 
Sec. 6104. Publicity of information required from certain exempt 
organizations and certain trusts. 
»
,
^
'
'
. *' 
Sec. 6105. Compilation of relief from excess profits tax cases. 
Bi 
Sec. 6106. Publicity of unemployment tax returns. 
., 
Sec. 6107. List of special taxpayers for public inspection. 
,, 
Sec. 6108. Publication of statistics of income. 
Sec. 6109. Cross references. 
SEC. 6101. PERIOD COVERED BY RETURNS OR OTHER DOCUMENTS. 
When not otherwise provided for by this title, the Secretary or his 
delegate may by regulations prescribe the period for which, or the 
date as of which, any return, statement, or other document required 
by this title or by regulations, shall be made. 
SEC. 6102. COMPUTATIONS ON RETURNS OR OTHER DOCUMENTS. 
(a) AMOUNTS SHOWN ON INTERNAL REVENUE FORMS.—The Sec-
retary or his delegate is authorized to provide with respect to any 
amount required to be shown on a form prescribed for any internal 
revenue return, statement, or other document, that if such amount of 
such item is other than a whole-dollar amount, either— 
(1) the fractional part of a dollar shall be disregarded; or 
(2) the fractional part of a dollar shall be disregarded unless it 
amounts to one-half dollar or more, in which case the amount (de-
termined without regard to the fractional part of a dollar) shall be 
increased by $1. 
(b) ELECTION NOT T O 
U S E 
WHOLE DOLLAR 
AMOUNTS.—Any 
person making a return, statement, or other document shall be al-
lowed, under regulations prescribed by the Secretary or his delegate, 
to make such return, statement, or other document without regard 
to subsection (a). 
(c) INAPPLICABILITY TO COMPUTATION OF AMOUNT.—The provi-
sions of subsections (a) and (b) shall not be applicable to items which 
must be taken into account in making the computations necessary 
to determine the amount required to be shown on a form, but shall 
be applicable only to such final amount. 
SEC. 6103. PUBLICITY OF RETURNS AND LISTS OF TAXPAYERS. 
(a) PUBLIC RECORD AND INSPECTION.— 
(1) Returns made with respect to taxes imposed by chapters 1, 
2, 3, and 6 upon which the tax has been determined by the Secre-
tary or his delegate shall constitute public records; but, except as 
hereinafter provided in this section, they shall be open to inspection 
only upon order of the President and under rules and regulations 
prescribed by the Secretary or his delegate and approved by the 
President. 
(2) All returns made with respect to the taxes imposed by 
chapters 1, 2, 3, 5, 6, 11, 12, and 32, subchapters B, C, and D of 
§ 6103(a)(2) 
754 
INTERNAL REVENUE CODE OF 1954 
chapter 33, and subchapter B of chapter 37, shall constitute public 
records and shall be open to public examination and inspection to 
such extent as shall be authorized in rules and regulations promul-
gated by the President. 
(3) Whenever a return is open to the inspection of any person, 
a certified copy thereof shall, upon request, be furnished to such 
person under rules and regulations prescribed by the Secretary or 
his delegate. 
The Secretary or his delegate may prescribe a reason-
able fee for furnishing such copy. 
(b) INSPECTION BY STATES.— 
(1) STATE OFFICERS.—The proper officers of any State may, 
upon the request of the governor thereof, have access to the returns 
of any corporation, or to an abstract thereof showing the name 
and income of any corporation, at such times and in such manner 
as the Secretary or his delegate may prescribe. 
(2) STATE BODIES OR COMMISSIONS.—All income returns filed 
with respect to the taxes imposed by chapters 1, 2, 3, and 6 (or 
copies thereof, if so prescribed by regulations made under this 
subsection), shall be open to inspection by any oflEicial, body,, 
or commission, lawfully charged with the administration of any 
State tax law, if the inspection is for the purpose of such ad-
ministration or for the purpose of obtaining information to be 
furnished to local taxing authorities as provided in this para-
graph. 
The inspection shall be permitted only upon written request' 
of the governor of such State, designating the representative of 
such official, body, or commission to make the inspection on behalf 
of such official, body, or commission. The inspection shall be 
made in such manner, and at such times and places, as shall be 
prescribed by regulations made by the Secretary or his delegate. 
Any information thus secured by any official, body, or commission 
of any State may be used only for the administration of the tax 
laws of such State, except that upon written request of the governor 
of such State any such information may be furnished to any official, 
body, or commission of any political subdivision of such State, 
lawfully charged with the administration of the tax laws of such 
political subdivision, but may be furnished only for the purpose of, 
and may be used only for, the administration of such tax laws. 
(c) INSPECTION BY SHAREHOLDERS.—All bona fide shareholders of 
record owning 1 percent or more of the outstanding stock of any 
corporation shall, upon making request of the Secretary or his delegate, 
be allowed to examine the annual income returns of such corporation 
and of its subsidiaries. 
(d) INSPECTION BY COMMITTEES OF CONGRESS.— 
(1) COMMITTEES ON WAYS AND MEANS AND FINANCE.— 
(A) The Secretary and any officer or employee of the Treasury 
Department, upon request from the Committee on Ways and 
"Means of the House of Representatives, the Committee on 
Finance of the Senate, or a select committee of the Senate or 
House specially authorized to investigate returns by a resolution 
of the Senate or House, or a joint committee so authorized by 
concurrent resolution, shall furnish such committee sitting in 
executive session with any data of any character contained in 
or shown by any return. 
§ 6103(a)(2) 
-
CH. 61—INFORMATION AND RETURNS 
755 
(B) Any such committee shall have the right, acting directly 
as a committee, or by or through such examiners or agents as it 
may designate or appoint, to inspect any or all of the returns at 
such times and in such manner as it may determine. 
(C) Any relevant or useful information thus obtained may be 
submitted by the committee obtaining it to the Senate or the 
House, or to both the Senate and the House, as the case may be. 
(2) JOINT COMMITTEE ON INTERNAL REVENUE TAXATION.—The 
Joint Committee on Internal Revenue Taxation shall have the same 
right to obtain data and to inspect returns as the Committee on 
Ways and Means or the Committee on Finance, and to submit any 
relevant or useful information thus obtained to the Senate, the 
House of Representatives, the Committee on Ways and Means, or 
the Committee on Finance. 
The Committee on Ways and Means 
or the Committee on Finance may submit such information to the 
House or to the Senate, or to both the House and the Senate, as 
the case may be. 
(e) DECLARATIONS OF ESTIMATED TAX.—For purposes of this sec-
tion, a declaration of estimated tax shall be held and considered a 
return under this chapter. 
(f) INSPECTION OF LIST OF TAXPAYERS.—The Secretary or 
his 
delegate shall as soon as practicable in each year cause to be prepared 
and made available to public inspection in such manner as he may 
determine, in the office of the principal internal revenue officer for 
the internal revenue district in which the return was filed, and in 
such other places as he may determine, lists containing the name 
and the post-office address of each person making an income tax 
return in such district. 
SEC. 6104. PUBLICITY OF INFORMATION REQUIRED FROM CERTAIN 
EXEMPT ORGANIZATIONS AND CERTAIN TRUSTS. 
The information required to be furnished by sections 6033 (b) and 
6034, together with the names and addresses of such organizations and 
trusts, shall be made available to the public at such times and in such 
places as the Secretary or his delegate may prescribe. 
SEC. 6105. COMPILATION 
OF RELIEF FROM EXCESS PROFITS TAX 
CASES. 
The Secretary or his delegate shall compile for each fiscal year 
beginning after June 30, 1941, by internal revenue districts, and 
alphabetically arranged, all cases in which relief has been allowed 
during such year under the provisions of section 722 of the Internal 
Revenue Code of 1939, as amended, by the Secretary or his delegate 
and by the Tax Court of the United States, as the case may be. 
Such compilation shall contain the name and address of each taxpayer 
to which relief has been so allowed, the business in which the taxpayer 
is engaged, the amount of the excess profits credit before such allow-
ance, the increase in such credit claimed, the increase in such credit 
allowed, and the amount of the gross reduction in the tax under 
subchapter E of chapter 2 of the Internal Revenue Code of 1939, as 
amended, and of the gross increase in the tax under chapter 1 of such 
Code, which results from the operation of section 722 of the Internal 
Revenue Code of 1939, as amended. 
In the case of relief allowed by 
the Tax Court of the United States, the Secretary or his delegate 
shall set forth the data previously reported under this section or 
§6105 
756 
INTERNAL REVENUE CODE OF 1954 
' 
section 722 (g) of the Internal Kevenue Code of 1939, as amended, 
with respect to rehef previously allowed in such case by the Secretary 
or his delegate. 
Such compilation shall be published in the Federal 
Register, 
SEC. 6106. PUBLICITY OF UNEMPLOYMENT TAX RETURNS. 
Eeturns filed with respect to the tax imposed by chapter 23 shall be 
open to inspectioQ in the same manner, to the same extent, and subject 
to the same provisions of law, including penalties, as returns described 
in section 6103, except that paragraph (2) of subsections (a) and (b) 
of section 6103 and section 7213 (a) (2) shall not apply. 
SEC. 6107. LIST OF SPECIAL TAXPAYERS FOR PUBLIC INSPECTION. 
In the principal internal revenue office in each internal revenue 
district there shall be kept, for public inspection, an alphabetical list 
of the names of all persons who have paid special taxes under subtitle 
D or E within such district. 
Such list shall be prepared and kept 
pursuant to regulations prescribed by the Secretary or his delegate, 
and shall contain the time, place, and business for which such special 
taxes have been paid, and upon application of any prosecuting officer 
of any State, county, or municipality there shall be furnished to him 
a certified copy thereof, as of a public record, for which a fee of $1 
for each 100 words or fraction thereof in the copy or copies so requested 
may be charged. 
SEC. 6108. PUBLICATION OF STATISTICS OF INCOME. 
The Secretary or his delegate shall prepare and publish annually 
statistics reasonably available with respect to the operation of the 
income tax laws, including classifications of taxpayers and of income, 
the amounts allowed as deductions, exemptions, and credits, and any 
other facts deemed pertinent and valuable. 
SEC. 6109. CROSS REFERENCES. 
(1) For reports of Secretary of Agriculture concerning cotton futures, 
see section 4876. 
(2) For inspection of returns, order forms, and prescriptions concern-
ing narcotics, see section 4773. 
(3) For inspection of returns, order forms, and prescriptions con-
cerning marihuana, see section 4773. 
(4) For authority of Secretary or his delegate to furnish list of special 
taxpayers, see section 4775. 
(5) For inspection of records, returns, etc., concerning gasoline or 
lubricating oils, see section 4102. 
TO 
§6105 
CH. 62—TIME AND PLACE FOR PAYING TAX 
757 
CHAPTER 62—TIME AND PLACE FOR PAYING TAX 
i t •", • . ' ' 
SUBCHAPTER A. Place and due date for payment of tax. 
SUBCHAPTER B . Extensions of time for payment. 
Subchapter A—Place and Due Date for Payment of Tax 
Sec. 6151. Time and place for paying tax shown on returns. 
Sec. 6152. Installment payments. 
Sec. 6153. Installment payments of estimated income tax by 
individuals. 
V 
Sec. 6154, Installment payments of estimated income tax by 
corporations. 
Sec. 6155. Payment on notice and demand. 
Sec. 6156. Payment of taxes under provisions of the Tariff Act. 
SEC. 6151. TIME AND PLACE FOR PAYING TAX SHOWN ON RETURNS. 
(a) GENERAL RULE.—Except as otherwise provided in this section, 
when a return of tax is required under this title or regulations, the 
person required to make such return shall, without assessment or 
notice and demand from the Secretary or his delegate, pay such tax 
to the principal internal revenue officer for the internal revenue 
district in which the return is required to be ffied, and shall pay such 
tax at the time and place fixed for filing the return (determined 
without regard to any extension of time for filing the return). 
(b) EXCEPTIONS.— 
(1) INCOME TAX NOT COMPUTED BY TAXPAYER.—If the taxpayer 
' elects under section 6014 not to show the tax on the return, the 
amount determined by the Secretary or his delegate as payable 
shall be paid within 30 days after the mailing by the Secretary or 
; his delegate to the taxpayer of a notice stating such amount and 
' making demand therefor. 
(2) U S E OF GOVERNMENT DEPOSITARIES.—For authority of the 
. Secretary or his delegate to require payments to Government 
depositaries, see section 6302 (c). 
(c) DATE FIXED FOR PAYMENT OF TAX.—In any case in which a 
tax is required to be paid on or before a certain date, or within a 
certain period, any reference in this title to the date fixed for pay-
ment of such tax shall be deemed a reference to the last day fixed 
for such payment (determined without regard to any extension of 
time for paying the tax). 
SEC. 6152. INSTALLMENT PAYMENTS. 
(a) PRIVILEGE TO ELECT TO MAKE INSTALLMENT 
PAYMENTS.— 
(1) CORPORATIONS.—A corporation subject to the taxes imposed 
by chapter 1 may elect to pay the unpaid amount of such taxes in 
installments as follows: 
(A) with respect to taxable years ending before December 31, 
1954, four installments, the first two of which shall be 45 percent, 
respectively, of such taxes and the last two of which shall be 
5 percent, respectively, of such taxes; 
§ 6152(a)(1)(A) 
758 
INTERNAL REVENUE CODE OF 
1954 
(B) with respect to taxable years ending on or after December 
31, 1954, two equal installments. 
(2) ESTATES OF DECEDENTS.—A decedent's estate subject to the 
tax imposed by chapter 1 may elect to pay such tax in four equal 
installments. 
(3) EMPLOYERS SUBJECT TO UNEMPLOYMENT TAX.—An employer 
subject to the tax imposed by section 3301 may elect to pay such 
tax in four equal installments. 
(b) DATES PRESCRIBED FOR PAYMENT OF INSTALLMENTS.— 
(1) FOUR INSTALLMENTS.—In any case (other than payment of 
estimated income tax) in which the tax may be paid in four in-
stallments, the first installment shall be paid on the date pre-
scribed for the payment of the tax, the second installment shall be 
paid on or before 3 months, the third installment on or before 
6 months, and the fourth installment on or before 9 months, after 
such date. 
(2) Two INSTALLMENTS.—In any case (other than payment of 
estimated income tax) in which the tax may be paid in two install-
ments, the first installment shall be paid on the date prescribed 
for the payment of the tax, and the second installment shall be 
paid on or before 3 months after such date. 
(c) PRORATION OP DEFICIENCY TO INSTALLMENTS.—If an election 
has been made to pay the tax imposed by chapter 1 in installments 
and a deficiency has been assessed, the deficiency shall be prorated 
to such installments. 
Except as provided in section 6861 (relating 
to jeopardy assessments), that part of the deficiency so prorated to 
any installment the date for payment of which has not arrived shall 
be collected at the same time as and as part of such installment. 
That part of the deficiency so prorated to any installment the date 
for payment of which has arrived shall be paid upon notice and demand 
from the Secretary or his delegate. 
(d) ACCELERATION OF PAYMENT.—If any installment (other than 
an installment of estimated income tax) is not paid on or before the 
date fixed for its payment, the whole of the unpaid tax shall be paid 
upon notice and demand from the Secretary or his delegate. 
SEC. 6153. INSTALLMENT PAYMENTS OF ESTIMATED INCOME TAX 
BY INDIVIDUALS. 
(a) GENERAL RULE.—The amount of estimated tax (as defined in 
section 6015 (c)) with respect to which a declaration is required under 
section 6015 shall be paid as follows: 
(1) If the declaration is filed on or before April 15 of the taxable 
year, the estimated tax shall be paid in four equal installments. 
The first installment shall be paid at the time of the filing of the 
declaration, the second and third on June 15 and September 15, 
respectively, of the taxable year, and the fourth on January 15 of 
the succeeding taxable year. 
(2) If the declaration is filed after April 15 and not after June 
15 of the taxable year, and is not required by section 6073 (a) to 
be filed on or before April 15 of the taxable year, the estimated 
tax shall be paid in three equal installments. 
The first installment 
shall be paid at the time of the filing of the declaration, the second 
§ 6152(a)(1)(B) 
CH. 6 2 — T I M E AND PLACE FOR PAYING TAX 
759 
on September 15 of the taxable year, and the third on January 15 
of the succeeding taxable year. 
(3) If the declaration is filed after June 15 and not after Sep-
tember 15 of the taxable year, and is not required by section 6073 
(a) to be filed on or before June 15 of the taxable year, the estimated 
tax shall be paid in two equal installments. 
The first installment 
shall be paid at the time of the fihng of the declaration, and the 
second on January 15 of the succeeding'taxable year. 
(4) If the declaration is filed after September 15 of the taxable 
year, and is not required by section 6073 (a) to be filed on or before 
September 15 of the taxable year, the estimated tax shall be paid in 
fuU at the time of the filing of the declaration. 
(5) If the declaration is filed after the time prescribed in section 
6073 (a) (including cases in which an extension of time for filing the 
declaration has been granted under section 6081), paragraphs (2), 
; (3), and (4) of this subsection shall not apply, and there shall be 
paid at the time of such filing all installments of estimated tax 
which would have been payable on or before such time if the 
declaration had been filed within the time prescribed in section 
6073 (a), and the remaining installments shall be paid at the times 
at which, and in the amounts in which, they would have been 
payable if the declaration had been so filed. 
(b) FARMERS.—If an individual referred to in section 6073 (b) 
(relating to income from farming) makes a declaration of estimated 
tax after September 15 of the taxable year and on or before January 
15 of the succeeding taxable year, the estimated tax shall be paid in 
full at the time of the filing of the declaration. 
(c) AMENDMENTS OF DECLARATION.—If any amendment of a dec-
laration is filed, the remaining installments, if any, shall be ratably 
increased or decreased, as the case may be, to reflect the increase or 
decrease, as the case may be, in the estimated tax by reason of such 
amendment, and if any amendment is made after September 15 of the 
taxable year, any increase in the estimated tax by reason thereof 
shall be paid at the time of making such amendment. 
(d) APPLICATION TO SHORT TAXABLE YEARS.—The application of 
this section to taxable years of less than 12 months shall be in accord-
ance with regulations prescribed by the Secretary or his delegate. 
(e) FISCAL YEARS.—In the application of this section to the case 
of a taxable year beginning on any date other than January 1, there 
shall be substituted, for the months specified in this section, the 
months which correspond thereto. 
(f) INSTALLMENTS PAID IN ADVANCE.—^At the election of the 
in-
dividual, any installment of the estimated tax may be paid prior to 
the date prescribed for its payment. 
§ 6153(f) 
760 
INTERNAL REVENUE CODE OF 1954 
SEC. 6154. INSTALLMENT 
PAYMENTS OF ESTIMATED INCOME TAX 
BY CORPORATIONS. 
(a) AMOUNT OF ESTIMATED INCOME TAX REQUIRED TO BE PAID.— 
The amount of estimated tax (as defined in section 6016 (b)) witli 
respect to which a declaration is required under section 6016 shall be 
paid as follows: 
If the taxable year ends— 
The amount required to be 
paid shall be the following 
percentage of the estimated 
On or after December 31, 1955 and before December 
31, 1956 
On or after December 31, 1956 and before December 
31, 1957 
On or after December 31, 1957 and before December 
31, 1958 
On or after December 31, 1958 and before December 
31, 1959 
On or after December 31, 1959 
10 
20 
30 
40 
50 
(b) TIME FOR PAYMENT OF INSTALLMENT.—If the declaration is 
filed on or before the 15th day of the 9th month of the taxable year, 
the amount determined under subsection (a) shall be paid in two equal 
installments. 
The first installment shall be paid on or before the 15th 
day of the 9th month of the taxable year, and the second installment 
shall be paid on or before the 15th day of the 12th month of the taxable 
year. 
If the declaration is filed after the 15th day of the 9th month 
of the taxable year, the amount determined under subsection (a) 
shall be paid in full on or before the 15th day of the 12th month of 
the taxable year. 
(c) AMENDMENT OF DECLARATION.—If any amendment of a declara-
tion is filed, installments payable on the 15th day of the 12th month, 
if any, shall be ratably increased or decreased, as the case may be, to 
reflect the increase or decrease, as the case may be, in the estimated 
tax by reason of such amendment. 
(d) APPLICATION TO SHORT TAXABLE YEAR.—The application of 
this section to taxable years of less than 12 months shall be in accord-
ance with regulations prescribed by the Secretary or his delegate. 
(e) INSTALLMENTS PAID IN ADVANCE.—At the election of the corpo-
ration, any installment of the estimated tax may be paid prior to the 
date prescribed for its payment. 
SEC. 6155. PAYMENT ON NOTICE AND DEMAND. 
(a) GENERAL RULE.—Upon receipt of notice and demand from the 
Secretary or his delegate, there shall be paid at the place and time 
stated in such notice the amount of any tax (including any interest, 
additional amounts, additions to tax, and assessable penalties) stated 
in such notice and demand. 
§6154 
CH. 62—TIME AND PLACE FOR PAYING TAX 
761 
(b) 
CROSS REFERENCES.— 
(1) For restrictions on assessment and collection of deficiency 
assessments of taxes subject to the jurisdiction of the Tax Court, see 
sections 6212 and 6213. 
(2) For provisions relating to assessment of claims allowed in a 
bankruptcy or receivership proceeding, see section 6873. 
(3) For provisions relating to jeopardy assessments, see subchapter 
A of chapter 70. 
SEC. 6156. PAYMENT OF TAXES UNDER PROVISIONS OF THE TARIFF 
ACT. 
For collection under the provisions of the Tariff Act of 1930 of the 
taxes imposed by section 4501 (b), and subchapters A, B, C, D, and E 
of chapter 38, see sections 4504 and 4601, respectively. 
§6156 
49012°—54 
51 
762 
INTERNAL REVENUE CODE OF 1954 
Subchapter B—Extensions of Time for Payment 
Sec. 6161. Extension of time for paying tax. 
Sec. 6162. Extension of time for payment of tax on gain attributable 
to liquidation of personal holding companies. 
Sec. 6163. Extension of time for payment of estate tax on value of 
reversionary or remainder interest in property. 
Sec. 6164. Extension of time for payment of taxes by corporations 
expecting carrybacks. 
Sec. 6165. Bonds where time to pay tax or deficiency has been 
extended. 
SEC. 6161. EXTENSION OF TIME FOR PAYING TAX. 
(a) AMOUNT DETERMINED BY TAXPAYER ON RETURN.— 
(1) GENERAL RULE.—The Secretary or his delegate, except as 
otherwise provided in this title, may extend the time for payment 
of the amount of the tax shown, or required to be shown, on any 
return or declaration required under authority of this title (or any 
installment thereof), for a reasonable period not to exceed 6 months 
from the date fixed for payment thereof. 
Such extension may ex-
ceed 6 months in the case of a taxpayer who is abroad. 
(2) ESTATE TAX.—If the Secretary or his delegate finds that the 
payment on the due date of any part of the amount determined by 
the executor as the tax imposed by chapter 11 would result in undue 
hardship to the estate, he may extend the time for payment for a 
reasonable period not in excess of 10 years from the date fixed for 
payment of the tax. 
(b) AMOUNT 
DETERMINED 
AS DEFICIENCY.—Under regulations 
prescribed by the Secretary or his delegate, the Secretary or his 
delegate may extend, to the extent provided below, the time for pay-
ment of the amount determined as a deficiency: 
(1) In the case of a tax imposed by chapter I or 12, for a period not 
to exceed 18 months from the date fixed for payment of the defi-
ciency, and, in exceptional cases, for a further period not to exceed 
12 months; 
(2) In the case of a tax imposed by chapter 11, for a period not to 
exceed 4 years from the date otherwise fixed for payment of the 
deficiency. 
An extension under this subsection may be granted only where it is 
shown to the satisfaction of the Secretary or his delegate that the 
payment of a deficiency upon the date fixed for the payment thereof 
will result in undue hardship to the taxpayer in the case of a tax 
imposed by chapter 1, to the estate in the case of a tax imposed by 
chapter 11, or to the donor in the case of a tax imposed by chapter 12. 
No extension shall be granted if the deficiency is due to negligence, 
to intentional disregard of rules and regulations, or to fraud with 
intent to evade tax. 
(c) CLAIMS IN BANKRUPTCY OR RECEIVERSHIP PROCEEDINGS.—Ex-
tensions of time for payment of any portion of a claim for tax under 
chapter 1 or chapter 12, allowed in bankruptcy or receivership pro-
§6161 
i-
CH. 62 
TIME AND PLACE FOR PAYING TAX 
763 
ceedings, which is unpaid, may be had in the same manner and sub-
ject to the same provisions and hmitations as provided in subsection 
(b) in respect of a deficiency in such tax. 
(d) CROSS REFERENCES.— 
(1) PERIOD OF LIMITATION.— 
For extension of the period of limitation in case of an extension under 
subsection (a) (2) or subsection (b) (2), see section 6503 (d). 
(2) 
S E C U R I T Y . — 
For authority of the Secretary or his delegate to require security in 
case of an extension under subsection (a) (2) or subsection (b), see 
section 6165. 
SEC. 6162. EXTENSION OF TIME FOR PAYMENT OF TAX ON GAIN 
ATTRIBUTABLE TO LIQUIDATION OF PERSONAL HOLD-
ING COMPANIES. 
(a) EXTENSION PERMITTED.—The Secretary or his delegate may 
(under regulations prescribed by the Secretary or his delegate) extend 
(for a period not to exceed 5 years from the date fixed for the pay-
ment of the tax) the time for the payment of such portion of the 
amount determined as the tax under chapter 1 by the taxpayer for 
any taxable year beginning before January 1, 1956, as is attributable 
to the short-term or long-term capital gain derived by the taxpayer 
from the receipt by him of property other than money on a complete 
liquidation of a corporation to which section 331 (a) (1) or 342 applies. 
This section shall apply only if the corporation, for its taxable year 
preceding the year in which occurred the complete liquidation (or 
the first of the series of distributions in complete liquidation), was, 
under the law applicable to such taxable year, a personal holding 
company or a foreign personal holding company. 
An extension 
under this section shall be granted only if it is shown to the satis-
faction of the Secretary or his delegate that the failure to grant the 
extension will result in undue hardship to the taxpayer. 
(b) 
SECURITY.— 
For authority of the Secretary or his delegate to require security in the 
case of such an extension, see section 6165. 
SEC. 6163. EXTENSION OF TIME FOR PAYMENT OF ESTATE TAX ON 
VALUE OF REVERSIONARY OR REMAINDER INTEREST 
IN PROPERTY. 
(a) EXTENSION PERMITTED.—If the value of a reversionary or 
remainder interest in property is included under chapter 11 in the 
value of the gross estate, the payment of the part of the tax under 
chapter 11 attributable to such interest may, at the election of the 
executor, be postponed until 6 months after the termination of the 
precedent interest or interests in the property, under such regulations 
as the Secretary or his delegate may prescribe. 
(b) CROSS REFERENCES.— 
(1) 
I N T E R E S T . — 
For provisions requiring the payment of interest for the period of such 
extension, see section 6601 (b). 
(2) 
S E C U R I T Y . — 
For authority of the Secretary or his delegate to require security in the 
case of such extension, see section 6165. 
§ 6163(b)(2) 
764 
INTERNAL REVENUE CODE OF 1954 
SEC. 6164. EXTENSION OF TIME FOR PAYMENT OF TAXES BY CORPO-
RATIONS EXPECTING 
CARRYBACKS. 
(a) I N GENERAL.—If a corporation, in any taxable year, files with 
the Secretary or his delegate a statement, as provided in subsection 
(b), with respect to an expected net operating loss carryback from 
such taxable year, the time for payment of all or part of any tax 
imposed by subtitle A for the taxable year immediately preceding 
such taxable year shall be extended, to the extent and subject to the 
conditions and limitations hereinafter provided in this section. 
(b) CONTENTS OF STATEMENT.—The statement shall be filed at 
such time and in such manner and form as the Secretary or his delegate 
may by regulations prescribe. 
Such statement shall set forth that 
the corporation expects to have a net operating loss carryback, as 
provided in section 172 (b), from the taxable year in which such state-
ment is made, and shall set forth, in such detail and with such sup-
porting data and explanation as such regulations shall require— 
(1) the estimated amount of the expected net operating loss; 
(2) the reasons, facts, and circumstances which cause the corpora-
tion to expect such net operating loss; 
(3) the amount of the reduction of the tax previously determined 
attributable to the expected carryback, such tax previously de-
termined being ascertained in accordance with the method pre-
scribed in section 1314 (a); and such reduction being determined by 
applying the expected carryback in the manner provided by law 
to the items on the basis of which such tax was determined; 
(4) the tax and the part thereof the time for payment of which 
is to be extended; and 
(5) such other information for purposes of carrying out the pro-
visions of this section as may be required by such regulations. 
The Secretary or his delegate shall, upon request, furnish a receipt 
for any statement filed, which shall set forth the date of such filing. 
(c) AMOUNT TO WHICH EXTENSION RELATES AND INSTALLMENT 
PAYMENTS.—The amount the time for payment of which may be 
extended under subsection (a) with respect to any tax shall not 
exceed the amount of such tax shown on the return, increased by 
any amount assessed as a deficiency (or as interest or addition to the 
tax) prior to the date of filing the statement and decreased by any 
amount paid or required to be paid prior to the date of such filing, 
and the total amount of the tax the time for payment of which may 
be extended shall not exceed the amount stated under subsection 
(b) (3). 
For purposes of this subsection, an amount shall not be 
considered as required to be paid unless shown on the return or 
assessed as a deficiency (or as interest or addition to the tax), and 
an amount assessed as a deficiency (or as interest or addition to the 
tax) shall be considered to be required to be paid prior to the date of 
filing of the statement if the 10th day after notice and demand for 
its payment occurs prior to such date. 
If an extension of time under 
this section relates to only a part of the tax, the time for payment of 
the remainder shall be considered to be the dates on which payments 
would have been required if such remainder had been the tax and the 
§6164 
CH. 6 2 — T I M E AND PLACE FOR PAYING TAX 
765 
taxpayer had elected to pay the tax in installments as provided in 
section 6152. 
(d) PERIOD OF ExTENSiON.^-The extension of time for payment 
provided in this section shall expire— 
(1) on the last day of the month in which falls the last date pre-
scribed by law (including any extension of time granted the tax-
payer) for the filing of the return for the taxable year of the expected 
net operating loss, or 
(2) if an application for tentative carryback adjustment pro-
vided in section 6411 with respect to such loss is filed before the 
expiration of the period prescribed in paragraph (1), on the date on 
which notice is mailed by registered mail by the Secretary or his 
delegate to the taxpayer that such application is allowed or dis-
allowed in whole or in part. 
(e) REVISED STATEMENTS.—Each statement filed under subsection 
(a) with respect to any taxable year shall be in lieu of the last state-
ment previously filed with respect to such year. 
If the amount the 
time for payment of which is extended under a statement filed is less 
than the amount under the last statement previously filed, the ex-
tension of time shall be terminated as to the difference between the 
two amounts. 
(f) TERMINATION.—The Secretary or his delegate is not required 
to make any examination of the statement, but he may make such 
examination thereof as he deems necessary and practicable. 
The 
Secretary or his delegate shall terminate the extension as to any part 
of the amount to which it relates which he deems should be terminated 
because, upon such examination, he believes that, as of the time such 
examination is made, all or any part of the statement clearly is in a 
material respect erroneous or unreasonable. 
(g) PAYMENTS ON TERMINATION.—If an extension of time is ter-
minated under subsection (e) or (f) with respect to any amount, 
then— 
(1) no further extension of time shall be made under this section 
with respect to such amount, and 
(2) the time for payment of such amount shall be considered to 
be the dates on which payments would have been required if there 
had been no extension with respect to such amount and the tax-
payer had elected to pay the tax in installments as provided in 
section 6152. 
(h) JEOPARDY.—If the Secretary or his delegate believes that col-
lection of the amount to which an extension under this section relates 
is in jeopardy, he shall immediately terminate such extension, and 
notice and demand shall be made by him for payment of such amount. 
(i) CONSOLIDATED RETURNS.—If the corporation seeking an ex-
tension of time under this section made or was required to make a 
consolidated return, either for the taxable year within which the net 
operating loss arises or for the preceding taxable year affected by such 
loss, the provisions of such section shall apply only to such extent 
and subject to such conditions, limitations, and exceptions as the 
Secretary or his delegate may by regulations prescribe. 
§ 6164(i) 
766 
INTERNAL EEVENUE CODE OF 1954 
SEC. 6165. BONDS WHERE TIME TO PAY TAX OR DEFICIENCY HAS 
BEEN EXTENDED. 
In the event the Secretary or his delegate grants any extension of 
time within which to pay any tax or any deficiency therein, the 
Secretary or his delegate may require the taxpayer to furnish a bond 
in such amount (not exceeding double the amount with respect to 
which the extension is granted) conditioned upon the payment of 
the amount extended in accordance with the terms of such extension. 
mili-
eus 
CH. 63—ASSESSMENT 
767 
CHAPTER 63—ASSESSMENT 
SUBCHAPTER A. In general. 
SUBCHAPTER B . Deficiency procedures in the case of income, estate, 
and gift taxes. 
Subchapter A—In General 
^ 
Sec. 6201. Assessment authority. 
Sec. 6202. Establishment by regulations of mode or time of assess-
ment. 
Sec. 6203. Method of assessment. 
Sec. 6204. Supplemental assessments. 
Sec. 6205. Special rules appUcable to certain employment taxes. 
Sec. 6206. Cross references. 
SEC. 6201. ASSESSMENT AUTHORITY. 
(a) AUTHORITY OF SECRETARY OR DELEGATE.—The Secretary or 
his delegate is authorized and required to make the inquiries, deter-
minations, and assessments of all taxes (including interest, additional 
amounts, additions to the tax, and assessable penalties) imposed by 
this title, or accruing under any former internal revenue law, which 
have not been duly paid by stamp at the time and in the manner pro-
vided by law. 
Such authority shall extend to and include the follow-
ing: 
(1) TAXES SHOWN ON RETURN.—The Secretary or his delegate 
shall assess all taxes determined by the taxpayer or by the Secre-
tary or his delegate as to which returns or lists are made under 
this title. 
(2) UNPAID TAXES PAYABLE BY STAMP.— 
(A) OMITTED STAMPS.—Whenever any article upon which a 
tax is required to be paid by means of a stamp is sold or removed 
for sale or use by the manufacturer thereof or whenever any 
transaction or act upon which a tax is required to be paid by 
means of a stamp occurs without the use of the proper stamp, it 
shall be the duty of the Secretary or his delegate, upon such in-
formation as he can obtain, to estimate the amount of tax which 
has been omitted to be paid and to make assessment therefor 
upon the person or persons the Secretary or his delegate deter-
mines to be liable for such tax. 
(B) CHECK OR MONEY ORDER NOT DULY PAID.—In any case 
in which a check or money order received under authority of 
section 6311 as payment for stamps is not duly paid, the unpaid 
amount may be immediately assessed as if it were a tax imposed 
by this title, due at the time of such receipt, from the person who 
tendered such check or money order. 
(3) ERRONEOUS INCOME TAX PREPAYMENT CREDITS.—If on any 
return or claim for refund of income taxes under subtitle A there is 
an overstatement of the credit for income tax withheld at the source, 
or of the amount paid as estimated income tax, the amount so over-
§ 6201(a)(3) 
768 
INTERNAL REVENUE CODE OE 
1954 
stated which is allowed against the tax shown on the return or which 
is allowed as a credit or refund may be assessed by the Secretary 
or his delegate in the same manner as in the case of a mathematical 
error appearing upon the return. 
(b) ESTIMATED INCOME TAX.—No unpaid amount of estimated 
tax under section 6153 or 6154 shall be assessed. 
(c) COMPENSATION OF CHILD.—Any income tax under chapter 1 
assessed against a child, to the extent attributable to amounts includ-
ible in the gross income of the child, and not of the parent, solely by 
reason of section 73 (a), shall, if not paid by the child, for all purposes 
be considered as having also been properly assessed against the parent. 
(d) DEFICIENCY PROCEEDINGS.— 
For special rules applicable to deficiencies of income, estate, and 
gift taxes, see subchapter B. 
SEC. 6202. ESTABLISHMENT BY REGULATIONS OF MODE OR TIME 
OF ASSESSMENT. 
If the mode or time for the assessment of any internal revenue tax 
(including interest, additional amounts, additions to the tax, and 
assessable penalties) is not otherwise provided for, the Secretary or 
his delegate may establish the same by regulations. 
SEC. 6203. METHOD OF ASSESSMENT. 
The assessment shall be made by recording the liability of the tax-
payer in the office of the Secretary or his delegate in accordance with 
rules or regulations prescribed by the Secretary or his delegate. 
Upon 
request of the taxpayer, the Secretary or his delegate shall furnish the 
taxpayer a copy of the record of the assessment. 
SEC. 6204. SUPPLEMENTAL ASSESSMENTS. 
(a) GENERAL RULE.—The Secretary or his delegate may, at any 
time within the period prescribed for assessment, make a supplemental 
assessment whenever it is ascertained that any assessment is imperfect 
or incomplete in any material respect. 
(b) RESTRICTIONS ON ASSESSMENT.— 
-
For restrictions on assessment of deficiencies in income, estate, and 
gift taxes, see section 6213. 
SEC. 6205. SPECIAL 
RULES 
APPLICABLE 
TO 
CERTAIN 
EMPLOY-
MENT TAXES. 
(a) ADJUSTMENT OF T A X . — 
(1) GENERAL RULE.^—If less than the correct amount of tax 
imposed by section 3101, 3111, 3201, 3221, or 3402 is paid with 
respect to any payment of wages or compensation, proper adjust-
ments, with respect to both the tax and the amount to be deducted, 
shall be made, without interest, in such manner and at such times 
as the Secretary or his delegate may by regulations prescribe. 
(2) UNITED STATES AS EMPLOYER.^—For purposes of this subsec-
tion, in the case of remuneration received from the United States 
or a wholly-owned instrumentality thereof during any calendar 
year, each head of a Federal agency or instrumentality who makes 
a return pursuant to section 3122 and each agent, designated by 
the head of a Federal agency or instrumentality, who makes a 
return pursuant to such section shall be deemed a separate 
employer. 
§ 6201(a)(3) 
CH. 63—ASSESSMENT 
769 
(b) UNDERPAYMENTS.—If less than the correct amount of 
tax 
imposed by section 3101, 3111, 3201, 3221, or 3402 is paid or deducted 
with respect to any payment of wages or compensation and the under-
payment cannot be adjusted under subsection (a) of this section, the 
amount of the underpayment shall be assessed and collected in such 
manner and at such times (subject to the statute of limitations properly 
applicable thereto) as the Secretary or his delegate may by regulations 
prescribe. 
SEC. 6206. CROSS REFERENCES. 
(1) For prohibition of suits to restrain assessment of any tax, see 
section 7421. 
(2) For proliibition of assessment of taxes against insolvent banks, 
see section 7507. 
(3) For assessment where property subject to tax has been sold in a 
distraint proceeding without the tax having been assessed prior to such 
sale, see section 6342. 
(4) For assessment in case of sale or removal of tobacco, snuff, 
cigars, and cigarettes without the use of proper stamps, see section 
5703 (d). 
(5) For assessment in case of distilled spirits removed from place 
where distilled and not deposited in bonded warehouse, see section 
5006 (c). 
(6) For assessment in case of certain spirits subject to excessive 
leakage, see section 5006 (b). 
(7) For assessment of deficiencies in production of distilled spirits, 
see section 5007 (e) (1). 
(8) For period of limitation upon assessment, see chapter,66. 
(9) For assessment under the provisions of the Tariff Act of 1930 of 
the taxes imposed by section 4501 (b), and subchapters A, B, C, D, and 
E of chapter 38, see sections 4504 and 4601, respectively. 
§6206(9) 
770 
INTERNAL REVENUE CODE OF 
1954 
Subchapter B—Deficiency Procedures in the Case of Income, 
Estate, and Gift Taxes 
Sec. 6211. Definition of a deficiency. 
Sec. 6212. Notice of deficiency. 
Sec. 6213. Restrictions applicable to deficiencies; petition to Tax 
Court. 
Sec. 6214. Determinations by Tax Court. 
Sec. 6215. Assessment of deficiency found by Tax Court. 
Sec. 6216. Cross references. 
SEC. 6211. DEFINITION OF A DEFICIENCY. 
(a) I N GENERAL.—For purposes of this title in the case of income, 
estate, and gift taxes, imposed by subtitles A and B, the term 
"deficiency" means the amount by which the tax imposed by subtitles 
A or B exceeds the excess of— 
(1) the sum of 
(A) the amount shown as the tax by the taxpayer upon his 
return, if a return was made by the taxpayer and an amount was 
shown as the tax by the taxpayer thereon, plus 
(B) the amounts previously assessed (or collected without 
assessment) as a deficiency, over— 
(2) the amount of rebates, as defined in subsection (b) (2), made. 
(b) RULES FOR APPLICATION OF SUBSECTION (a).—For purposes of 
this section— 
(1) The tax imposed by chapter 1 and the tax shown on the 
return shall both be determined without regard to payments on 
account of estimated tax, without regard to the credit under sec-
tion 31, and without regard to so much of the credit under section 32 
as exceeds 2 percent of the interest on obligations described in 
section 1451. 
(2) The term "rebate" means so much of an abatement, credit, 
refund, or other repayment, as was made on the ground that the 
tax imposed by subtitles A or B was less than the excess of the 
amount specified in subsection (a) (1) over the rebates previously 
made. 
(3) The computation by the Secretary or his delegate, pursuant 
to section 6014, of the tax imposed by chapter 1 shall be considered 
as having been made by the taxpayer and the tax so computed 
considered as shown by the taxpayer upon his return. 
SEC. 6212. NOTICE OF DEFICIENCY. 
(a) IN GENERAL.—If the Secretary or his delegate determines that 
there is a deficiency in respect of any tax imposed by subtitles A or 
B, he is authorized to send notice of such deficiency to the taxpayer 
by registered mail. 
(b) ADDRESS FOR NOTICE OP DEFICIENCY.— 
(1) INCOME AND GIFT TAXES.—In the absence of notice to the 
Secretary or his delegate under section 6903 of the existence of a 
fiduciary 
relationship, notice of a deficiency in respect of a tax 
§6211 
CH. 63—ASSESSMENT 
771 
imposed by chapter 1 or 12, if mailed to the taxpayer at his last 
known address, shall be sufficient for purposes of such chapter 
and this chapter even if such taxpayer is deceased, or is under 
a legal disability, or, in the case of a corporation, has terminated 
its existence. 
(2) JOINT INCOME TAX RETURN.—In the case of a joint income 
tax return filed by husband and wife, such notice of deficiency may 
be a single joint notice, except that if the Secretary or his delegate 
has been notified by either spouse that separate residences have 
been established, then, in lieu of the single joint notice, a duplicate 
original of the joint notice shall be sent by registered mail to each 
spouse at his last known address. 
(3) ESTATE TAX.—In the absence of notice to the Secretary or 
his delegate under section 6903 of the existence of a fiduciary rela-
tionship, notice of a deficiency in respect of a tax imposed by chapter 
11, if addressed in the name of the decedent or other person subject 
to liability and mailed to his last known address, shall be sufficient 
for purposes of chapter 11 and of this chapter. 
(c) FURTHER DEFICIENCY LETTERS RESTRICTED.— 
(1) GENERAL RULE.—If the Secretary or his delegate has mailed 
to the taxpayer a notice of deficiency as provided in subsection (a), 
and the taxpayer files a petition with the Tax Court within the 
time prescribed in section 6213 (a), the Secretary or his delegate 
shall have no right to determine any additional deficiency of income 
tax for the same taxable year, of gift tax for the same calendar year, 
or of estate tax in respect of the taxable estate of the same decedent, 
except in the case of fraud, and except as provided in section 6214 
(a) (relating to assertion of greater deficiencies before the Tax 
Court), in section 6213 (b) (1) (relating to mathematical errors), or 
in section 6861 (c) (relating to the making of jeopardy assessments). 
(2) CROSS REFERENCES.— 
For assessment as a deficiency notwithstanding the prohibition of 
further deficiency letters, in the case of— 
(A) Deficiency attributable to change of election to talce standard 
deduction where taxpayer and his spouse made separate returns, see 
section 144 (b). 
(B) Deficiency attributable to gain on involuntary conversion, see 
section 1033 (a) (3) (C) and (D). 
(C) Deficiency attributable to gain on sale or exchange of personal 
residence, see section 1034 (j). 
(D) Deficiency attributable to war loss recoveries where prior 
benefit rule is elected, see section 1335. 
SEC. 6213. RESTRICTIONS APPLICABLE TO DEFICIENCIES; PETITION 
TO TAX COURT. 
(a) TIME FOR FILING PETITION AND RESTRICTION ON ASSESSMENT.— 
Within 90 days, or 150 days if the notice is addressed to a person 
outside the States of the Union and the District of Columbia, after 
the notice of deficiency authorized in section 6212 is mailed (not 
counting Saturday, Sunday, or a legal holiday in the District of 
Columbia as the last day), the taxpayer may file a petition with 
the Tax Court for a redetermination of the deficiency. 
Except as 
otherwise provided in section 6861 no assessment of a deficiency in 
respect of any tax imposed by subtitle A or B and no levy or pro-
ceeding in court for its collection shall be made, begun, or prosecuted 
§ 6213(a) 
772 
INTERNAL REVENUE CODE OF 1954 
until such notice has been mailed to the taxpayer, nor until the 
expiration of such 90-day or 150-day period, as the case may be, nor, 
if a petition has been filed with the Tax Court, until the decision of 
the Tax Court has become final. 
Notwithstanding the provisions of 
section 7421 (a), the making of such assessment or the beginning of 
such proceeding or levy during the time such prohibition is in force 
may be enjoined by a proceeding in the proper court. 
(b) EXCEPTIONS TO RESTRICTIONS ON ASSESSMENT.— 
(1) MATHEMATICAL ERRORS.—If the taxpayer is notified that, on 
account of a mathematical error appearing upon the return, an 
amount of tax in excess of that shown upon the return is due, 
and that an assessment of the tax has been or will be made on 
the basis of what would have been the correct amount of tax but 
for the mathematical error, such notice shall not be considered 
as a notice of deficiency for the purposes of subsection (a) (pro-
hibiting assessment and collection until notice of the deficiency 
has been mailed), or of section 6212 (c) (1) (restricting further 
deficiency letters), or section 6512 (a) (prohibiting credits or 
refunds after petition to the Tax Court), and the taxpayer shall 
have no right to file a petition with the Tax Court based on such 
notice, nor shall such assessment or collection be prohibited by the 
provisions of subsection (a) of this section. 
(2) ASSESSMENTS ARISING OUT or 
TENTATIVE CARRYBACK AD-
JUSTMENTS.—If the Secretary or his delegate determines that the 
amount applied, credited, or refunded under section 6411 is in 
excess of the overassessment attributable to the carryback with 
respect to which such amount was applied, credited, or refunded, 
he may assess the amount of the excess as a deficiency as if it were 
due to a mathematical error appearing on the return. 
(3) ASSESSMENT OF AMOUNT PAID.—Any amount paid as a tax 
or in respect of a tax may be assessed upon the receipt of such 
payment notwithstanding the provisions of subsection (a). 
In 
any case where such amount is paid after the mailing of a notice 
of deficiency under section 6212, such payment shall not deprive 
the Tax Court of jurisdiction over such deficiency determined 
under section 6211 without regard to such assessment. 
(c) FAILURE To FILE PETITION.—If the taxpayer does not file 
a petition with the Tax Court within the time prescribed in subsection 
(a), the deficiency, notice of which has been mailed to the taxpayer, 
shall be assessed, and shall be paid upon notice and demand from the 
Secretary or his delegate. 
(d) WAIVER OP RESTRICTIONS.—The taxpayer shall at any time 
(whether or not a notice of deficiency has been issued) have the right, 
by a signed notice in writing filed with the Secretary or his delegate, 
to waive the restrictions provided in subsection (a) on the assessment 
and collection of the whole or any part of the deficiency. 
(e)-CROSS REFERENCES.— 
(1) For assessment as if a mathematical error on the return, in the 
case of erroneous claims for income tax prepayment credits, see 
section 6201 (a) (3). 
(2) For assessments without regard to restrictions imposed by this 
section in the case of— 
(A) Recovery of foreign income taxes, see section 905 (c). 
(B) Recovery of foreign estate tax, see section 2016. 
§ 6213(a) 
CH. 63—ASSESSMENT 
773 
SEC. 6214. DETERMINATIONS BY TAX COURT. 
(a) JURISDICTION AS TO INCREASE OF DEFICIENCY, ADDITIONAL 
AMOUNTS, OR ADDITIONS TO THE TAX.^—The Tax Court shall have 
jurisdiction to redetermine the correct amount of the deficiency even 
if the amount so redetermined is greater than the amount of the 
deficiency, notice of which has been mailed to the taxpayer, and to 
determine whether any additional amount, or addition to the tax 
should be assessed, if claim therefor is asserted by the Secretary or 
his delegate at or before the hearing or a rehearing. 
(b) JURISDICTION OVER OTHER YEARS.—The Tax Court in rede-
termining a deficiency of income tax for any taxable year or of gift 
tax for any calendar year shall consider such facts with relation to 
the taxes for other years as may be necessary correctly to redeter-
mine the amount of such deficiency, but in so doing shall have no 
jurisdiction to determine whether or not the tax for any other year 
has been overpaid or underpaid. 
(c) FINAL DECISIONS OF TAX COURT.—For purposes of this chapter 
and subtitles A or B the date on which a decision of the Tax Court 
becomes final shall be determined according to the provisions of sec-
tion 7481. 
SEC. 6215. ASSESSMENT OF DEFICIENCY FOUND BY TAX COURT. 
(a) GENERAL RULE.—If the taxpayer files a petition with the 
Tax Court, the entire amount redetermined as the deficiency by the 
decision of the Tax Court which has become final shall be assessed 
and shall be paid upon notice and demand from the Secretary or his 
delegate. 
No part of the amount determined as a deficiency by the 
Secretary or his delegate but disallowed as such by the decision 
of the Tax Court which has become final shall be assessed or be 
collected by levy or by proceeding in court with or without assess-
ment. 
(b) 
CROSS REFERENCES.— 
(1) For assessment or collection of the amount of the deficiency 
determined by the Tax Court pending appellate court review, see 
section 7485. 
(2) For dismissal of petition by Tax Court as affirmation of de-
ficiency as determined by the Secretary or his delegate, see section 
7459 (d). 
(3) For decision of Tax Court that tax is barred by limitation as 
its decision that there is no deficiency, see section 7459 (e). 
(4) For assessment of damages awarded by Tax Court for instituting 
proceedings merely for delay, see section 6673. 
(5) For treatment of certain deficiencies as having been paid, in 
connection with sale of surplus war-built vessels, see section 9 (b) (8) of 
the Merchant Ship Sales Act of 1946 (60 Stat. 48; 50 U. S. C. App. 1742). 
(6) For rules applicable to Tax Court proceedings, see generally 
subchapter C of chapter 76. 
(7) For proration of deficiency to installments, see section 6152 (c). 
(8) For extension of time for paying amount determined as deficiency, 
see section 6161 (b). 
SEC. 6216. 
CROSS REFERENCES. 
(1) For procedures relating to bankruptcy and receivership, see sub-
chapter B of chapter 70. 
(2) For procedures relating to jeopardy assessments, see subchapter 
A of chapter 70. 
(3) For procedures relating to claims against transferees and fiduci-
aries, see chapter 71. 
§6216(3) 
CH. 64—COLLECTION 
775 
CHAPTER 64—COLLECTION 
SUBCHAPTER A. General provisions. 
SUBCHAPTER B . Receipt of payment. 
SUBCHAPTER C. Lien for taxes. 
SUBCHAPTER D . Seizure of property for collection of taxes. 
Subchapter A—General Provisions 
Sec. 6301. Collection authority. 
Sec. 6302. Mode or time of collection. 
Sec. 6303. Notice and demand for tax. 
Sec. 6304. Collection under the Tariff Act. 
SEC. 6301. COLLECTION AUTHORITY. 
The Secretary or his delegate shall collect the taxes imposed by the 
internal revenue laws. 
SEC. 6302. MODE OR TIME OF COLLECTION. 
(a) ESTABLISHMENT BY REGULATIONS.—If the mode or time for 
collecting any tax is not provided for by this title, the Secretary or his 
delegate may establish the same by regulations. 
(b) DISCRETIONARY METHOD.—Whether or not the method of col-
lecting any tax imposed by chapters 21, 31, 32, 33, sections 4501 (a) 
or 4511 of chapter 37, or sections 4701 or 4721 of chapter 39 is specifi-
cally provided for by this title, any such tax may, under regulations 
prescribed by the Secretary or his delegate, be collected by means of 
returns, stamps, coupons, tickets, books, or such other reasonable 
devices or methods as may be necessary or helpful in securing a com-
plete and proper collection of the tax. 
(c) U S E OF GOVERNMENT DEPOSITARIES.—The Secretary or 
his 
delegate may authorize Federal Reserve banks, and incorporated 
banks or trust companies which are depositaries or financial agents of 
the United States, to receive any tax imposed under the internal 
revenue laws, in such manner, at such times, and under such conditions 
as he may prescribe; and he shall prescribe the manner, times, and 
conditions under which the receipt of such tax by such banks and trust 
companies is to be treated as payment of such tax to the Secretary or 
his delegate. 
SEC. 6303. NOTICE AND DEMAND FOR TAX. 
(a) GENERAL RULE.—Where it is not otherwise provided by this 
title, the Secretary or his delegate shall, as soon as practicable, and 
within 60 days, after the making of an assessment of a tax pursuant to 
section 6203, give notice to each person liable for the unpaid tax, 
stating the amount and demanding payment thereof. 
Such notice 
shall be left at the dwelling or usual place of business of such person, 
or shall be sent by mail to such person's last known address. 
6303(a) 
776 
INTERNAL REVENUE CODE OF 1954 
(b) ASSESSMENT PRIOR TO LAST DATE FOR PAYMENT.—Except 
where the Secretary or his delegate beheves collection would be jeop-
ardized by delay, if any tax is assessed prior to the last date prescribed 
for payment of such tax, payment of such tax shall not be demanded 
under subsection (a) until after such date. 
SEC. 6304. COLLECTION UNDER THE TARIFF ACT. 
For collection under the provisions of the Tariff Act of 1930 of the 
taxes imposed by section 4501 (b), and subchapters A, B, C, D, and E 
of chapter 38, see sections 4504 and 4601, respectively. 
f?-.; 
§ 6303(b) 
CH. 64—COLLECTION 
777 
Subchapter B—Receipt of Payment 
Sec. 6311. Payment by check or money order. 
Sec. 6312. Payment by United States notes and certificates of 
indebtedness. 
Sec. 6313. Fractional parts of a cent. 
Sec. 6314. Receipt for taxes. 
Sec. 6315. Payments of estimated income tax. 
Sec. 6316. Payment by foreign currency. 
SEC. 6311. PAYMENT BY CHECK OR MONEY ORDER. 
(a) AUTHORITY T O RECEIVE.—It shall be lawful for the Secretary 
or his delegate to receive for internal revenue taxes, or in payment 
for internal revenue stamps, checks or money orders, to the extent 
and under the conditions provided in regulations prescribed by the 
Secretary or his delegate. 
(b) CHECK OR MONEY ORDER UNPAID.— 
(1) ULTIMATE LIABILITY.—If a check or money order so received 
is not duly paid, the person by whom such check or money order 
has been tendered shall remain liable for the payment of the tax 
or for the stamps, and for all legal penalties and additions, to the 
same extent as if such check or money order had not been tendered. 
(2) LIABILITY OP BANKS AND OTHERS.—If any certified, treas-
urer's, or cashier's check or any money order so received is not duly 
paid, the United States shall, in addition to its right to exact pay-
ment from the party originally indebted therefor, have a lien for the 
amount of such check upon all the assets of the bank or trust 
company on which drawn or for the amount of such money order 
upon all the assets of the issuer thereof; and such amount shall be 
paid out of such assets in preference to any other claims whatsoever 
against such bank or issuer except the necessary costs and expenses 
of administration and the reimbursement of the United States for 
the amount expended in the redemption of the circulating notes of 
such bank. 
SEC. 6312. PAYMENT BY UNITED STATES NOTES AND CERTIFICATES 
OF INDEBTEDNESS. 
(a) GENERAL RULE.—It shall be lawful for the Secretary or his 
delegate to receive, at par with an adjustment for accrued interest, 
Treasury bills, notes and certificates of indebtedness issued by the 
United States in payment of any internal revenue taxes, or in pay-
ment for internal revenue stamps, to the extent and under the con-
ditions provided in regulations prescribed by the Secretary or his 
delegate. 
(b) CROSS REFERENCES.— 
(1) For authority to receive silver certificates, see section 5 of the 
act of June 19, 1934 (48 Stat. 1178; 31 U. S. C. 405a). 
(2) For full legal tender status of all coins and currencies of the 
United States, see section 43 (b) (1) of the Agricultural Adjustment Act, 
as amended (48 Stat. 52, 113; 31 U. S. C. 462). 
(3) For authority to receive obligations under the Second Liberty 
Bond Act, see section 20 (b) of that act, as amended (56 Stat. 189; 
31 U. S. C. 754b). 
§ 6312(b)(3) 
49012°—54 
52 
778 
INTERNAL REVENUE CODE OF 1954 
SEC. 6313. FRACTIONAL PARTS OF A CENT. 
In the payment of any tax imposed by this title not payable by 
stamp, a fractional part of a cent shall be disregarded unless it amounts 
to one-half cent or more, in which case it shall be increased to 1 cent. 
SEC. 6314. RECEIPT FOR TAXES. 
(a) GENERAL RULE.—The Secretary or his delegate shall, upon 
request, give receipts for all sums collected by him, excepting only 
when the same are in payment for stamps sold and delivered; but no 
receipt shall be issued in lieu of a stamp representing a tax. 
(b) DUPLICATE RECEIPTS FOR PAYMENT OF ESTATE TAXES.—The 
Secretary or his delegate shall, upon request, give to the person paying 
the tax imder chapter 11 (relating to the estate tax) duplicate receipts, 
either of which shall be sufficient evidence of such payment, and shall 
entitle the executor to be credited and allowed the amount thereof by 
any court having jurisdiction to audit or settle his accounts. 
(c) CROSS REFERENCES.— 
(1) For receipt required to be furnished by employer to employee 
with respect to employment taxes, see section 6051. 
(2) For receipt of discharge of executor from personal 
liability, 
see section 2204. 
SEC. 6315. PAYMENTS OF ESTIMATED INCOME TAX. 
Payment of the estimated income tax, or any installment thereof, 
shall be considered payment on account of the income taxes imposed by 
subtitle A for the taxable year. 
SEC. 6316. PAYMENT BY FOREIGN CURRENCY. 
The Secretary or his delegate is authorized in his discretion to allow 
payment of taxes in the currency of a foreign country under such cir-
cumstances and subject to such conditions as the Secretary or his 
delegate may by regulations prescribe. 
ii^iji'i'j'j/.-) 
i-, 
vj;:0;i.iiifii;'-.'S m 
i)'ji> 
§ 6313 
CH. 64—COLLECTION 
7>79 
Subchapter C—Lien for Taxes 
Sec. 6321. Lien for taxes. 
Sec. 6322. Period of lien. 
Sec. 6323. Validity against mortgagees, pledgees, purchasers, and 
judgnient creditors. 
Sec. 6324. Special liens for estate and gift taxes. 
Sec. 6325. Release of lien or partial discharge of property. 
Sec. 6326. Cross references. 
SEC. 6321. LIEN FOR TAXES. 
If any person liable to pay any tax neglects or refuses to pay the 
same after demand, the amount (including any interest, additional 
amount, addition to tax, or assessable penalty, together with any 
costs that may accrue in addition thereto) shall be a lien in favor of 
the United States upon all property and rights to property, whether 
real or personal, belonging to such person. 
SEC. 6322. PERIOD OF LIEN. 
Unless another date is specifically fixed by law, the lien imposed by 
section 6321 shall arise at the time the assessment is made and shall 
continue until the liability for the amount so assessed is satisfied or 
becomes unenforceable by reason of lapse of time. 
SEC. 6323. VALIDITY AGAINST MORTGAGEES, PLEDGEES, PURCHAS-
ERS, AND JUDGMENT 
CREDITORS. 
(a) INVALIDITY OF L I E N WITHOUT NOTICE.—Except as otherwise 
provided in subsection (c), the lien imposed by section 6321 shall not 
be valid as against any mortgagee, pledgee, purchaser, or judgment 
creditor until notice thereof has been filed by the Secretary or his 
delegate— 
(1) UNDER STATE OR TERRITORIAL LAWS.—In the office designated 
by the law of the State or Territory in which the property subject 
to the lien is situated, whenever the State or Territory has by law 
designated an office within the State or Territory for the filing of 
such notice; or 
(2) WITH CLERK OF DISTRICT COURT.—In the office of the clerk 
of the United States district court for the judicial district in which 
the property subject to the lien is situated, whenever the State or 
Territory has not by law designated an office within the State or 
Territory for the filing of such notice; or 
(3) W I T H CLERK OF DISTRICT COURT FOR DISTRICT OF COLUMBIA.— 
In the office of the clerk of the United States District Court for 
the District of Columbia, if the property subject to the lien is 
situated in the District of Columbia. 
(b) FORM OF NOTICE.—If the notice filed pursuant to subsection 
(a) (1) is in such form as would be valid if filed with the clerk of the 
United States district court pursuant to subsection (a) (2), such 
notice shall be valid notwithstanding any law of the State or Territory 
regarding the form or content of a notice of lien. 
(c) EXCEPTION IN CASE OF SECURITIES.— 
(1) EXCEPTION.—Even though notice of a lien provided in sec-
tion 6321 has been filed in the manner prescribed in subsection (a) 
§ 6323(c)(1) 
780 
INTERNAL REVENUE CODE OF 1954 
of this section, the lien shall not be valid with respect to a security, 
as defined in paragraph (2) of this subsection, as against any mort-
gagee, pledgee, or purchaser of such security, for an adequate and 
full consideration in money or money's worth, if at the time of such 
mortgage, pledge, or purchase such mortgagee, pledgee, or pur-
chaser is without notice or knowledge of the existence of such lien. 
(2) DEFINITION OF SECURITY.—As used in this subsection, the 
term "security" means any bond, debenture, note, or certificate or 
other evidence of indebtedness, issued by any corporation (includ-
ing one issued by a government or political subdivision thereof), 
with interest coupons or in registered form, share of stock, voting 
trust certificate, or any certificate of interest or participation in, 
certificate of deposit or receipt for, temporary or interim certificate 
for, or warrant or right to subscribe to or purchase, any of the fore-
going; negotiable instrument; or money. 
(d) DISCLOSURE OF AMOUNT OF OUTSTANDING LIEN.—If a notice of 
lien has been filed under subsection (a), the Secretary or his delegate 
is authorized to provide by rules or regulations the extent to which, 
and the conditions under which, information as to the amount of the 
outstanding obligation secured by the lien may be disclosed. 
SEC. 6324. SPECIAL LIENS FOR ESTATE AND GIFT TAXES. 
(a) LIENS FOR ESTATE TAX.—^Except as otherwise provided in 
subsection (c) (relating to transfers of securities)— 
(1) UPON GROSS ESTATE.—Unless the estate tax imposed by 
chapter 11 is sooner paid in full, it shall be a lien for 10 years upon 
the gross estate of the decedent, except that such part of the gross 
estate as is used for the payment of charges against the estate and 
expenses of its administration, allowed by any court having juris-
diction thereof, shall be divested of such lien. 
(2) LIABILITY OF TRANSFEREES AND OTHERS.—If the estate tax 
imposed by chapter 11 is not paid when due, then the spouse, trans-
feree, trustee (except the trustee of an employee's trust which meets 
the requirements of section 401 (a)), surviving tenant, person in pos-
session of the property by reason of the exercise, nonexercise, or 
release of a power of appointment, or beneficiary, who receives, or 
has on the date of the decedent's death, property included in the 
gross estate under sections 2034 to 2042, inclusive, to the extent of 
the value, at the time of the decedent's death, of such property, shall 
be personally liable for such tax. Any part of such property trans-
ferred by (or transferred by a transferee of) such spouse, transferee, 
trustee, surviving tenant, person in possession of property by reason 
of the exercise, nonexercise, or release of a power of appointment, 
or beneficiary, to a bona fide purchaser, mortgagee, or pledgee, 
for an adequate and full consideration in money or money's worth 
shall be divested of the lien provided in paragraph (1) and a like 
lien shaU then attach to all the property of such spouse, transferee, 
trustee, surviving tenant, person in possession, beneficiary, or 
transferee of any such person, except any part transferred to a 
bona fide purchaser, mortgagee, or pledgee for an adequate and 
full consideration in money or money's worth. 
(3) CONTINUANCE AFTER DISCHARGE OF EXECUTOR.—The pro-
visions of section 2204 (relating to discharge of executor from personal 
liability) shall not operate as a release of any part of the gross 
§ 6323(c)(1) 
CH. 64—COLLECTION 
781 
estate from the lien for any deficiency that may thereafter be 
determined to be due, unless such part of the gross estate (or any 
interest therein) has been transferred to a bona fide purchaser, 
mortgagee, or pledgee for an adequate and full consideration in 
money, or money's worth, in which case such part (or such interest) 
shall not be subject to a lien or to any claim or demand for any such 
deficiency, but the lien shall attach to the consideration received 
from such purchaser, mortgagee, or pledgee by the heirs, legatees, 
devisees, or distributees. 
(b) LIEN FOR GIFT TAX.—Except as otherwise provided in sub-
section (c) (relating to transfers of securities), the gift tax imposed by 
chapter 12 shall be a lien upon all gifts made during the calendar year, 
for 10 years from the time the gifts are made. 
If the tax is not paid 
when due, the donee of any gift shall be personally liable for such tax 
to the extent of the value of such gift. 
Any part of the property 
comprised in the gift transferred by the donee (or by a transferee of 
the donee) to a bona fide purchaser, mortgagee, or pledgee for an 
adequate and full consideration in money or money's worth shall be 
divested of the lien herein imposed and the lien, to the extent of the 
value of such gift, shall attach to all the property (including after-
acquired property) of the donee (or the transferee) except any part 
transferred to a bona fide purchaser, mortgagee, or pledgee for an 
adequate and full consideration in money or money's worth. 
(c) EXCEPTION IN CASE OF SECURITIES.—The lien imposed by 
subsection (a) or (b) shall not be valid with respect to a security, as 
defined in section 6323 (c) (2), as against any mortgagee, pledgee, or 
purchaser of any such security, for an adequate and full consideration 
in money or money's worth, if at the time of such mortgage, pledge, 
or purchase such mortgagee, pledgee, or purchaser is without notice 
or knowledge of the existence of such lien. 
SEC. 6325. RELEASE OF LIEN OR PARTIAL DISCHARGE OF PROPERTY. 
(a) RELEASE OF LIEN.—Subject to such rules or regulations as the 
Secretary or his delegate may prescribe, the Secretary or his delegate 
may issue a certificate of release of any lien imposed with respect to 
any internal revenue tax if— 
(1) LIABILITY SATISFIED OR UNENFORCEABLE.—The Secretary or 
his delegate finds that the liability for the amount assessed, together 
with all interest in respect thereof, has been fully satisfied, has 
become legally unenforceable, or, in the case of the estate tax 
' 
imposed by chapter 11 or the gift tax imposed by chapter 12, has 
been fully satisfied or provided for; or 
(2) BOND ACCEPTED.—There is furnished to the Secretary or his 
delegate and accepted by him a bond that is conditioned upon the 
payment of the amount assessed, together with all interest in respect 
thereof, within the time prescribed by law (including any extension 
of such time), and that is in accordance with such requirements 
relating to terms, conditions, and form of the bond and sureties 
thereon, as may be specified by such rules or regulations. 
(b) PARTIAL DISCHARGE OF PROPERTY.— 
(1) PROPERTY DOUBLE THE AMOUNT OF THE LIABILITY.—Subject 
to such rules or regulations as the Secretary or his delegate may 
prescribe, the Secretary or his delegate may issue a certificate of 
discharge of any part of the property subject to any lien imposed 
§ 6325(b)(1) 
782 
INTERNAL REVENUE CODE OF 1954 
under this chapter if the Secretary or his delegate finds that the fair 
market value of that part of such property remaining subject to 
the lien is at least double the amount of the unsatisfied liability 
secured by such lien and the amount of all other liens upon such 
property which have priority to such lien. 
(2) PART PAYMENT OR INTEREST OF UNITED STATES VALUELESS.— 
Subject to such rules or regulations as the Secretary or his delegate 
may prescribe, the Secretary or his delegate may issue a certificate 
of discharge of any part of the property subject to the lien if— 
(A) there is paid over to the Secretary or his delegate in part 
satisfaction of the liability secured by the lien an amount deter-
mined by the Secretary or his delegate, which shall not be less 
than the value, as determined by the Secretary or his delegate, 
of the interest of the United States in the part to be so discharged, 
or 
(B) the Secretary or his delegate determines at any time that 
the interest of the United States in the part to be so discharged 
has no value. 
In determining the value of the interest of the United States in the 
part to be so discharged, the Secretary or his delegate shall give 
consideration to the fair market value of such part and to such 
liens thereon as have priority to the lien of the United States. 
(c) EFFECT OF CERTIFICATE OF RELEASE OR PARTIAL DISCHARGE.— 
A certificate of release or of partial discharge issued under this section 
shall be held conclusive that the lien upon the property covered by the 
certificate is extinguished. 
(d) CROSS REFERENCES.— 
(1) For single bond complying with the requirements of both sub-
section (a) (2) and section 6165, see section 7102. 
(2) For other provisions relating to bonds, see generally chapter 73. 
(3) For provisions relating to suits to enforce lien, see section 7403. 
(4) For provisions relating to suits to clear title to realty, see section 
7424. 
SEC. 6326. CROSS REFERENCES. 
(1) For lien in case of tax on distilled spirits, see section 5004. 
(2) For exclusion of tax liability from discharge in bankruptcy, see 
section 17 of the Bankruptcy Act, as amended (52 Stat. 851; 11 U. S. C. 
35). 
(3) For limit on amount allowed in bankruptcy proceedings on debts 
owing to the United States, see section 57 (j) of the Bankruptcy Act, as 
amended (52 Stat. 867; 11 U. S. C. 93). 
(4) For recognition of tax liens in proceedings under the Bankruptcy 
Act, see section 67 (b) and (c) of that act, as amended (52 Stat. 876-877; 
11 U. S. C. 107). 
(5) For collection of taxes in connection with wage earners' plans in 
bankruptcy courts, see section 680 of the Bankruptcy Act, as added by 
the act of June 22, 1938 (52 Stat. 938; 11 U. S. C. 1080). 
(6) For provisions permitting the United States to be made party 
defendant in a proceeding in a State court for the foreclosure of a lien 
upon real estate where the United States may have a claim upon the 
premises involved, see section 2410 of Title 28 of the United States 
Code. 
(7) For priority of lien of the United States in case of insolvency, see 
R. S. 3466 (31 U. S. C. 191). 
§6325 (b)(1) 
CH. 64—COLLECTION 
783 
Subchapter D—Seizure of Property for Collection of Taxes 
Sec. 6331. Levy and distraint. 
' 
Sec. 6332. Surrender of property subject to levy. 
Sec. 6333. Production of books. 
Sec. 6334. Property exempt from levy. 
,;' 
Sec. 6335. Sale of seized property. 
Sec. 6336. Sale of perishable goods, 
i V 
Sec. 6337. Redemption of property. 
' 
Sec. 6338. Certificate of sale; deed of real property. 
' 
Sec. 6339. Legal effect of certificate of sale of personal property 
and deed of real property. 
Sec. 6340. Records of sale. 
Sec. 6341. Expense of levy and sale. 
Sec. 6342. Application of proceeds of levy. 
Sec. 6343. Authority to release levy. 
Sec. 6344. Cross references. 
SEC. 6331. LEVY AND DISTRAINT. 
(a) AuTHOEiTY OF SECRETAEY OR DELEGATE.—If any person liable 
to pay any tax neglects or refuses to pay the same within 10 days 
after notice and demand, it shall be lawful for the Secretary or his 
delegate to collect such tax (and such further sum as shall be sufficient 
to cover the expenses of the levy) by levy upon all property and rights 
to property (except such property as is exempt under section 6334) 
belonging to such person or on which there is a lien provided in this 
chapter for the payment of such tax. 
Levy may be made upon the 
accrued salary or wages of any officer, employee, or elected official, 
of the United States, the District of Columbia, or any agency or 
instrumentality of the United vStates or the District of Columbia, by 
serving a notice of levy on the employer (as defined in section 3401 
(d)) of such officer, employee, or elected official. 
If the Secretary or 
his delegate makes a finding that the collection of such tax is in 
jeopardy, notice and demand for immediate payment of such tax 
may be made by the Secretary or his delegate and, upon failure or 
refusal to pay such tax, collection thereof by levy shall be lawful 
without regard to the 10-day period provided in this section. 
(b) SEIZURE AND SALE OF PROPERTY.—The term "levy" as used 
in this title includes the power of distraint and seizure by any means. 
In any case in which the Secretary or his delegate may levy upon 
property or rights to property, he may seize and sell such property 
or rights to property (whether real or personal, tangible or intangible). 
(c) SUCCESSIVE SEIZURES.—Whenever any property or right to 
property upon which levy has been made by virtue of subsection (a) 
is not sufficient to satisfy the claim of the United States for which 
levy is made, the Secretary or his delegate may, thereafter, and as 
often as may be necessary, proceed to levy in like manner upon any 
other property liable to levy of the person against whom such claim 
exists, until the amount due from him, together with all expenses, 
is fully paid. 
§ 6331(c) 
784 
INTERNAL REVENUE CODE OF 1954 
(d) CROSS KEFERENCES.— 
(1) For provisions relating to jeopardy, see subchapter A of chapter 70. 
(2) For proceedings applicable to sale of seized property, see section 
6335. 
SEC. 6332. SURRENDER OF PROPERTY SUBJECT TO LEVY. 
(a) REQUIREMENT.—Any person in possession of (or obligated with 
respect to) property or rights to property subject to levy upon which 
a levy has been made shall, upon demand of the Secretary or his 
delegate, surrender such property or rights (or discharge such obliga-
tion) to the Secretary or his delegate, except such part of the property 
or rights as is, at the time of such demand, subject to an attachment 
or execution under any judicial process. 
(b) PENALTY FOR VIOLATION.—Any person who fails or refuses to 
surrender as required by subsection (a) any property or rights to 
property, subject to levy, upon demand by the Secretary or his 
delegate, shall be liable in his own person and estate to the United 
States in a sum equal to the value of the property or rights not so 
surrendered, but not exceeding the amount of the taxes for the 
collection of which such levy has been made, together with costs and 
interest on such sum at the rate of 6 percent per annum from the date 
of such levy. 
(c) PERSON DEFINED.—The term "person," as used in subsection 
(a), includes an officer or employee of a corporation or a member or 
employee of a partnership, who as such officer, employee, or member is 
under a duty to surrender the property or rights to property, or to 
discharge the obligation. 
SEC. 6333. PRODUCTION OF BOOKS. 
If a levy has been made or is about to be made on any property, or 
right to property, any person having custody or control of any books 
or records, containing evidence or statements relating to the property 
or right to property subject to levy, shall, upon demand of the Secre-
tary or his delegate, exhibit such books or records to the Secretary or 
his delegate. 
SEC. 6334. PROPERTY EXEMPT FROM LEVY. 
(a) ENUMERATION.—There shall be exempt from levy— 
(1) WEARING 
APPAREL 
AND SCHOOL BOOKS.—Such items of 
wearing apparel and such school books as are necessary for the 
taxpayer or for members of his family; 
(2) FUEL, PROVISIONS, FURNITURE, AND PERSONAL 
EFFECTS.— 
If the taxpayer is the head of a family, so much of the fuel, pro-
visions, furniture, and personal effects in his household, and of 
the arms for personal use, livestock, and poultry of the taxpayer, 
as does not exceed $500 in value; 
(3) BOOKS AND TOOLS OF A TRADE, BUSINESS, OR PROFESSION.— 
So many of the books and tools necessary for the trade, business, 
or profession of the taxpayer as do not exceed in the aggregate 
$250 in value. 
(b) APPRAISAL.—The officer seizing property of the type described 
in subsection (a) shall appraise and set aside to the owner the amount 
of such property declared to be exempt. 
If the taxpayer objects at 
the time of the seizure to the valuation fixed by the officer making 
§ 6331(d) 
CH. 64—COLLECTION 
785 
the seizure, the Secretary or his delegate shall summon three disin-
terested individuals who shall make the valuation. 
(c) No OTHER PROPERTY EXEMPT.—Notwithstanding any other 
law of the United States, no property or rights to property shall be 
exempt from levy other than the property specifically made exempt 
by subsection (a). 
SEC. 6335. SALE OF SEIZED PROPERTY. 
(a) NOTICE OF SEIZURE,—As soon as practicable after seizure of 
property, notice in writing shall be given by the Secretary or his 
delegate to the owner of the property (or, in the case of personal 
property, the possessor thereof), or shall be left at his usual place of 
abode or business if he has such within the internal revenue district 
where the seizure is made. If the owner cannot be readily located, 
or has no dwelling or place of business within such district, the notice 
may be mailed to his last known address. 
Such notice shall specify 
the sum demanded and shall contain, in the case of personal property, 
an account of the property seized and, in the case of real property, 
a description with reasonable certainty of the property seized. 
(b) NOTICE OP SALE.—The Secretary or his delegate shall as soon 
as practicable after the seizure of the property give notice to the 
owner, in the same manner as that prescribed in subsection (a), and 
shall cause a notification to be published in some newspaper within 
the county wherein such seizure is made, or, if there be no newspaper 
published in such county, shall post such notice at the post ofSce 
nearest the place where the seizure is made, and in not less than two 
other public places. 
Such notice shall specify the property to be 
sold, and the time, place, manner, and conditions of the sale thereof. 
Whenever levy is made without regard to the 10-day period provided 
in section 6331 (a), public notice of sale of the property seized shall 
not be made within such 10-day period unless section 6336 (relating 
to sale of perishable goods) is applicable. 
(c) SALE OF INDIVISIBLE PROPERTY.—If any property liable to 
levy is not divisible, so as to enable the Secretary or his delegate by 
sale of a part thereof to raise the whole amount of the tax and expenses, 
the whole of such property shall be sold. 
(d) TIME AND PLACE OF SALE.—The time of sale shall not be less 
than 10 days nor more than 40 days from the time of giving public 
notice under subsection (b). The place of sale shall be within the 
county in which the property is seized, except by special order of the 
Secretary or his delegate. 
"
^ (e) MANNER AND CONDITIONS OP SALE.— 
(1) MINIMUM PRICE.—Before the sale the Secretary or his dele-
' gate shall determine a minimum price for which the property shall 
be sold, and if no person offers for such property at the sale the 
. amount of the minimum price, the property shall be declared to be 
purchased at such price for the United States; otherwise the prop-
erty shall be declared to be sold to the highest bidder. In deter-
mining the minimum price, the Secretary or his delegate shall take 
into account the expense of making the levy and sale. 
(2) ADDITIONAL RULES APPLICABLE TO SALE.—The Secretary or 
his delegate shall by regulations prescribe the manner and other 
conditions of the sale of property seized by levy. If one or more 
alternative methods or conditions are permitted by regulations, 
§ 6335(e)(2) 
786 
INTERNAL REVENUE CODE OF 1954 
the Secretary or his delegate shall select the alternatives applicable 
to the sale. 
Such regulations shall provide: 
(A) That the sale shall not be conducted in any manner other 
than— 
(i) by public auction, or 
(ii) by public sale under sealed bids. 
(B) In the case of the seizure of several items of property, 
whether such items shall be offered separately, in groups, or in 
the aggregate; and whether such property shall be offered both 
separately (or in groups) and in the aggregate, and sold under 
whichever method produces the highest aggregate amount. 
(C) Whether the announcement of the minimum price deter-
mined by the Secretary or his delegate may be delayed imtil the 
receipt of the highest bid. 
(D) Whether payment in full shall be required at the time of 
acceptance of a bid, or whether a part of such payment may be 
deferred for such period (not to exceed 1 month) as may be deter-
mined by the Secretary or his delegate to be appropriate. 
(E) The extent to which methods (including advertising) in 
addition to those prescribed in subsection (b) may be used in 
giving notice of the sale. 
(F) Under what circumstances the Secretary or his delegate 
may adjourn the sale from time to time (but such adjournments 
shall not be for a period to exceed in all 1 month). 
(3) PAYMENT OF AMOUNT BID.—If payment in full is required at 
the time of acceptance of a bid and is not then and there paid, the 
Secretary or his delegate shall forthwith proceed to again sell the 
property in the manner provided in this subsection. 
If the condi-
tions of the sale permit part of the payment to be deferred, and if 
such part is not paid within the prescribed period, suit may be insti-
tuted against the purchaser for the pm-chase price or such part 
thereof as has not been paid, together with interest at the rate of 
6 percent per annum from the date of the sale; or, in the discretion 
of the Secretary or his delegate, the sale may be declared by the 
Secretary or his delegate to be null and void for failure to make full 
payment of the purchase price and the property may again be 
advertised and sold as provided in subsections (b) and (c) and this 
subsection. 
In the event of such readvertisement and sale any 
new purchaser shall receive such property or rights to property, 
free and clear of any claim or right of the former defaulting pur-
chaser, of any nature whatsoever, and the amount paid upon the 
bid price by such defaulting purchaser shaU be forfeited, 
(f) STAY OF SALE OF SEIZED PROPERTY PENDING TAX COURT 
DECISION.— 
For restrictions on sale of seized property pending Tax Court decision, 
see section 6863 (b) (3). 
SEC. 6336. SALE OF PERISHABLE GOODS. 
If the Secretary or his delegate determines that any property 
seized is liable to perish or become greatly reduced in price or value 
by keeping, or that such property cannot be kept without great 
expense, he shall appraise the value of such property and— 
(1) RETURN TO OWNER.—If the owner of the property can be 
readily found, the Secretary or his delegate shall give him notice 
§ 6335(e)(2) 
CH. 64—COLLECTION 
787 
of such determination of the appraised value of the property. 
The property shall be returned to the owner if, within such time 
as may be specified in the notice, the owner— 
(A) Pays to the Secretary or his delegate an amount equal to 
the appraised value, or 
(B) Gives bond in such form, with such sureties, and in such 
amount as the Secretary or his delegate shall prescribe, to pay the 
appraised amount at such time as the Secretary or his delegate 
determines to be appropriate in the circumstances. 
(2) IMMEDIATE SALE.—If the owner does not pay such amount 
, or furnish such bond in accordance with this section, the Secre-
tary or his delegate shall as soon as practicable make public sale 
. of the property in accordance with such regulations as may be 
prescribed by the Secretary or his delegate. 
SEC. 6337. REDEMPTION OF PROPERTY. 
(a) BEFORE SALE.—^Any person whose property has been levied 
upon shall have the right to pay the amount due, together with the 
expenses of the proceeding, if any, to the Secretary or his delegate at 
any time prior to the sale thereof, and upon such payment the Secre-
tary or his delegate shall restore such property to him, and all further 
proceedings in connection with the levy on such property shall cease 
from the time of such payment. 
(b) REDEMPTION OF REAL ESTATE AFTER SALE.— 
(1) PERIOD.—The owners of any real property sold as provided 
' in section 6335, their heirs, executors, or administrators, or any 
person having any interest therein, or a lien thereon, or any person 
in their behalf, shall be permitted to redeem the property sold, or 
any particular tract of such property, at any time within 1 year 
after the sale thereof. 
(2) PRICE.—Such property or tract of property shall be permitted 
r to be redeemed upon payment to the purchaser, or in case he 
cannot be found in the county in which the property to be redeemed 
is situated, then to the Secretary or his delegate, for the use of the 
~ purchaser, his heirs, or assigns, the amount paid by such purchaser 
and interest thereon at the rate of 20 percent per annum. 
(c) RECORD.—^When any lands sold are redeemed as provided in 
this section, the Secretary or his delegate shall cause entry of the fact 
to be made upon the record mentioned in section 6340, and such entry 
shall be evidence of such redemption. 
SEC. 6338. CERTIFICATE OF SALE; DEED OF REAL PROPERTY. 
(a) CERTIFICATE OF SALE.—In the case of property sold as provided 
in section 6335, the Secretary or his delegate shall give to the purchaser 
a certificate of sale upon payment in full of the purchase price. 
In the 
case of real property, such certificate shall set forth the real property 
purchased, for whose taxes the same was sold, the name of the pur-
chaser, and the price paid therefor. 
(b) D E E D TO REAL PROPERTY.—In the case of any real property 
sold as provided in section 6335 and not redeemed in the manner and 
within the time provided in section 6337, the Secretary or his delegate 
shall execute (in accordance with the laws of the State in which such 
real property is situated pertaining to sales of real property under 
execution) to the purchaser of such real property at such sale, upon his 
§ 6338(b) 
788 
INTERNAL REVENUE CODE OF 1954 
surrender of the certificate of sale, a deed of the real property so 
purchased by him, reciting the facts set forth in the certificate. 
(c) KEAL 
PROPERTY PURCHASED BY UNITED STATES.—If real 
property is declared purchased by the United States at a sale pursuant 
to section 6335, the Secretary or his delegate shall at the proper time 
execute a deed therefor after its preparation and the endorsement of 
approval as to its form by the United States district attorney for the 
district in which the property is situated, and the Secretary or his 
delegate shall, without delay, cause the deed to be duly recorded in 
the proper registry of deeds. 
SEC. 6339. LEGAL EFFECT OF CERTIFICATE OF SALE OF PERSONAL 
PROPERTY AND DEED OF REAL PROPERTY. 
(a) CERTIFICATE OF SALE OF PROPERTY OTHER THAN REAL PROP-
ERTY.—In all cases of sale pursuant to section 6335 of property (other 
than real property), the certificate of such sale— 
(1) As EVIDENCE.—Shall be prima facie evidence of the right of 
the officer to make such sale, and conclusive evidence of the regu-
larity of his proceedings in making the sale; and 
(2) As CONVEYANCES.—Shall transfer to the purchaser all right, 
title, and interest of the party delinquent in and to the property 
sold; and 
(3) As AUTHORITY FOR TRANSFER OF CORPORATE STOCK.—^If SUCh 
property consists of stocks, shall be notice, when received, to any 
corporation, company, or association of such transfer, and shall be 
authority to such corporation, company, or association to record the 
transfer on its books and records in the same manner as if the stocks 
were transferred or assigned by the party holding the same, in lieu 
of any original or prior certificate, which shall be void, whether 
canceled or not; and 
(4) As RECEIPTS.—If the subject of sale is securities or other 
evidences of debt, shall be a good and valid receipt to the person 
holding the same, as against any person holding or claiming to hold 
possession of such securities or other evidences of debt; and 
(5) As AUTHORITY FOR TRANSFER OF TITLE TO MOTOR VEHICLE.— 
If such property consists of a motor vehicle, shall be notice, when 
received, to any public official charged with the registration of 
title to motor vehicles, of such transfer and shaU be authority to 
such official to record the transfer on his books and records in the 
same manner as if the certificate of title to such motor vehicle 
were transferred or assigned by the party holding the same, in lieu 
of any original or prior certificate, which shall be void, whether 
canceled or not. 
(b) D E E D OF REAL PROPERTY.—In the case of the sale of real 
property pursuant to section 6335— 
(1) D E E D AS EVIDENCE.—^The deed of sale given pursuant to 
section 6338 shall be prima facie evidence of the facts therein 
stated; and 
(2) D E E D OF CONVEYANCE OF TITLE.—If the proceedings of the 
Secretary or his delegate as set forth have been substantially in 
accordance with the provisions of law, such deed shall be considered 
and operate as a conveyance of all the right, title, and interest the 
party delinquent had in and to the real property thus sold at the 
time the lien of the United States attached thereto. 
§ 6338(b) 
CH. 64—COLLECTION 
789 
SEC. 6340 RECORDS OF SALE. 
(a) R E Q U I R E M E N T . — T h e Secretary or his delegate shall, for each 
internal revenue district, keep a record of all sales of real property 
under section 6335 and of redemptions of such property. 
T h e record 
shall set forth the tax for which any such sale was made, the dates of 
seizure and sale, the name of the party assessed and all proceedings in 
making such sale, the amount of expenses, the names of the purchasers, 
and the date of the deed. 
(b) C O P Y AS E V I D E N C E . — A copy of such record, or any part thereof, 
certified b y the Secretary or his delegate shall be evidence in a n y 
court of the truth of the facts therein stated. 
SEC. 6341. EXPENSE OF LEVY AND SALE. 
The Secretary or his delegate shall determine the expenses to be 
allowed in all cases of levy and sale. 
SEC. 6342. APPLICATION OF PROCEEDS OF LEVY. 
(a) COLLECTION O F L I A B I L I T Y . — A n y money realized b y proceed-
ings under this subchapter (whether by seizure, by surrender under 
section 6332, or by sale of seized property) shall be applied as follows: 
(1) E X P E N S E O F LEVY AND SALE.—First, against the expenses of 
the proceedings under this subchapter; 
(2) S P E C I F I C TAX LIABILITY ON SEIZED PROPERTY.—If the prop-
erty seized and sold is subject to a tax imposed b y a n y internal 
revenue law which has not been paid, the amount remaining after 
applying paragraph (1) shall then be applied against such tax 
liability (and, if such tax was not previously assessed, it shall then 
be assessed); 
(3) L I A B I L I T Y O F DELINQUENT T A X P A Y E R . — T h e amount, if any, 
remaining after applying paragraphs (1) and (2) shall then be 
apphed against the liability in respect of which the levy was made. 
(b) S U R P L U S P R O C E E D S . — A n y surplus proceeds remaining 
after 
the application of subsection (a) shall, upon application and satis-
factory proof in support thereof, be credited or refunded by the 
Secretary or his delegate to the person or persons legally entitled 
thereto. 
SEC. 6343. AUTHORITY TO RELEASE LEVY. 
I t shall be lawful for the Secretary or his delegate, under regulations 
prescribed by the Secretary or his delegate, to release the levy upon 
aU or part of the property or rights to property levied upon where the 
Secretary or his delegate determines that such action will facilitate 
the collection of the liability, b u t such release shall n o t operate to 
prevent a n y subsequent levy. 
SEC. 6344. CROSS REFERENCES. 
(a) L E N G T H O F P E R I O D . — 
For period within which levy may be begun in case of— 
(1) Income, estate, and gift taxes, see sections 6502 (a) and 6503 
' 
(a) (1). 
(2) Employment and miscellaneous excise taxes, see section 6502 (a). 
8 6344(a)(2) 
790 
INTERNAL REVENUE CODE OF 1954 
(b) 
D E L I N Q U E N T C O L L E C T I O N O F F I C E R S . — 
For distraint proceedings against delinquent internal revenue officers, 
see section 7803 (d). 
(c) 
O T H E R 
R E F E R E N C E S . — 
For provisions relating to— 
(1) Stamps, marks and brands, see section 6807. 
(2) Administration of real estate acquired hj the United States, see 
section 7506. 
§ 6344(b) 
CH. 65—ABATEMENTS, CREDITS AND REFUNDS 
791 
CHAPTER 
65—ABATEMENTS, CREDITS, 
AND 
REFUNDS 
SUBCHAPTER A. Procedure in general. 
SUBCHAPTER B. Rules of special application. 
Subchapter A—Procedure in General 
Sec. 6401. Amounts treated as overpayments. 
'- ' ' 
Sec. 6402. Authority to make credits or refunds. 
Sec. 6403. Overpayment of installment. 
Sec. 6404. Abatements. 
Sec. 6405. Reports of refunds and credits. 
Sec. 6406. Prohibition of administrative review of decisions. 
Sec. 6407. Date of allowance of refund or credit. 
SEC. 6401. AMOUNTS TREATED AS OVERPAYMENTS. 
(a) ASSESSMENT AND COLLECTION AFTER LIMITATION PERIOD.— 
The term "overpayment" includes that part of the amount of the 
payment of any internal revenue tax which is assessed or collected after 
the expiration of the period of limitation properly applicable thereto. 
(b) EXCESSIVE WITHHOLDING.—If the amount allowable as a credit 
under section 31 (relating to credit for tax withheld at the source 
under chapter 24) exceeds the taxes imposed by chapter 1 against 
which such credit is allowable, the amount of such excess shall be con-
sidered an overpayment. 
(c) RULE WHERE N O TAX LIABILITY.—^An amount paid as tax 
shall not be considered not to constitute an overpayment solely by 
reason of the fact that there was no tax liability in respect of which 
such amount was paid. 
SEC. 6402. AUTHORITY TO MAKE CREDITS OR REFUNDS. 
(a) GENERAL RULE.—In the case of any overpayment, the Secre-
tary or his delegate, within the applicable period oi Umitations, may 
credit the amount of such overpayment, including any interest allowed 
thereon, against any liability in respect of an internal revenue tax on 
the part of the person who made the overpayment and shall refund 
any balance to such person. 
(b) CREDITS AGAINST ESTIMATED TAX.—The Secretary or his dele-
gate is authorized to prescribe regulations providing for the crediting 
against the estimated income tax for any taxable year of the amount 
determined by the taxpayer or the Secretary (or his delegate) to be an 
overpayment of the income tax for a preceding taxable year. 
SEC. 6403. OVERPAYMENT OF INSTALLMENT. 
In the case of a tax payable in installments, if the taxpayer has 
paid as an installment of the tax more than the amount determined 
to be the correct amount of such installment, the overpayment shall 
be credited against the unpaid installments, if any. 
If the amount 
already paid, whether or not on the basis of installments, exceeds 
§6403 
792 
INTERNAL REVENUE CODE OF 1954 
the amount determined to be the correct amount of the tax, the over-
payment shall be credited or refunded as provided in section 6402. 
SEC. 6404. ABATEMENTS. 
(a) GENERAL RULE.—The Secretary or his delegate is authorized to 
abate the unpaid portion of the assessment of any tax or any liability 
in respect thereof, which— 
(1) is excessive in amount, or 
(2) is assessed after the expiration of the period of limitation 
properly applicable thereto, or 
(3) is erroneously or illegally assessed. 
(b) No CLAIM FOR ABATEMENT OF INCOME, ESTATE, AND GIFT 
TAXES.—No claim for abatement shall be filed by a taxpayer in respect 
of an assessment of any tax imposed under subtitle A or B. 
(c) SMALL T A X BALANCES.—The Secretary or his delegate is au-
thorized to abate the unpaid portion of the assessment of any tax, or 
any liability in respect thereof, if the Secretary or his delegate deter-
mines under uniform rules prescribed by the Secretary or his delegate 
that the administration and collection costs involved would not war-
rant collection of the amount due. 
SEC. 6405. REPORTS OF REFUNDS AND CREDITS. 
(a) B Y TREASURY TO JOINT COMMITTEE.—No refund or credit of 
any income, war profits, excess profits, estate, or gift tax in excess of 
$100,000 shall be made until after the expiration of 30 days from the 
date upon which a report giving the name of the person to whom the 
refund or credit is to be made, the amount of such refund or credit, 
and a summary of the facts and the decision of the Secretary or his 
delegate, is submitted to the Joint Committee on Internal Revenue 
Taxation. 
(b) B Y JOINT COMMITTEE TO CONGRESS.—A report to Congress 
shall be made annually by such committee of such refunds and credits, 
including the names of all persons and corporations to whom amounts 
are credited or payments are made, together with the amounts 
credited or paid to each. 
(c) TENTATIVE ADJUSTMENTS.—Any credit or refund allowed or 
made under section 6411 shall be made without regard to the pro-
visions of subsection (a) of this section. 
In any such case, if the credit 
or refund, reduced by any deficiency in such tax thereafter assessed 
and by deficiencies in any other tax resulting from adjustments re-
flected in the determination of the credit or refund, is in excess of 
$100,000, there shall be submitted to such committee a report con-
taining the matter specified in subsection (a) at such time after the 
making of the credit or refund as the Secretary or his delegate shall 
determine the correct amount of the tax. 
SEC. 6406. PROHIBITION OF ADMINISTRATIVE REVIEW OF DECISIONS. 
In the absence of fraud or mistake in mathematical calculation, the 
findings of fact in and the decision of the Secretary or his delegate 
upon the merits of any claim presented under or authorized by the 
internal revenue laws and the allowance or nonallowance by the Secre-
tary or his delegate of interest on any credit or refund under the 
internal revenue laws shall not, except as provided in subchapters C 
6403 
CH. 65—ABATEMENTS, CREDITS AND REFUNDS 
793 
and D of chapter 76 (relating to the Tax Court), be subject to review 
by any other administrative or accounting officer, employee, or agent 
of the United States. 
SEC. 6407. DATE OF ALLOWANCE OF REFUND OR CREDIT. 
The date on which the Secretary or his delegate first authorizes the 
scheduling of an overassessment in respect of any internal revenue tax 
shall be considered as the date of allowance of refund or credit in 
respect of such tax. 
§6407 
49012°—54 
53 
794 
INTERNAL REVENUE CODE OF 1954 
Subchapter B—Rules of Special Application 
Sec. 6411. Tentative carryback adjustments. 
Sec. 6412. Floor stocks refunds. 
• Sec. 6413. Special rules applicable to certain employment taxes. 
Sec. 6414. Income tax withheld. 
Sec. 6415. Credits or refunds to persons who collected certain taxes. 
Sec. 6416. Certain taxes on sales and services. 
Sec. 6417. Coconut and palm oil. 
Sec. 6418. Sugar. 
Sec. 6419. Excise tax on wagering. 
Sec. 6420. Cross references. 
SEC. 6411. TENTATIVE CARRYBACK ADJUSTMENTS. 
(a) APPLICATION 
FOR ADJUSTMENT.—A taxpayer may file an 
application for a tentative carryback adjustment of the tax for the 
prior taxable year affected by a net operating loss carryback, provided 
in section 172 (b), from any taxable year. 
The application shall be 
verified in the manner prescribed by section 6065 in the case of a 
return of such taxpayer, and shall be filed, on or after the date of 
filing of the return for the taxable year of the net operating loss from 
which the carryback results and within a period of 12 months from 
the end of such taxable year, in the manner and form required by 
regulations prescribed by the Secretary or his delegate. 
The applica-
tion shall set forth in such detail and with such supporting data and 
explanation as such regulations shall require— 
(1) The amount of the net operating loss; 
(2) The amount of the tax previously determined for the prior 
taxable year affected by such carryback, the tax previously deter-
mined being ascertained in accordance with the method prescribed 
in section 1314 (a); 
(3) The amount of decrease in such tax, attributable to such 
carryback, such decrease being determined by applying the carry-
back in the manner provided by law to the items on the basis of 
which such tax was determined; 
(4) The unpaid amount of such tax, not including any amount 
required to be shown under paragraph (5); 
(5) The amount, with respect to the tax for the taxable year 
immediately preceding the taxable year of such loss, as to which an 
extension of time for payment under section 6164 is in effect; and 
(6) Such other information for purposes of carrying out the provi-
sions of this section as may be required by such regulations. 
An application under this subsection shall not constitute a claim for 
credit or refund. 
(b) ALLOWANCE OF ADJUSTMENTS.—Within a period of 90 days 
from the date on which an application for a tentative carryback 
adjustment is filed under subsection (a), or from the last day of the 
month in which falls the last date prescribed by law (including any 
extension of time granted the taxpayer) for filing the return for the 
taxable year of the net operating loss from which such carryback 
§ 6411 
CH. 6 5—ABATEMENTS, CREDITS AND REFUNDS 
795 
results, whichever is the later, the Secretary or his delegate shall make, 
to the extent he deems practicable in such period, a limited examina-
tion of the application, to discover omissions and errors of computa-
tion therein, and shall determine the amount of the decrease in the 
tax attributable to such carryback upon the basis of the application 
and the examination, except that the Secretary or his delegate may 
disallow, without further action, any application which he finds 
contains errors of computation which he deems cannot be corrected 
by him within such 90-day period or material omissions. 
Such de-
crease shall be applied against any unpaid amount of the tax decreased 
(including any amount of such tax as to which an extension of time 
under section 6164 is in effect) and any remainder shall be credited 
against any unsatisfied amount of any tax for the taxable year im-
mediately preceding the taxable year of the net operating loss the 
time for payment of which tax is extended under section 6164. Any 
remainder shall, within such 90-day period, be either credited against 
any tax or installment thereof then due from the taxpayer, or refunded 
to the taxpayer. 
(c) CONSOLIDATED RETURNS.—If the corporation seeking a tenta-
tive carryback adjustment under this section, made or was required 
to make a consolidated return, either for the taxable year within 
which the net operating loss arises, or for the preceding taxable year 
affected by such loss, the provisions of this section shall apply only 
to such extent and subject to such conditions, limitations, and excep-
tions as the Secretary or his delegate may by regulations prescribe. 
SEC. 6412. FLOOR STOCKS REFUNDS. 
(a) MOTOR VEHICLES.— 
(1) I N GENERAL.—Where before April 1, 1955, any article subject 
to the tax imposed by section 4061 (a) or (b) has been sold by the 
manufacturer, producer, or importer, and on such date is held by a 
dealer and has not been used and is intended for sale, there shall be 
credited or refunded (without interest) to the manufacturer, pro-
ducer, or importer an amount equal to the difference between the 
- tax paid by such manufacturer, producer, or importer on his sale 
of the article and the amount of tax made applicable to such article 
on and after April 1, 1955. 
(2) DEFINITIONS.—For purposes of this subsection— 
(A) The term "dealer" includes a wholesaler, jobber, distribu-
tor, or retailer. 
(B) An article shall be considered as "held by a dealer" if title 
thereto has passed to such dealer (whether or not delivery to him 
has been made), and if for purposes of consumption title to such 
article or possession thereof has not at any time been transferred 
to any person other than a dealer. 
(3) REFUNDS TO DEALERS.—Under regulations prescribed by the 
Secretary or his delegate, the refund provided by this subsection 
may be made to the dealer instead of the manufacturer, producer, 
or importer, if the manufacturer, producer, or importer waives any 
claim for the amount so to be refunded. 
(4) REIMBURSEMENT OF DEALERS.—When the credit or refund 
provided for in this subsection has been allowed to the manufacturer, 
producer, or importer, he shall remit to the dealer to whom was sold 
the article in respect of which the credit or refund was allowed so 
§ 6412(a)(4) 
796 
INTERNAL REVENUE CODE OF 1954 
much of that amount of the tax corresponding to the credit or refund 
as was included in or added to the price paid or agreed to be paid 
by the dealer. 
(5) LIMITATION ON ELIGIBILITY FOR CREDIT OR REFUND.—No per-
son shall be entitled to credit or refund under this subsection unless 
(A) he has in his possession such evidence of the inventories with 
respect to which the credit or refund is claimed as may be required 
by regulations prescribed under this subsection, and (B) claim for 
such credit or refund is filed with the Secretary or his delegate before 
July 1, 1955. 
(b) GASOLINE.— 
(1) I N GENERAL.—With respect to any gasoline taxable under 
section 4081, upon which tax (including floor stocks tax) at the 
applicable rate has been paid, and which, on April 1, 1955, is held 
and intended for sale by any person, there shall be credited or 
refunded (without interest) to the producer or importer who paid 
the tax, subject to such regulations as may be prescribed by the 
Secretary or his delegate, an amount equal to so much of the dif-
ference between the tax so paid and the amount of tax made 
applicable to such gasoline on and after April 1, 1955, as has been 
paid by such producer or importer to such person as reimbursement 
for the tax reduction on such gasoline, if claim for such credit or 
refund is filed with the Secretary or his delegate prior to July 1, 
1955. 
No credit or refund shall be allowable under this subsection 
with respect to gasoline in retail stocks held at the place where 
intended to be sold at retail, nor with respect to gasoline held for 
sale by a producer or importer of gasoline. 
(2) 
LIMITATION ON ELIGIBILITY FOR CREDIT OR REFUND.—No 
producer or importer shall be entitled to a credit or refund under 
paragraph (1) unless he has in his possession satisfactory evidence 
of the inventories with respect to which he has made the reimburse-
ments described in such paragraph, and establishes to the satisfac-
tion of the Secretary or his delegate with respect to the quantity 
of gasoline as to which credit or refund is claimed under such 
paragraph, that on or after April 1, 1955, such quantity of gasoline 
was sold to the ultimate consumer at a price which reflected the 
amount of the tax reduction. 
(c) OTHER 
LAWS 
APPLICABLE 
TO 
CERTAIN 
FLOOR 
STOCKS 
REFUNDS.^—All provisions of law, including penalties, applicable in 
respect of the taxes imposed under sections 4061 and 4081 shall, 
insofar as applicable and not inconsistent with subsections (a) and (b) 
of this section, be applicable in respect of the credits and refunds 
provided for in such subsections to the same extent as if such credits 
or refunds constituted overpayments of such taxes. 
(d) SUGAR.—With respect to any sugar or articles composed in chief 
value of sugar upon which tax imposed under section 4501 (b) has 
been paid and which, on June 30, 1957, are held by the importer and 
intended for sale or other disposition, there shall be refunded (without 
interest) to such importer, subject to such regulations as may be 
prescribed by the Secretary or his delegate, an amount equal to the 
tax paid with respect to such sugar or articles composed in chief 
value of sugar. 
§ 6412(a)(4) 
CH. 6 5—ABATEMENTS, CREDITS AND REFUNDS 
797 
(e) CROSS REFERENCE.— 
For floor stocks refunds in case of certain alcohol and tobacco taxes, 
see sections 5063 and 5707. 
SEC. 6413. SPECIAL RULES APPLICABLE TO CERTAIN EMPLOYMENT 
TAXES. 
(a) ADJUSTMENT OF T A X . — 
(1) GENERAL RULE.—If more than the correct amount of tax 
imposed by section 3101, 3111, 3201, 3221, or 3402 is paid with 
respect to any payment of remuneration, proper adjustments, with 
respect to both the tax and the amount to be deducted, shall be 
made, without interest, in such manner and at such times as the 
Secretary or his delegate may by regulations prescribe. 
(2) UNITED STATES AS EMPLOYER.—For purposes of this subsec-
tion, in the case of remuneration received from the United States 
or a wholly-owned instrumentality thereof during any calendar 
year, each head of a Federal agency or instrumentality who makes 
a return pursuant to section 3122 and each agent, designated by the 
head of a Federal agency or instrumentality, who makes a return 
pursuant to such section shall be deemed a separate employer. 
(b) OVERPAYMENTS OP CERTAIN EMPLOYMENT TAXES.—If more 
than the correct amount of tax imposed by section 3101, 3111, 3201, 
3221, or 3402 is paid or deducted with respect to any payment of 
remuneration and the overpayment cannot be adjusted under sub-
section (a) of this section, the amount of the overpayment shall be 
refunded in such manner and at such times (subject to the statute of 
limitations properly applicable thereto) as the Secretary or his delegate 
may by regulations prescribe. 
(c) SPECIAL REFUNDS.— 
(1) IN GENERAL.—If by reason of an employee receiving wages 
from more than one employer during any calendar year, the wages 
received by him during such year exceed $3,600, the employee 
shall be entitled (subject to the provisions of section 31 (b)) to a 
credit or refund of any amount of tax, with respect to such wages, 
imposed by section 3101 and deducted from the employee's wages 
(whether or not paid to the Secretary or his delegate), which exceeds 
the tax with respect to the first $3,600 of such wages received. 
(2) APPLICABILITY IN CASE OF FEDERAL AND STATE EMPLOYEES.— 
(A) FEDERAL EMPLOYEES.—In the case of remuneration re-
ceived from the United States or a wholly-owned instrumentality 
thereof during any calendar year, each head of a Federal agency 
or instrumentality who makes a return pursuant to section 
3122 and each agent, designated by the head of a Federal agency 
or instrumentality, who makes a return pursuant to such section 
shall, for purposes of this subsection, be deemed a separate em-
ployer; and the term "wages" includes, for purposes of this sub-
section, the amount, not to exceed $3,600, determined by each 
such head or agent as constituting wages paid to an employee. 
(B) STATE EMPLOYEES.—For purposes of this subsection, in 
the case of remuneration received during any calendar year, the 
term "wages" includes such remuneration for services covered 
by an agreement made pursuant to section 218 of the Social 
Security Act as would be wages if such services constituted em-
ployment; the term "employer" includes a State or any political 
§ 6413(c)(2)(B) 
798 
INTERNAL REVENUE CODE OF 
1954 
subdivision thereof, or any instrumentality of any one or more 
of the foregoing; the term "tax" or "tax imposed by section 
3101" includes, in the case of services covered by an agreement 
made pursuant to section 218 of the Social Security Act, an 
amount equivalent to the tax which would be imposed by sec-
tion 3101, if such services constituted employment as defined 
in section 3121; and the provisions of this subsection shall apply 
whether or not any amount deducted from the employee's re-
muneration as a result of an agreement made pursuant to section 
218 of the Social Security Act has been paid to the Secretary, 
(d) KEFUND OR CREDIT OF FEDERAL UNEMPLOYMENT TAX.—Any 
credit allowable under section 3302, to the extent not previously 
allowed, shall be considered an overpayment, but no interest shall be 
allowed or paid with respect to such overpayment. 
SEC. 6414. INCOME TAX WITHHELD. 
In the case of an overpayment of tax imposed by chapter 24, or by 
chapter 3, refund or credit shall be made to the employer or to the 
withholding agent, as the case may be, only to the extent that the 
amount of such overpayment was not deducted and withheld by the 
employer or withholding agent, 
SEC. 6415. CREDITS OR REFUNDS TO PERSONS WHO COLLECTED 
CERTAIN TAXES. 
(a) ALLOWANCE OF CREDITS OR REFUNDS.—Credit or refund of 
any overpayment of tax imposed by section 4231 (1), 4231 (2), 
4231 (3), 4241, 4251, 4261, 4271, or 4286 may be allowed to the person 
who collected the tax and paid it to the Secretary or his delegate if such 
person establishes, under such regulations as the Secretary or his dele-
gate may prescribe, that he has repaid the amount of such tax to the 
person from whom he collected it, or obtains the consent of such 
person to the allowance of such credit or refund. 
(b) CREDIT ON RETURNS.—Any person entitled to a refund of tax 
imposed by section 4231 (1),4231 (2), 4231 (3), 4241, 4251, 4261, 4271, 
or 4286 paid, or collected and paid, to the Secretary or his delegate by 
him may, instead of filing a claim for refund, take credit therefor 
against taxes imposed by such section due upon any subsequent return. 
(c) REFUND OF OVERCOLLECTIONS.—In case any person required 
under section 4231 (1), 4231 (2), 4231 (3), 4241, 4251, 4261, 4271, or 
4286 to collect any tax shall make an overcollection of such tax, such 
person shall, upon proper application, refund such overcollection to the 
person entitled thereto. 
(d) REFUND OF TAXABLE PAYMENT.—Any person making a refund 
of any payment on which tax imposed by section 4231 (1), 4231 (2), 
4231 (3), 4241, 4251, 4261, 4271, or 4286 has been collected may repay 
therewith the amount of tax collected on such payment. 
SEC. 6416. CERTAIN TAXES ON SALES AND SERVICES. 
(a) CONDITION TO ALLOWANCE.—No credit or refund of any over-
payment of tax imposed by section 4231 (6) or 4281 or by chapter 31 
(other than section 4041 (a) (2) or (b) (2)) or chapter 32 (except an 
overpayment of tax under paragraph (1) or (3) of subsection (b) of 
this section) shall be allowed unless the person who paid the tax 
establishes under regulations prescribed by the Secretary or his 
delegate— 
§ 6413(c)(2)(B) 
CH. 65—ABATEMENTS, CREDITS AND REFUNDS 
799 
(1) That he has not included the tax in the price of the article 
or service with respect to which it was imposed or has not collected 
the amount of the tax from the vendee; or 
(2) Has repaid the amount of the tax to the purchaser (in case 
of retailers' taxes) or to the ultimate purchaser (in the case of 
manufacturers' taxes and the tax under section 4041 (a) (1) or 
(b) (1)) of the article or service or, in any case within subsection 
(b) (2), has repaid or has agreed to repay the amount of the tax to 
the ultimate vendor of the article; or 
(3) Has filed with the Secretary or his delegate the written con-
sent of such purchaser, ultimate purchaser, or ultimate vendor, as 
the case may be, to the allowance of the credit or refund or has 
obtained the written consent of such ultimate vendor thereto. 
(b) SPECIAL CASES IN WHICH TAX PAYMENTS CONSIDERED OVER-
PAYMENTS.—Under regulations prescribed by the Secretary or his 
delegate credit or refund, without interest, shall be made of the over-
payments determined under the following paragraphs: 
(1) PRICE READJUSTMENTS.—If the price of any article in respect 
of which a tax, based on such price, is imposed by chapter 31 or 32, 
is readjusted by reason of the return or repossession of the article or 
a covering or container, or by a bona fide discount, rebate or allow-
ance, the part of the tax proportionate to the part of the price repaid 
or credited to the purchaser shall be deemed to be an overpayment. 
(2) SPECIFIED USES AND RESALES.—The tax paid under sub-
chapter E of chapter 31 or chapter 32 in respect of any article shall 
be deemed to be an overpayment if such article was, by any 
person— 
(A) Resold for the exclusive use of any State, Territory of the 
United States, or any political subdivision of the foregoing, or the 
District of Columbia, or, in the case of musical instruments 
embraced in section 4151, resold for the use of any religious 
or nonprofit educational institution for exclusively religious or 
educational purposes; 
(B) Used or resold for use for any of the purposes, but subject 
to the conditions, provided in section 4222; 
(C) In the case of a liquid taxable under section 4041, sold for 
use as fuel in a diesel-powered highway vehicle or as fuel for the 
propulsion of a motor vehicle, motorboat, or airplane, if the 
vendee used such liquid otherwise than as fuel in such a vehicle, 
motorboat, or airplane or resold such liquid; 
(D) In the case of lubricating oils, used or resold for nonlu-
bricating purposes; 
(E) In the case of unexposed motion picture films, used or re-
sold for use in the making of newsreel motion picture films; 
(F) In the case of articles taxable under section 4061 (b) (other 
than spark plugs, storage batteries, leaf springs, coils, timers, 
and tire chains), used or resold for use as repair or replacement 
parts or accessories for farm equipment (other than equipment 
taxable under section 4061 (a)); 
(G) In the case of a communication, detection, or navigation 
receiver of the type used in commercial, military, or marine 
installations, resold to the United States for its exclusive use; 
§ 6416(b)(2)(G) 
800 
INTERNAL REVENUE CODE OF 1954 
(H) In the case of gasoline, used in production of special motor 
fuels referred to in section 4041 (b). 
(3) TAX-PAID ARTICLES USED FOR FURTHER MANUFACTURE.— 
If the tax imposed by chapter 32 has been paid with respect to the 
sale of— 
(A) Any article (other than a tire, inner tube, or automobile 
radio or television receiving set taxable under section 4141) pur-
chased by a manufacturer or producer and used by him as material 
in the manufacture or production of, or as a component part of, 
an article with respect to which tax under chapter 32 has been 
paid, or which has been sold free of tax by virtue of section. 4220 
or 4224, relating to tax-free sales; 
(B) Any article described in sections 4142 and 4143 (b) pur-
chased by a manufacturer or producer and used by him as material 
in the manufacture or production of, or as a component part of, 
communication, detection, or navigation receivers of the type 
used in commercial, military, or marine installations if such 
receivers have been sold by him to the United States for its 
exclusive use; 
such tax shall be deemed an overpayment by such manufacturer 
or producer. 
(c) CREDIT FOR TAX PAID ON TIRES, INNER TUBES, RADIOS OR 
TELEVISION RECEIVING SETS.—If tires, inner tubes, or automobile 
radio or television receiving sets on which tax has been imposed under 
chapter 32 are sold on or in connection with, or with the sale of, an 
article taxable under section 4061 (a) (relating to automobiles, trucks, 
etc.), there shall (under regulations prescribed by the Secretary or 
his delegate) be credited, without interest, against the tax under 
section 4061 an amount equal to, in the case of an article taxable 
under paragraph (1) or (2) of subsection (a) of section 4061, the 
applicable percentage rate of tax provided in such subsections— 
(1) Of the purchase price (less, in the case of tires, the part of 
such price attributable to the metal rim or rim base) if such tires 
or inner tubes were taxable under section 4071 (relating to tax on 
tires and inner tubes) or, in the case of automobile radio or tele-
vision receiving sets, if such sets were taxable under section 4141; or 
(2) If such tires, inner tubes, or automobile radio or television 
receiving sets were taxable under section 4218 (relating to use by 
manufacturer, producer, or importer), then of the price (less, in 
the case of tires, the part of such price attributable to the metal 
rim or rim base) at which such or similar tires, inner tubes, or sets 
are sold, in the ordinary course of trade, by manufacturers, pro-
ducers, or importers thereof, as determined by the Secretary or his 
delegate. 
(d) 
MECHANICAL PENCILS TAXABLE AS JEWELRY.—If any article, 
on the sale of which tax has been paid under section 4201, is further 
manufactured or processed resulting in an article taxable under sec-
tion 4001, the person who sells such article at retail shall, in the com-
putation of the retailers' excise tax due on such sale, be entitled to a 
credit or refund, without interest, in an amount equal to the tax paid 
under section 4201. 
(e) REFUND TO EXPORTER OR SHIPPER.—Under regulations pre-
scribed by the Secretary or his delegate the amount of any tax imposed 
§ 6416(b)(2)(H) 
CH. 65—^ABATEMENTS, CREDITS AND REFUNDS 
801 
by subchapter E of chapter 31, or chapter 32 erroneously or illegally 
collected in respect of any article exported to a foreign country or 
shipped to a possession of the United States may be refunded to the 
exporter or shipper thereof, if the person who paid such tax waives 
his claim to such amount. 
(f) CREDIT ON RETURNS.—Any person entitled to a refund of tax 
imposed by chapter 31 or 32 or section 4281, paid to the Secretary or 
his delegate may, instead of filing a claim for refund, take credit 
therefor against taxes imposed by such chapter or section due on 
any subsequent return. 
SEC. 6417. COCONUT AND PALM OIL. 
(a) SALES TO STATES OR POLITICAL SUBDIVISIONS.—Subject to such 
rules or regulations as the Secretary or his delegate may prescribe, 
any person who has sold to a State, or a political subdivision thereof, 
for use in the exercise of an essential governmental function any 
article containing any oil, combination, or mixture, upon the proces-
sing of which a tax has been paid under section 4511, shall be entitled 
to a credit or refund of the tax paid with respect to the quantity of 
such oil, combination, or mixture contained in such article. 
(b) EXPORTATION.—Upon the exportation to any foreign country 
or to a possession of the United States of any article, wholly or in 
chief value of an article, with respect to the processing of which a 
tax has been paid under subchapter B of chapter 37, the exporter 
thereof shall be entitled to a refund of the amount of such tax. 
SEC. 6418. SUGAR. 
(a) U S E AS LIVESTOCK FEED OR FOR DISTILLATION OF ALCOHOL.— 
Upon the use of any manufactured sugar, or article manufactured 
therefrom, as livestock feed, or in the production of livestock feed, 
or for the distillation of alcohol, there shall be paid by the Secretary 
or his delegate to the" person so using such manufactured sugar, or 
article manufactured therefrom, the amount of any tax paid under 
section 4501 (a) with respect thereto. 
(b) EXPORTATION.—Upon the exportation from the United States 
to a foreign country, or the shipment from the United States to any 
possession of the United States except Puerto Rico, of any manufac-
tured sugar, or any article manufactured wholly or partly from 
manufactured sugar, with respect to which tax under the provisions 
of section 4501 (a) has been paid, the amount of such tax shall be paid 
by the Secretary or his delegate to the consignor named in the bill of 
lading under which the article was exported or shipped to a possession, 
or to the shipper, or to the manufacturer of the manufactured sugar or 
of the articles exported, if the consignor waives any claim thereto 
in favor of such shipper or manufacturer; except that no such payment 
shall be allowed with respect to any manufactured sugar, or article, 
upon which, through substitution or otherwise, a drawback of any 
tax paid under section 4501 (b) has been or is to be claimed under any 
provisions of law made applicable by section 4504. 
SEC. 6419. EXCISE TAX ON WAGERING. 
(a) CREDIT OR REFUND GENERALLY.—No overpayment of tax 
imposed by chapter 35 shall be credited or refunded (otherwise than 
under subsection (b)), in pursuance of a court decision or otherwise, 
unless the person who paid the tax establishes, in accordance with 
§ 6419(a) 
802 
INTERNAL REVENUE CODE OF 1954 
regulations prescribed by the Secretary or his delegate, (1) that he 
has not collected (whether as a separate charge or otherwise) the 
amount of the tax from the person who placed the wager on which 
the tax was imposed, or (2) that he has repaid the amount of the 
tax to the person who placed such wager, or unless he files with the 
Secretary or his delegate written consent of the person who placed 
such wager to the allowance of the credit or the making of the refund. 
In the case of any laid-off wager, no overpayment of tax imposed by 
chapter 35 shall be so credited or refunded to the person with whom 
such laid-off wager v/as placed unless he establishes, in accordance 
with regulations prescribed by the Secretary or his delegate, that the 
provisions of the preceding sentence have been complied with both 
with respect to the person who placed the laid-off wager with him and 
with respect to the person who placed the original wager. 
(b) CREDIT OR REFUND ON WAGERS LAID-OFF BY TAXPAYER.— 
Where any taxpayer lays off part or all of a wager with another 
person who is liable for tax imposed by chapter 35 on the amount 
so laid off, a credit against such tax shall be allowed, or a refund shall 
be made to, the taxpayer laying off such amount. Such credit or 
refund shall be in an amount which bears the same ratio to the amount 
of tax which such taxpayer paid on the original wager as the amount 
so laid off bears to the amount of the original wager. Credit or refund 
under this subsection shall be allowed or made only in accordance with 
regulations prescribed by the Secretary or his delegate; and no interest 
shall be allowed with respect to any amount so credited or refunded. 
SEC. 6420. CROSS REFERENCES. 
(1) For limitations on credits and refunds, see subchapter B of chap-
ter 66. 
(2) For overpayment arising out of adjustments incident to involun-
tary liquidation of inventory, see section 1321. 
(3) For overpayment in case of adjustments to accrued foreign taxes, 
see section 905 (c). 
(4) For credit or refund in case of deficiency dividends paid by a 
personal holding company, see section 547. 
(5) For refund, credit, or abatement of amounts disallowed by courts 
upon review of Tax Court decision, see section 7486. 
(6) For abatement or refund of tax on transfers to avoid income tax, 
see section 1494 (b). 
(7) For abatement or refund in case of tax on silver bullion, see 
section 4894. 
(8) For overpayment in certain renegotiations of war contracts, see 
section 1481. 
(9) For refund or redemption of stamps, see chapter 69. 
(10) For abatement, credit, or refund in case of jeopardy assessments, 
see chapter 70. 
(11) For treatment of certain overpayments as having been refunded, 
in connection with sale of surplus war-built vessels, see section 9 (b) (8) 
of the Merchant Ship Sales Act of 1946 (60 Stat. 48; 50 U. S. C. App. 
1742). 
(12) For restrictions on transfers and assignments of claims against 
the United States, see R. S. 3477 (31 U. S. C. 203). 
(13) For set-off of claims against amounts due the United States, 
see the act of March 3, 1875, as amendted by section 13 of the act of 
March 3, 1933 (47 Stat. 1516; 31 U. S. C. 227). 
(14) For special provisions relating to alcohol and tobacco taxes, 
see sections 5011, 5044, 5057, 5063, 5705, and 5707. 
§ 6419(a) 
CH. 66—LIMITATIONS 
803 
CHAPTER 66—LIMITATIONS 
SUBCHAPTER A. Limitations on assessment and collection. 
SUBCHAPTER B . Limitations on credit or refund. 
SUBCHAPTER C. Mitigation of effect of period of limitations. 
SUBCHAPTER D . Periods of limitation in judicial proceedings. 
Subchapter A—Limitations on Assessment and Collection 
Sec. 6501. Limitations on assessment and collection. 
Sec. 6502. Collection after assessment. 
Sec. 6503. Suspension of running of period of limitation. 
Sec. 6504. Cross references. 
SEC. 6501. LIMITATIONS ON ASSESSMENT AND COLLECTION. 
(a) GENEEAL RULE.—Except as otherwise provided in this section, 
the amount of any tax imposed by this title shall be assessed within 
3 years after the return was filed (whether or not such return was filed 
on or after the date prescribed) or, if the tax is payable by stamp, 
within 3 years after such tax became due, and no proceeding in court 
without assessment for the collection of such tax shall be begun after 
the expiration of such period. 
(b) TIME RETURN DEEMED FILED.— 
(1) EARLY RETURN.—For purposes of this section, a return of 
tax imposed by this title, except tax imposed by chapter 21 or 24, 
filed before the last day prescribed by law or by regulations promul-
gated pursuant to law for the filing thereof, shall be considered as 
filed on such last day. 
(2) RETURN OF CERTAIN EMPLOYMENT TAXES.—For purposes of 
this section, if a return of tax imposed by chapter 21 or 24 for any 
period ending with or within a calendar year is filed before April 15 
of the succeeding calendar year, such return shall be considered 
filed on April 15 of such calendar year. 
(3) RETURN 
EXECUTED BY SECRETARY.—Notwithstanding 
the 
provisions of paragraph (2) of section 6020 (b), the execution of a 
return by the Secretary or his delegate pursuant to the authority 
conferred by such section shall not start the running of the period 
of limitations on assessment and collection. 
(c) EXCEPTIONS.— 
(1) FALSE RETURN.—In the case of a false or fraudulent return 
with the intent to evade tax, the tax may be assessed, or a proceeding 
in court for collection of such tax may be begun without assessment, 
at any time. 
(2) WILLFUL ATTEMPT TO EVADE TAX.—In case of a willful at-
tempt in any manner to defeat or evade tax imposed by this title 
(other than tax imposed by subtitle A or B), the tax may be 
assessed, or a proceeding in court for the collection of such tax 
may be begun without assessment, at any time. 
§ 6501(c)(2) 
804 
INTERNAL REVENUE CODE OF 
1954 
(3) No EETURN.—In the case of failure to file a return, the tax 
may be assessed, or a proceeding in court for the collection of such 
tax may be begun without assessment, at any time. 
(4) EXTENSION BY AGREEMENT.—Where, before the expiration of 
the time prescribed in this section for the assessment of any tax 
imposed by this title, except the estate tax provided in chapter 11, 
both the Secretary or his delegate and the taxpayer have consented 
in writing to its assessment after such time, the tax may be assessed 
at any time prior to the expiration of the period agreed upon. 
The period so agreed upon may be extended by subsequent agree-
ments in writing made before the expiration of the period previ-
ously agreed upon. 
(5) TAX RESULTING FROM CHANGES IN CERTAIN INCOME TAX OR 
ESTATE TAX CREDITS.-— 
For special rules applicable in cases where the adjustment of certain 
taxes allowed as a credit against income taxes or estate taxes results in 
additional tax, see section 905 (c) (relating to the foreign tax credit for 
income tax purposes) and section 2016 (relating to taxes of foreign 
countries, States, etc., claimed as credit against estate taxes). 
(d) KEQUEST 
FOR PROMPT ASSESSMENT.—^Except as otherwise 
provided in subsection (c), in the case of any tax (other than the tax 
imposed by chapter 11 of subtitle B, relating to estate taxes) for 
which return is required in the case of a decedent, or by his estate 
during the period of administration, or by a corporation, the tax shall 
be assessed, and any proceeding in court without assessment for the 
collection of such tax shall be begun, within 18 months after written 
request therefor (filed after the return is made and filed in such manner 
and such form as may be prescribed by regulations of the Secretary or 
his delegate) by the executor, administrator, or other fiduciary repre-
senting the estate of such decedent, or by the corporation, but not 
after the expiration of 3 years after the return was filed. This sub-
section shall not apply in the case of a corporation unless— 
(1) Such written request notifies the Secretary or his delegate 
that the corporation contemplates dissolution at or before the 
expiration of such 18-month period; and 
(2) The dissolution is in good faith begun before the expiration 
of such 18-month period; and 
(3) The dissolution is completed. 
(e) OMISSION FROM GROSS INCOME.—Except as otherwise provided 
in subsection (c)— 
(1) INCOME TAXES.—In the case of any tax imposed by subtitle 
A— 
(A) GENERAL RULE.—If the taxpayer omits from gross income 
an amount properly includible therein which is in excess of 25 
percent of the amount of gross income stated in the return, 
the tax may be assessed, or a proceeding in court for the col-
lection of such tax may be begun without assessment, at any 
time within 6 years after the return was filed. For purposes of 
this subparagraph— 
(i) In the case of a trade or business, the term "gross 
income" means the total of the amounts received or accrued 
from the sale of goods or services (if such amounts are required 
to be shown on the return) prior to diminution by the cost of 
such sales or services; and 
§6501 (c)(3) 
CH. 66—LIMITATIONS 
805 
(ii) In determining the amount omitted from gross income, 
there shall not be taken into account any amount which is 
omitted from gross income stated in the return if such amount 
is disclosed in the return, or in a statement attached to the 
return, in a manner adequate to apprise the Secretary or his 
delegate of the nature and amount of such item. 
(B) CONSTRUCTIVE DIVIDENDS.—If the taxpayer omits from 
gross income an amount properly includible therein under 
section 551 (b) (relating to the inclusion in the gross income of 
United States shareholders of their distributive shares of the 
undistributed foreign personal holding company income), the 
tax may be assessed, or a proceeding in court for the collection 
of such tax may be begun without assessment, at any time within 
6 years after the return was filed. 
(2) ESTATE AND GIFT TAXES.—In the case of a return of estate 
tax under chapter 11 or a return of gift tax under chapter 12, if the 
taxpayer omits from the gross estate or from the total amount of the 
gifts made during the year items includible in such gross estate or 
such total gifts, as the case may be, as exceed in amount 25 percent 
of the gross estate stated in the return or the total amount of gifts 
stated in the return, the tax may be assessed, or a proceeding in 
court for the collection of such tax may be begun without assess-
ment, at any time within 6 years after the return was filed. 
In 
determining the items omitted from the gross estate or the total 
gifts, there shall not be taken into account any item which is 
omitted from the gross estate or from the total gifts stated in the 
return if such item is disclosed in the return, or in a statement 
attached to the return, in a manner adequate to apprise the Secre-
tary or his delegate of the nature and amount of such item. 
(f) PERSONAL HOLDING COMPANY TAX.—If a corporation which is 
a personal holding company for any taxable year faUs to file with its 
return under chapter 1 for such year a schedule setting forth— 
(1) the items of gross income, described in section 543 (a), re-
ceived by the corporation during such year, and 
(2) the names and addresses of the individuals who owned, 
within the meaning of section 544 (relating to rules for determining 
stock ownership), at any time during the last half of such year more 
than 50 percent in value of the outstanding capital stock of the 
corporation, 
the personal holding company tax for such year may be assessed, or 
a proceeding in court for the collection of such tax may be begun 
without assessment, at any time within 6 years after the return for 
such year was filed. 
(g) CERTAIN INCOME TAX RETURNS OF CORPORATIONS.— ^ 
(1) TRUSTS OR PARTNERSHIPS.—If a taxpayer determines in good 
faith that it is a trust or partnership and files a return as such 
under subtitle A, and if such taxpayer is thereafter held to be a 
corporation for the taxable year for which the return is filed, such 
return shall be deemed the return of the corporation for purposes 
of this section. 
(2) EXEMPT ORGANIZATIONS.—If a taxpayer determines in good 
faith that it is an exempt organization and files a return as such 
under section 6033, and if such taxpayer is thereafter held to be a 
§ 6501(g)(2) 
806 
INTERNAL REVENUE CODE 
OF 1954 
taxable corporation for the taxable year for which the return is 
filed, such return shall be deemed the return of the corporation for 
purposes of this section, 
(h) JOINT INCOME RETURN AFTER SEPARATE "RETURN.— 
For period of limitations for assessment and collection in the case of 
a joint income return filed after separate returns have been filed, see 
section 6013 (b) (3) and (4). 
SEC. 6502. COLLECTION AFTER ASSESSMENT. 
(a) LENGTH OF PERIOD.—Where the assessment of any tax imposed 
by this title has been made within the period of Umitation properly 
applicable thereto, such tax may be collected by levy or by a proceed-
ing in court, but only if the levy is made or the proceeding begun— 
(1) within 6 years after the assessment of the tax, or 
(2) prior to the expiration of any period for collection agreed 
upon in writing by the Secretary or his delegate and the taxpayer 
before the expiration of such 6-year period (or, if there is a release 
of levy under section 6343 after such 6-year period, then before 
such release). 
The period so agreed upon may be extended by subsequent agreements 
in writing made before the expiration of the period previously agreed 
upon. 
(b) DATE W H E N LEVY I S CONSIDERED MADE.—The date on which 
a levy on property or rights to property is made shall be the date on 
which the notice of seizure provided in section 6335 (a) is given. 
SEC. 6503. SUSPENSION OF RUNNING OF PERIOD OF LIMITATION. 
(a) ISSUANCE OF STATUTORY NOTICE OF DEFICIENCY.— 
(1) GENERAL RULE.—The running of the period of limitations 
provided in section 6501 or 6502 on the making of assessments or 
the collection by levy or a proceeding in court, in respect of any 
deficiency as defined in section 6211 (relating to income, estate, and 
gift taxes), shall (after the mailing of a notice under section 6212(a)) 
be suspended for the period during which the Secretary or his dele-
gate is prohibited from making the assessment or from collecting by 
levy or a proceeding in court (and in any event, if a proceeding in 
respect of the deficiency is placed on the docket of the Tax Court, 
until the decision of the Tax Court becomes final), and for 60 days 
thereafter. 
(2) CORPORATION JOINING IN CONSOLIDATED INCOME TAX RE-
TURN.—If a notice under section 6212 (a) in respect of a deficiency in 
tax imposed by subtitle A for any taxable year is mailed to a cor-
poration, the suspension of the running of the period of limitations 
provided in paragraph (1) of this subsection shall apply in the case 
of corporations with which such corporation made a consolidated 
income tax return for such taxable year. 
(b) ASSETS OF TAXPAYER IN CONTROL OR CUSTODY OF COURT.— 
The period of limitations on collection after assessment prescribed in 
section 6502 shall be suspended for the period the assets of the tax-
payer (other than the estate of a decedent or of an incompetent) are 
in the control or custody of the court in any proceeding before any 
court of the United States or of any State or Territory or of the 
District of Columbia, and for 6 months thereafter. 
(c) LOCATION OF PROPERTY 
OUTSIDE THE UNITED 
STATES OR 
REMOVAL OF PROPERTY FROM THE UNITED STATES.—In case collection 
§ 6501(g)(2) 
CH. 66—LIMITATIONS 
807 
is hindered or delayed because property of the taxpayer is situated or 
held outside the United States or is removed from the United States, 
the period of limitations on collection after assessment prescribed in 
section 6502 shall be suspended for the period collection is so hindered 
or delayed. 
The total suspension of time under this subsection shall 
not in the aggregate exceed 6 years. 
(d) EXTENSIONS OF TIME FOR PAYMENT OF ESTATE TAX.—The 
running of the period of limitations for assessment or collection of any 
tax imposed by chapter 11 shall be suspended for the period of any 
extension of time for payment granted under the provisions of section 
6161 (a) (2) or (b) (2). 
(e) C R O S S 
K E F E R E N C E S . — 
For suspension in case of— 
(I) Deficiency dividends of a personal holding company, see section 
- '^4^'; 547 (f). 
li\ 
>;«: 
(2) Bankruptcy and receiverships, see subchapter B of chapter 70. 
;..,, 
(3) Claims against transferees and fiduciaries, see chapter 71. 
SEC. 6504. CROSS REFERENCES. 
i M • 
For limitation period in case of— 
,. 
(1) Adjustments incident to involuntary liquidation of inventory, see 
; 
,' ; section 1321. 
) 
(2) Adjustments to accrued foreign taxes, see section 905 (c). 
'• ;*J- /i 
(3) Change of election to take standard deduction where taxpayer 
and his spouse make separate returns, see section 144 (b). 
(4) Involuntary conversion of property, see section 1033 (a) (3) (C) 
and (D). 
(5) Gain upon sale or exchange of residence, see section 1034 (j). 
(6) War loss recoveries where prior benefit rule is elected, see sec-
tion 1335. 
(7) Recovery of unconstitutional Federal taxes, see section 1346. 
(8) Limitations on deductions allowable to individuals in certain 
cases, see section 270 (d). 
(9) Application by executor for discharge from personal liability for 
estate tax, see section 2204. 
(10) Insolvent banks and trust companies, see section 7507. 
(II) Service in a combat zone, etc., see section 7508. 
(12) Claims against transferees and fiduciaries, see chapter 71. 
§ 6504(12) 
808 
INTERNAL REVENUE CODE 
OF 1954 
Subchapter B—Limitations on Credit or Refund 
Sec. 6511. Limitations on credit or refund. 
Sec. 6512. Limitations in case of petition to Tax Court. 
Sec. 6513. Time return deemed filed and tax considered paid. 
Sec. 6514. Credits or refunds after period of limitation. 
Sec. 6515. Cross references. 
SEC. 6511. LIMITATIONS ON CREDIT OR REFUND. 
(a) PERIOD OF LIMITATION ON FILING CLAIM.—Claim for credit or 
refund of an overpayment of any tax imposed by this title in respect 
of which tax the taxpayer is required to file a return shall be filed by 
the taxpayer within 3 years from the time the return was required to 
be filed (determined without regard to any extension of time) or 
2 years from the time the tax was paid, whichever of such periods 
expires the later, or if no return was filed by the taxpayer, within 
2 years from the time the tax was paid. 
Claim for credit or refund 
of an overpayment of any tax imposed by this title which is required 
to be paid by means of a stamp shall be filed by the taxpayer within 
3 years from the time the tax was paid. 
(b) LIMITATION ON ALLOWANCE OF CREDITS AND REFUNDS.— 
(1) FILING OF CLAIM WITHIN PRESCRIBED PERIOD.—No credit or 
refund shall be allowed or made after the expiration of the period 
of limitation prescribed in subsection (a) for the filing of a claim 
for credit or refund, unless a claim for credit or refund is filed 
by the taxpayer within such period. 
(2) LIMIT ON AMOUNT OF CREDIT OR REFUND.— 
(A) LIMIT TO AMOUNT PAID WITHIN 3 YEARS.—If the claim 
was filed by the taxpayer during the 3-year period prescribed in 
subsection (a), the amount of the credit or refund shall not exceed 
the portion of the tax paid within the 3 years immediately pre-
ceding the filing of the claim. If the tax was required to be paid 
by means of a stamp, the amount of the credit or refund shall 
not exceed the portion of the tax paid within the 3 years immedi-
ately preceding the filing of the claim. 
(B) LIMIT TO AMOUNT PAID WITHIN 2 YEARS.—If the claim was 
not filed within such 3-year period, the amount of the credit or 
refund shall not exceed the portion of the tax paid during the 
2 years immediately preceding the filing of the claim. 
(C) LIMIT IF NO CLAIM FILED.—If no claim was filed, the 
credit or refund shall not exceed the amount which would be 
allowable under subparagraph (A) or (B), as the case may be, 
if claim was filed on the date the credit or refund is allowed. 
(c) SPECIAL RULES APPLICABLE IN CASE OF EXTENSION OF TIME 
BY AGREEMENT.—If an agreement under the provisions of section 
6501 (c) (4) extending the period for assessment of a tax imposed by 
this title is made within the period prescribed in subsection (a) for 
the filing of a claim for credit or refund— 
(1) TIME FOR FILING CLAIM.—The period for filing claim for 
credit or refund or for making credit or refund if no claim is filed, 
§6511 
CH. 66—LIMITATIONS 
809 
provided in subsections (a) and (b) (1), shall not expire prior to 
6 months after the expiration of the period within which an assess-
ment may be made pursuant to the agreement or any extension 
thereof under section 6501 (c) (4). 
(2) LIMIT ON AMOUNT.—If a claim is filed, or a credit or refund 
is allowed when no claim was filed, after the execution of the agree-
ment and within 6 months after the expiration of the period within 
which an assessment may be made pursuant to the agreement or 
any extension thereof, the amount of the credit or refund shall not 
exceed the portion of the tax paid after the execution of the agree-
ment and before the filing of the claim or the making of the credit 
or refund, as the case may be, plus the portion of the tax paid 
within the period which would be applicable under subsection (b) (2) 
if a claim had been filed on the date the agreement was executed. 
(3) CLAIMS NOT SUBJECT TO SPECIAL RULE.—This subsection 
shall not apply in the case of a claim filed, or credit or refund 
allowed if no claim is filed, either— 
(A) prior to the execution of the agreement or 
(B) more than 6 months after the expiration of the period 
within which an assessment may be made pursuant to the agree-
ment or any extension thereof. 
(d) SPECIAL RULES APPLICABLE TO INCOME TAXES.— 
(1) SEVEN-YEAR PERIOD OF LIMITATION WITH RESPECT TO BAD 
DEBTS AND WORTHLESS SECURITIES.—If the claim for credit or re-
fund relates to an overpayment of tax imposed by subtitle A on 
account of— 
(A) The deductibility by the taxpayer, under section 166 or 
section 832 (c), of a debt as a debt which became worthless, or, 
under section 165 (g), of a loss from worthlessness of a security, 
or 
(B) The effect that the deductibility of a debt or loss described 
in subparagraph (A) has on the application to the taxpayer of a 
carryover, 
in lieu of the 3-year period of limitation prescribed in subsection (a), 
the period shall be 7 years from the date prescribed by law for filing 
the return for the year with respect to which the claim is made. 
If 
the claim for credit or refund relates to an overpayment on account 
of the effect that the deductibility of such a debt or loss has on the 
application to the taxpayer of a carryback, the period shall be either 
7 years from the date prescribed by law for filing the return for the 
year of the net operating loss which results in such carryback or the 
period prescribed in paragraph (2) of this subsection, whichever 
expires the later. 
In the case of a claim described in this paragi-aph 
the amount of the credit or refund may exceed the portion of the 
tax paid within the period prescribed in subsection (b) (2) or (c), 
whichever is applicable, to the extent of the amount of the over-
payment attributable to the deductibility of items described in this 
paragraph. 
(2) SPECIAL PERIOD OF LIMITATION WITH RESPECT TO NET OPERAT-
ING LOSS CARRYBACKS.— 
(A) PERIOD OF LIMITATION.—If the claim for credit or refund 
relates to an overpayment attributable to a net operating loss 
carryback, in lieu of the 3-year period of limitation prescribed in 
§ 6511(d)(2)(A) 
49012"—54 
M 
810 
INTERNAL REVENUE CODE 
OF 1954 
subsection (a), the period shall be that period which ends with 
the expiration of the 15th day of the 39th month following the 
end of the taxable year of the net operating loss which results in 
such carryback, or the period prescribed in subsection (c) in 
respect of such taxable year, whichever expires later. In the 
case of such a claim, the amount of the credit or refund may 
exceed the portion of the tax paid within the period provided in 
subsection (b) (2) or (c), whichever is applicable, to the extent 
of the amount of the overpayment attributable to such carryback, 
(B) APPLICABLE RULES.—If the allowance of a credit or refund 
of an overpayment of tax attributable to a net operating loss 
carryback is otherwise prevented by the operation of any law or 
rule of law other than section 7122, relating to compromises, 
such credit or refund may be allowed or made, if claim therefor 
is filed within the period provided in subparagraph (A) of this 
paragraph. 
If the allowance of an application, credit, or refund 
of a decrease in tax determined under section 6411 (b) is otherwise 
prevented by the operation of any law or rule of law other than 
section 7122, such application, credit, or refund may be allowed 
or made if application for a tentative carryback adjustment is 
made within the period provided in section 6411 (a). In the case 
of any such claim for credit or refund or any such application for 
a tentative carryback adjustment, the determination by any 
court, including the Tax Court, in any proceeding in which the 
decision of the court has become final, shall be conclusive except 
with respect to the net operating loss deduction, and the effect 
of such deduction, to the extent that such deduction is affected 
by a carryback which was not in issue in such proceeding. 
(3) SPECIAL RULES RELATING TO FOREIGN TAX CREDIT.— 
(A) SPECIAL PERIOD OF LIMITATION WITH RESPECT TO FOREIGN 
TAXES PAID OR ACCRUED.—If the claim for credit or refund relates 
to an overpayment attributable to any taxes paid or accrued to 
any foreign country or to any possession of the United States for 
which credit is allowed against the tax imposed by subtitle A in 
accordance with the provisions of section 901 or the provisions of 
any treaty to which the United States is a party, in lieu of the 
3-year period of limitation prescribed in subsection (a), the 
period shall be 10 years from the date prescribed by law for filing 
the return for the year with respect to which the claim is made. 
(B) EXCEPTION IN THE CASE OF FOREIGN TAXES PAID OR 
ACCRUED.—In the case of a claim described in subparagraph (A), 
the amount of the credit or refund may exceed the portion of 
the tax paid within the period provided in subsection (b) or (c), 
whichever is applicable, to the extent of the amount of the over-
payment attributable to the allowance of a credit for the taxes 
described in subparagraph (A). 
(e) SPECIAL RULES IN CASE OF MANUFACTURED SUGAR.— 
(1) U S E AS LIVESTOCK FEED OR FOR DISTILLATION OF ALCOHOL.— 
No pajrment shall be allowed under section 641& (a) unless within 
2 years after the right to such payment has accrued a claim therefor 
is filed by the person entitled thereto. 
§ 6511(d)(2)(A) 
CH. 66—LIMITATIONS 
811 
(2) EXPORTATION.—No payment shall be allowed under section 
6418 (b) unless within 2 years after the right to such payment has 
accrued a claim therefor is filed by the person entitled thereto, 
(f) 
CROSS REFERENCES.— 
(1) For time return deemed filed and tax considered paid, see section 
6513. 
(2) For limitations with respect to certain credits against estate tax, 
see sections 2011 (c), 2014 (b), and 2015. 
(3) For limitations in case of floor stocks refunds, see section 6412. 
(4) For a period of limitations for credit or refund in the case of joint 
income returns after separate returns have been filed, see section 
6013 (b) (3). 
SEC. 6512. LIMITATIONS IN CASE OF PETITION TO TAX COURT. 
(a) EFFECT OF PETITION TO TAX COURT.—If the Secretary or 
his 
delegate has mailed to the taxpayer a notice of deficiency under 
section 6212 (a) (relating to deficiencies of income, estate, and gift 
taxes) and if the taxpayer files a petition with the Tax Court within 
the time prescribed in section 6213 (a), no credit or refund of income 
tax for the same taxable year, of gift tax for the same calendar year^ 
or of estate tax in respect of the taxable estate of the same decedent, 
in respect of which the Secretary or his delegate has determined the 
deficiency shall be allowed or made and no suit by the taxpayer for 
the recovery of any part of the tax shall be instituted in any court 
except— 
(1) As to overpayments determined by a decision of the Tax 
Court which has become final; and 
(2) As to any amount collected in excess of an amount computed 
in accordance with the decision of the Tax Court which has become 
final; and 
(3) As to any amount collected after the period of limitation upon 
the making of levy or beginning a proceeding in court for collection 
has expired; but in any such claim for credit or refund or in any 
such suit for refund the decision of the Tax Court which has become 
final, as to whether such period has expired before the notice of 
deficiency was mailed, shall be conclusive. 
(b) OVERPAYMENT DETERMINED BY TAX COURT.— 
(1) JURISDICTION TO DETERMINE.—If the Tax Court finds that 
there is no deficiency and further finds that the taxpayer has made 
an overpayment of income tax for the same taxable year, of gift tax 
for the same calendar year, or of estate tax in respect of the taxable 
estate of the same decedent, in respect of which the Secretary or his 
delegate determined the deficiency, or finds that there is a deficiency 
but that the taxpayer has made an overpayment of such tax, the 
Tax Court shall have jurisdiction to determine the amount of such 
overpayment, and such amount shall, when the decision of the Tax 
Court has become final, be credited or refunded to the taxpayer. 
(2) LIMIT ON AMOUNT OF CREDIT OR REFUND.—No such credit or 
refund shall be allowed or made of any portion of the tax unless the 
Tax Court determines as part of its decision that such portion was 
paid— 
(A) after the mailing of the notice of deficiency, or 
(B) within the period which would be applicable under section 
6511 (b) (2), (c), or (d), if on the date of the mailing of the notice 
of deficiency a claim had been filed (whether or not filed) stating 
§ 6512(b)(2)(B) 
-812 
INTERNAL REVENUE CODE OF 
1954 
the grounds upon which the Tax Court finds that there is an 
overpajnnent. 
SEC. 6513. TIME RETURN DEEMED FILED AND TAX CONSIDERED 
PAID. 
(a) EARLY RETURN OR ADVANCE PAYMENT OP TAX.—For purposes 
of section 6511, any return filed before the last day prescribed for the 
filing thereof shall be considered as filed on such last day. For 
purposes of section 6511 (b) (2) and (c) and section 6512, payment of 
any portion of the tax made before the last day prescribed for the 
payment of the tax shall be considered made on such last day. For 
purposes of this subsection, the last day prescribed for filing the re-
turn or paying the tax shall be determined without regard to any 
extension of time granted the taxpayer and without regard to any 
election to pay the tax in installments. 
(b) PREPAID INCOME TAX.—For purposes of section 6511 or 6512, 
any tax actually deducted and withheld at the source during any 
calendar year under chapter 24 shall, in respect of the recipient of the 
income, be deemed to have been paid by him on the 15th day of the 
fourth month following the close of his taxable year with respect to 
which such tax is allowable as a credit under section 31. For purposes 
of section 6511 or 6512, any amount paid as estimated income tax for 
any taxable year shall be deemed to have been paid on the last day 
prescribed for filing the return under section 6012 for such taxable year 
(determined without regard to any extension of time for filing such 
return). 
(c) EETURN AND PAYMENT OF SOCIAL SECURITY TAXES AND I N -
COME TAX WITHHOLDING.—Nothwithstanding subsection (a), for 
purposes of section 6511 with respect to any tax imposed by chapter 
21 or 24— 
(1) If a return for any period ending with or within a calendar 
year is filed before April 15 of the succeeding calendar year, such 
returu shall be considered filed on April 15 of such succeeding 
calendar year; and 
(2) If a tax with respect to remuneration paid during any 
period ending with or within a calendar year is paid before April 15 
of the succeeding calendar year, such tax shall be considered paid 
on April 15 of such succeeding calendar year. 
(d) OVERPAYMENT 
OF INCOME TAX CREDITED 
TO ESTIMATED 
TAX.—If any overpayment of income tax is, in accordance with section 
6402 (b), claimed as a credit against estimated tax for the succeeding 
taxable year, such amount shall be considered as a payment of the 
income tax for the succeeding taxable year (whether or not claimed 
as a credit in the return of estimated tax for such succeeding taxable 
year), and no claim for credit or refund of such overpayment shall be 
allowed for the taxable year in which the overpayment arises. 
SEC. 6514. CREDITS OR REFUNDS AFTER PERIOD OF LIMITATION. 
(a) CREDITS OR REFUNDS AFTER PERIOD OF LIMITATION.—A refund 
of any portion of an internal revenue tax shall be considered erroneous 
and a credit of any such portion shall be considered void— 
(1) EXPIRATION OF PERIOD FOR FILING CLAIM.—If made after 
the expiration of the period of limitation for filing claim therefor, 
unless within such period claim was filed; or 
16512(b)(2)(B) 
CH. 66—LIMITATIONS 
813 
(2) DISALLOWANCE OF CLAIM AND EXPIRATION OF PERIOD FOR 
FILING SUIT.—In the case of a claim filed within the proper time 
and disallowed by the Secretary or his delegate, if the credit or 
refund was made after the expiration of the period of limitation 
for filing suit, unless within such period suit was begun by the 
taxpayer. 
(3) R E C O V E R Y O F ERRONEOUS R E F U N D S . — 
For procedure by the United States to recover erroneous refunds, 
see sections 6532 (b) and 7405. 
(b) CREDIT AFTER PERIOD OF LIMITATION.—Any credit against a 
liability in respect of any taxable year shall be void if any payment in 
respect of such liability would be considered an overpayment under 
section 6401 (a). 
SEC. 6515. CROSS REFERENCES. 
For limitations in case of— 
(1) Adjustments incident to involuntary liquidation of inventory, see 
section 1321. 
(2) War loss recoveries where prior benefit rule is elected, see 
section 1335. 
(3) Deficiency dividends of a personal holding company, see sec-
tion 547. 
(4) Overpayment in certain renegotiations of war contracts, see 
section 1481. 
(5) Tentative carry-back adjustments, see section 6411. 
(6) Service in a combat zone, etc., see section 7508. 
(7) Suits for refund by taxpayers, see section 6532 (a). 
§ 6515(7) 
814 
INTERNAL REVENUE CODE OF 1954 
Subchapter C—Mitigation of Effect of Period of Limitations 
Sec. 6521. Mitigation of effect of limitation in case of related taxes 
under different chapters. 
SEC. 6521. MITIGATION 
OF EFFECT OF LIMITATION 
IN CASE OF 
RELATED TAXES UNDER DIFFERENT 
CHAPTERS. 
(a) SELF-EMPLOYMENT TAX AND TAX ON WAGES.—In the case of 
the tax imposed by chapter 2 (relating to tax on self-employment 
income) and the tax imposed by section 3101 (relating to tax on 
employees under the Federal Insurance Contributions Act)— 
(1) If an amount is erroneously treated as self-employment in-
come, or if an amount is erroneously treated as wages, and 
(2) If the correction of the error would require an assessment of 
one such tax and the refund or credit of the other tax, and 
(3) If at any time the correction of the error is authorized as to 
one such tax but is prevented as to the other tax by any law or 
rule of law (other than section 7122, relating to compromises), 
then, if the correction authorized is made, the amount of the assess-
ment, or the amount of the credit or refund, as the case may be, 
authorized as to the one tax shall be reduced by the amount of the 
credit or refund, or the amount of the assessment, as the case may be, 
which would be required with respect to such other tax for the cor-
rection of the error if such credit or refund, or such assessment, of 
such other tax were not prevented by any law or rule of law (other 
than section 7122, relating to compromises). 
(b) DEFINITIONS.—For purposes of subsection (a), the terms "self-
employment income" and ''wages" shall have the same meaning as 
when used in section 1402 (b). 
§6521 
CH. 66—LIMITATIONS 
815 
Subchapter D—Periods of Limitation in Judicial Proceedings 
Sec. 6531. Periods of limitation on criminal prosecutions. 
Sec. 6532. Periods of limitation on suits. 
Sec. 6533. Cross references. 
SEC. 6531. PERIODS OF LIMITATION ON CRIMINAL PROSECUTIONS. 
No person shall be prosecuted, tried, or punished for any of the 
various offenses arising under the internal revenue laws unless the 
indictment is found or the information instituted within 3 years next 
after the commission of the offense^ except that the period of limitation 
shall be 6 years— 
(1) for offenses involving the defrauding or attempting to defraud 
the United States or any agency thereof, whether by conspiracy or 
not, and in any manner; 
(2) for the offense of willfully attempting in any manner to evade 
or defeat any tax or the payment thereof; 
(3) for the offense of willfully aiding or assisting in, or procuring, 
counseling, or advising, the preparation or presentation under, or 
in connection, with any matter arising under, the internal revenue 
laws, of a false or fraudulent return, affidavit, claim, or document 
(whether or not such falsity or fraud is with the knowledge or 
consent of the person authorized or required to present such return, 
affidavit, claim, or document); 
(4) for the offense of willfully failing to pay any tax, or make any 
return (other than a return required under authority of part III of 
subchapter A of chapter 61) at the time or times required by law 
or regulations; 
(5) for offenses described in sections 7206 (1) and 7207 (relating to 
false statements and fraudulent documents); 
(6) for the offense described in section 7212 (a) (relating to 
intimidation of officers and employees of the United States); 
(7) for offenses described in section 7214 (a) committed by 
officers and employees of the United States; and 
(8) for offenses arising under section 371 of Title 18 of the United 
States Code, where the object of the conspiracy is to attempt in 
any manner to evade or defeat any tax or the payment thereof. 
The time during which the person committing any of the various 
offenses arising under the internal revenue laws is outside the United 
States or is a fugitive from justice within the meaning of section 3290 
of Title 18 of the United States Code, shall not be taken as any part 
of the time limited by law for the commencement of such proceedings. 
(The preceding sentence shall also be deemed an amendment to section 
3748 (a) of the Internal Revenue Code of 1939, and shall apply in lieu 
of the sentence in section 3748 (a) which relates to the time during 
which a person committing an offense is absent from the district 
wherein the same is committed, except that such amendment shall 
apply only if the period of limitations under section 3748 would, 
without the application of such amendment, expire more than 3 years 
§ 6531 
816 
INTERNAL REVENUE CODE OF 1954 
after the date of enactment of this title, and except that such period 
shall not, with the application of this amendment, expire prior to the 
date which is 3 years after the date of enactment of this title.) 
Where 
a complaint is instituted before a commissioner of the United States 
within the period above limited, the time shall be extended until the 
date which is 9 months after the date of the making of the complaint 
before the commissioner of the United States. 
For the purpose of 
determining the periods of limitation on criminal prosecutions, the 
rules of section 6513 shall be applicable. 
SEC. 6532. PERIODS OF LIMITATION ON SUITS. 
(a) SUITS BY T A X P A Y E R S FOR R E F U N D . — 
(1) GENERAL RULE.—No suit or proceeding under section 7422 
(a) for the recovery of any internal revenue tax, penalty, or 
other sum, shall be begun before the expiration of 6 months from 
the date of filing the claim required under such section unless the 
Secretary or his delegate renders a decision thereon within that 
time, nor after the expiration of 2 years from the date of mailing by 
registered maU by the Secretary or his delegate to the taxpayer of a 
notice of the disallowance of the part of the claim to which the suit 
or proceeding relates. 
(2) EXTENSION OF TIME.—The 2-year period prescribed in para-
graph (1) shall be extended for such period as may be agreed upon 
in writing between the taxpayer and the Secretary or his delegate. 
(3) WAIVER OF NOTICE OF DISALLOWANCE.—If any person files 
a written waiver of the requirement that he be mailed a notice of 
disallowance, the 2-year period prescribed in paragraph (1) shall 
begin on the date such waiver is filed. 
(4) RECONSIDERATION AFTER MAILING OF NOTICE.—Any con-
sideration, reconsideration, or action by the Secretary or his delegate 
with respect to such claim following the mailing of a notice by 
registered mail of disallowance shall not operate to extend the 
period within which suit may be begun. 
(b) SUITS BY UNITED STATES FOR RECOVERY OF ERRONEOUS 
REFUNDS.—Recovery of an erroneous refund by suit under section 
7405 shall be allowed only if such suit is begun within 2 years after the 
making of such refund, except that such suit may be brought at any 
time within 5 years from the making of the refund if it appears that 
any part of the refund was induced by fraud or misrepresentation of a 
material fact. 
SEC. 6533. CROSS REFERENCES. 
(1) For period of limitation in respect of civil actions for fines, penalties, 
and forfeitures, see section 2462 of Title 28 of the United States Code. 
(2) For extensions of time by reason of armed service in a combat 
zone, see section 7508. 
(3) For suspension of running of statute until 3 years after termination 
of hostilities, see section 3287 of Title 18. 
§6531 
CH. 67—INTEREST 
817 
CHAPTER 67—INTEREST 
STJBCHAPTEE A. Interest on underpayments. 
SUBCHAPTER B . Interest on overpayments. 
Subchapter A—Interest on Underpayments 
Sec. 6601. Interest on underpayment, nonpayment, or extensions 
of time for payment, of tax. 
Sec. 6602. Interest on erroneous refund recoverable by suit. 
SEC. 6601. INTEREST ON UNDERPAYMENT, 
NONPAYMENT, OR EX-
TENSIONS OF TIME FOR PAYMENT, OF TAX. 
(a) GENERAL RULE.—If any amount of tax imposed by this title 
(whether required to be shown on a return, or to be paid by stamp or 
by some other method) is not paid on or before the last date prescribed 
for payment, interest on such amount at the rate of 6 percent per 
annum shall be paid for the period from such last date to the date paid. 
(b) EXTENSIONS OF TIME FOR PAYMENT OF ESTATE TAX.—If 
the 
time for payment of an amount of tax imposed by chapter 11 is extended 
as provided in section 6161 (a) (2) or if postponement of the payment 
of an amount of such tax is permitted by section 6163 (a), interest 
shall be paid at the rate of 4 percent, in lieu of 6 percent as provided 
in subsection (a). 
(c) LAST DATE PRESCRIBED FOR PAYMENT,—For purposes of this 
section, the last date prescribed for payment of the tax shall be 
determined under chapter 62 with the application of the following 
rules: 
(1) EXTENSIONS OF TIME DISREGARDED.—The last date prescribed 
for payment shall be determiaed without regard to any extension 
of time for paymen t. 
(2) INSTALLMENT PAYMENTS.—In the case of an election under 
section 6152 (a) to pay the tax in installments— 
(A) The date prescribed for payment of each installment of the 
tax shown on the return shall be determined under section 
6152 (b), and 
(B) The last date prescribed for payment of the first install-
ment shall be deemed the last date prescribed for payment of any 
portion of the tax not shown on the return. 
(3) JEOPARDY.—The last date prescribed for payment shall be 
determined without regard to any notice and demand for payment 
issued, by reason of jeopardy (as provided in chapter 70), prior 
to the last date otherwise prescribed for such payment. 
(4) LAST DATE FOR PAYMENT NOT OTHERWISE PRESCRIBED.—In 
the case of taxes payable by stamp and in all other cases in which 
the last date for payment is not otherwise prescribed, the last date 
for payment shall be deemed to be the date the hability for tax 
arises (and in no event shall be later than the date notice and demand 
for the tax is made by the Secretary or his delegate). 
§ 6601(c)(4) 
818 
INTERNAL REVENUE CODE OF 1954 
(d) SUSPENSION OF INTEREST IN CERTAIN INCOME, ESTATE, AND 
GIFT TAX CASES.—In the case of a deficiency as defined in section 
6211 (relating to income, estate, and gift taxes), if a waiver of restric-
tions under section 6213 (d) on the assessment of such deficiency has 
been filed, and if notice and demand by the Secretary or his delegate 
for payment of such deficiency is not made within 30 days after the 
filing of such waiver, interest shall not be imposed on such deficiency 
for the period beginning immediately after such 30th day and ending 
with the date of notice and demand. 
(e) INCOME TAX KEDUCED BY CARRYBACK.—If the amount of any 
tax imposed by subtitle A is reduced by reason of a carryback of a 
net operating loss, such reduction in tax shall not affect the computa-
tion of interest under this section for the period ending with the last 
day of the taxable year in which the net operating loss arises. 
(f) APPLICABLE RULES.—Except as otherwise provided in this 
title— 
(1) INTEREST 
TREATED 
AS TAX.—Interest 
prescribed 
under 
this section on any tax shall be paid upon notice and demand, and 
shall be assessed, collected, and paid in the same manner as taxes. 
Any reference in this title (except subchapter B of chapter 63, 
relating to deficiency procedures) to any tax imposed by this title 
shall be deemed also to refer to interest imposed by this section on 
such tax. 
(2) No INTEREST ON INTEREST.—No interest under this section 
shall be imposed on the interest provided by this section. 
(3) INTEREST ON PENALTIES, ADDITIONAL AMOUNTS, OR ADDITIONS 
TO THE TAX.—Interest shall be imposed under subsection (a) in 
respect of any assessable penalty, additional amount, or addition 
to the tax only if such assessable penalty, additional amount, or 
addition to the tax is not paid within 10 days from the date of 
notice and demand therefor, and in such case interest shall be 
imposed only for the period from the date of the notice and demand 
to the date of payment. 
(4) PAYMENTS MADE WITHIN 10 DAYS AFTER NOTICE AND DE-
MAND.—If notice and demand is made for payment of any amount, 
and if such amount is paid within 10 days after the date of such 
notice and demand, interest under this section on the amount so 
paid shall not be imposed for the period after the date of such 
notice and demand. 
(g) EXCEPTION AS TO ESTIMATED TAX.—This section shall not 
apply to any failure to pay estimated tax required by section 6153 (or 
section 59 of the Internal Revenue Code of 1939) or section 6154. 
(h) No INTEREST ON CERTAIN ADJUSTMENTS.— 
For provisions prohibiting interest on certain adjustments in tax, see 
section 6205 (a). 
SEC. 6602. INTEREST ON ERRONEOUS REFUND RECOVERABLE BY SUIT. 
Any portion of an internal revenue tax (or any interest, assessable 
penalty, additional amount, or addition to tax) which has been 
erroneously refunded, and which is recoverable by suit pursuant to 
section 7405, shall bear interest at the rate of 6 percent per annum 
from the date of the payment of the refund. 
§ 6601(d) 
CH. 67—INTEREST 
819 
Subchapter B—^Interest on Overpayments 
Sec. 6611. Interest on overpayments. 
Sec. 6612. Cross references. 
SEC. 6611. INTEREST ON OVERPAYMENTS. 
(a) RATE.—Interest shall be allowed and paid upon any overpay-
ment in respect of any internal revenue tax at the rate of 6 percent 
per annum. 
(b) PERIOD.—Such interest shall be allowed and paid as follows: 
(1) CREDITS.—In the case of a credit, from the date of the over-
payment to the due date of the amount against which the credit is 
taken, but if the amount against which the credit is taken is an 
additional assessment, then to the date of the assessment of that 
amount. 
(2) REFUNDS.—In the case of a refund, from the date of the 
overpayment to a date (to be determined by the Secretary or his 
delegate) preceding the date of the refund check by not more than 
30 days, whether or not such refund check is accepted by the tax-
payer after tender of such check to the taxpayer. 
The acceptance 
of such check shall be without prejudice to any right of the tax-
payer to claim any additional overpayment and interest thereon. 
(c) ADDITIONAL ASSESSMENT DEFINED,—As used in this section, 
the term "additional assessment" means a further assessment for a 
tax of the same character previously paid in part, and includes the 
assessment of a deficiency (as defined in section 6211). 
(d) ADVANCE PAYMENT OF TAX, PAYMENT OF ESTIMATED TAX, AND 
CREDIT FOR INCOME TAX WITHHOLDING.—The provisions of section 
6513 (except the provisions of subsection (c) thereof), applicable in 
determining the date of payment of tax for purposes of determining 
the period of limitation on credit or refund, shall be applicable in 
determining the date of payment for purposes of subsection (a). 
(e) INCOME TAX REFUND WITHIN 45 DAYS OF D U E DATE OF T A X . — 
If any overpayment of tax imposed by subtitle A is refunded within 
45 days after the last date prescribed for filing the return of such tax 
(determined without regard to any extension of time for filing the 
return), no interest shall be allowed under subsection (a) on such 
overpayment. 
(f) REFUND OF INCOME TAX CAUSED BY CARRYBACK.—For pur-
poses of subsection (a), if any overpayment of tax imposed by subtitle 
A results from a carryback of a net operating loss, such overpayment 
shall be deemed not to have been made prior to the close of the taxable 
year in which such net operating loss arises. 
(g) PROHIBITION OF ADMINISTRATIVE REVIEW.— 
For prohibition of administrative review, see section 6406. 
§ 6611(g) 
820 
INTERNAL REVENUE CODE 
OF 
1954 
SEC. 
6612. 
CROSS 
REFERENCES. 
(a) INTEREST 
ON 
JUDGMENTS FOR OVERPAYMENTS.— 
For interest on judgments for overpayments, see 28 U. S. C. 2411 (a). 
(b) 
A D J U S T M E N T S . — 
For provisions prohibiting interest on certain adjustments in tax, 
see section 6413 (a). 
(c) 
O T H E R RESTRICTIONS ON INTEREST.—• 
For otiier restrictions on interest, see section 2011 (c) (relating to 
refunds due to credit for State taxes), 2014 (e) (relating to refunds 
attributable to foreign tax credits), 6412 (relating to floor stock refunds), 
6413 (d) (relating to taxes under the Federal Unemployment Tax Act), 
6416 (relating to certain taxes on sales and services), and 6419 (relating 
to the excise tax on wagering). 
§ 6612 
CH. 68—ADDITIONS AND PENALTIES 
821 
CHAPTER 68—ADDITIONS TO THE TAX, ADDITIONAL 
AMOUNTS, AND ASSESSABLE PENALTIES 
SUBCHAPTER A. Additions to the tax and additional amounts. 
SUBCHAPTER B . Assessable penalties. 
Subchapter A—Additions to the Tax and Additional Amounts 
Sec. 6651. Failure to file tax return. 
Sec. 6652. Failure to file certain information returns. 
Sec. 6653. Failure to pay tax. 
Sec. 6654. Failure by individual to pay estimated income tax. 
Sec. 6655. Failure by corporation to pay estimated income tax. 
Sec. 6656. Failure to make deposit of taxes. 
Sec. 6657. Bad checks. 
Sec. 6658. Addition to tax in case of jeopardy. 
Sec. 6659. Applicable rules. 
SEC. 6651. FAILURE TO FILE TAX RETURN. 
(a) ADDITION TO THE TAX.—In case of failure to file any return 
required under authority of subchapter A of chapter 61 (other than 
part III thereof), of subchapter A of chapter 51 (relating to distilled 
spirits, wines, and beer), or of subchapter A of chapter 52 (relating to 
tobacco, cigars, cigarettes, and cigarette papers and tubes), or of sub-
chapter A of chapter 53 (relating to machine guns and certain other 
firearms), on the date prescribed therefor (determined with regard to 
any extension of time for filing), unless it is shown that such failure 
is due to reasonable cause and not due to willful neglect, there shall 
be added to the amount required to be shown as tax on such return 
5 percent of the amount of such tax if the failure is for not more than 
1 month, with an additional 5 percent for each additional month or 
fraction thereof during which such failure continues, not exceeding 
25 percent in the aggregate. 
(b) PENALTY IMPOSED ON N E T AMOUNT DUE,—For purposes of 
subsection (a), the amount of tax required to be shown on the return 
shall be reduced by the amount of any part of the tax which is paid 
on or before the date prescribed for payment of the tax and by the 
amount of any credit against the tax which may be claimed upon the 
return. 
(c) EXCEPTION FOR DECLARATIONS or ESTIMATED TAX.—This sec-
tion shall not apply to any failure to file a declaration of estimated 
tax required by section 6015 or section 6016. 
SEC. 6652. FAILURE TO FILE CERTAIN INFORMATION RETURNS. 
(a) ADDITIONAL AMOUNT.—In case of each failure to file a state-
ment of a payment to another person, required under authority^ of 
section 6041 (relating to information at source), section 6042 (relating 
to payments of corporate dividends), section 6044 (relating to patron-
age dividends), section 6045 (relating to returns of brokers), or section 
6051 (d) (relating to information returns with respect to income tax 
withheld), unless it is shown that such failure is due to reasonable cause 
§ 6652(a) 
822 
INTERNAL REVENUE CODE OF 1954 
and not to willful neglect, there shall be paid by the person failing to 
file the statement, upon notice and demand by the Secretary or his 
delegate and in the same manner as tax, $1 for each such statement 
not filed, but the total amount imposed on the delinquent person for 
all such failures during any calendar year shall not exceed $1,000. 
(b) ALCOHOL AND TOBACCO TAXES.— 
For penalties for failure to file certain information returns with 
respect to alcohol and tobacco taxes, see, generally, subtitle E. 
SEC. 6653. FAILURE TO PAY TAX. 
(a) NEGLIGENCE OR INTENTIONAL DISREGARD OF RULES AND 
REGULATIONS WITH RESPECT TO INCOME OR GIFT TAXES.—If 
any 
part of any underpayment (as defined in subsection (c) (1)) of any tax 
imposed by subtitle A or by chapter 12 of subtitle B (relating to income 
taxes and gift taxes) is due to negligence or intentional disregard of 
rules and regulations (but without intent to defraud), there shall be 
added to the tax an amount equal to 5 percent of the underpayment. 
(b) FRAUD.—If any part of any underpayment (as defined in sub-
section (c)) of tax required to be shown on a return is due to fraud-, 
there shall be added to the tax an amount equal to 50 percent of the 
underpayment. 
In the case of income taxes and gift taxes, this 
amount shall be in lieu of any amount determined under subsection 
(a). 
(c) DEFINITION OF UNDERPAYMENT.—For purposes of this section, 
the term "underpayment" means— 
(1) INCOME, ESTATE, AND GIFT TAXES.—In the case of a tax to 
which section 6211 (relating to income, estate, and gift taxes) is 
applicable, a deficiency as defined in that section (except that, for 
this purpose, the tax shown on a return referred to in section 6211 
(a) (1) (A) shall be taken into account only if such return was filed 
before the last day prescribed for the filing of such return, deter-
mined with regard to any extension of time for such filing), and 
(2) OTHER TAXES.—In the case of any other tax, the amount by 
which such tax imposed by this title exceeds the excess of— 
(A) The sum of— 
(i) The amount shown as the tax by the taxpayer upon his 
return (determined without regard to any credit for an over-
payment for any prior period, and without regard to any 
adjustment under authority of sections 6205 (a) and 6413 (a)), 
if a return was made by the taxpayer within the time pre-
scribed for filing such return (determined with regard to any 
extension of time for such filing) and an amount was shown as 
the tax by the taxpayer thereon, plus 
(ii) Any amount, not shown on the return, paid in respect 
of such tax, over— 
(B) The amount of rebates made. 
For purposes of subparagraph (B), the term "rebate" means so 
much of an abatement, credit, refund, or other repayment, as was 
made on the ground that the tax imposed was less than the excess 
of the amount specified in subparagraph (A) over the rebates 
previously made. 
(d) No 
DELINQUENCY PENALTY IF FRAUD ASSESSED.—If 
any 
penalty is assessed under subsection (b) (relating to fraud) for an 
underpayment of tax which is required to be shown on a return, no 
§ 6652(a) 
CH. 68—ADDITIONS AND PENALTIES 
823 
penalty under section 6651 (relating to failure to file such return) 
shall be assessed with respect to the same underpayment. 
(e) FAILURE T O PAY STAMP TAX.—Any person (as dejfined in sec-
tion 6671 (b)) who willfully fails to pay any tax imposed by this 
title which is payable by stamp, coupons, tickets, books, or other 
devices or methods prescribed by this title or by regulations under 
authority of this title, or willfully attempts in any manner to evade 
or defeat any such tax or the payment thereof, shall, in addition to 
other penalties provided by law, be liable to a penalty of 50 percent 
of the total amount of the underpayment of the tax. 
SEC. 6654. FAILURE BY INDIVIDUAL TO PAY ESTIMATED INCOME 
TAX. 
(a) ADDITION TO THE TAX.—In the case of any underpayment of 
estimated tax by an individual, except as provided in subsection (d), 
there shall be added to the tax under chapter 1 for the taxable year 
an amount determined at the rate of 6 percent per annum upon the 
amount of the underpayment (determined under subsection (b)) for 
the period of the underpayment (determined under subsection (c)). 
(b) AMOUNT OF UNDERPAYMENT.—For purposes of subsection (a), 
the amount of the underpayment shall be the excess of— 
(1) The amount of the installment which would be required to 
be paid if the estimated tax were equal to 70 percent (66^^ percent 
in the case of individuals referred to in section 6073 (b), relating to 
income from farming) of the tax shown on the return for the tax-
able year or, if no return was filed, 70 percent iQQ% percent in the 
case of individuals referred to in section 6073 (b), relating to income 
from farming) of the tax for such year, over 
(2) The amount, if any, of the installment paid on or before 
the last date prescribed for such payment. 
(c) PERIOD OF UNDERPAYMENT.—The period of the underpayment 
shall run from the date the installment was required to be paid to 
whichever of the following dates is the earlier— 
(1) The 15th day of the fourth month following the close of the 
taxable year. 
(2) With respect to any portion of the underpayment, the date 
on which such portion is paid. 
For purposes of this paragraph, 
a payment of estimated tax on any installment date shall be con-
sidered a payment of any previous underpayment only to the extent 
such payment exceeds the amount of the installment determined 
under subsection (b) (1) for such installment date. 
(d) EXCEPTION.—Notwithstanding the provisions of the preceding 
subsections, the addition to the tax with respect to any underpayment 
of any installment shall not be imposed if the total amount of all pay-
ments of estimated tax made on or before the last date prescribed for 
the payment of such installment equals or exceeds whichever of the 
following is the lesser— 
(1) The amount which would have been required to be paid on or 
before such date if the estimated tax were whichever of the follow-
ing is the least— 
(A) The tax shown on the return of the individual for the pre-
ceding taxable year, if a return showing a liability for tax was 
filed by the individual for the preceding taxable year and such 
preceding year was a taxable year of 12 months, or 
§ 6654(d)(1)(A) 
824 
INTERNAL REVENUE CODE OF 1954 
(B) An amount equal to the tax computed, at the rates appli-
cable to the taxable year, on the basis of the taxpayer's status 
with respect to personal exemptions under section 151 for the 
taxable year, but otherwise on the basis of the facts shown on his 
return for, and the law applicable to, the preceding taxable year, 
or 
(C) An amount equal to 70 percent (66^^ percent in the case 
of individuals referred to in section 6073 (b), relating to income 
from farming) of the tax for the taxable year computed by placing 
on an annualized basis the taxable income for the months in the 
taxable year ending before the month in which the installment is 
required to be paid. 
For purposes of this subparagraph, the tax-
able income shall be placed on an annualized basis by— 
(i) multiplying by 12 (or, in the case of a taxable year of 
less than 12 months, the number of months in the taxable year) 
the taxable income (computed without deduction of personal 
exemptions) for the months in the taxable year ending before 
the month in which the installment is required to be paid, 
(ii) dividing the resulting amount by the number of months 
in the taxable year ending before the month in which such 
installment date falls, and 
(iii) deducting from such amount the deductions for per-
sonal exemptions allowable for the taxable year (such personal 
exemptions being determined as of the last date prescribed for 
payment of the installment); or 
(2) An amount equal to 90 percent of the tax computed, at the 
rates applicable to the taxable year, on the basis of the actual 
taxable income for the months in the taxable year ending before 
the month in which the installment is required to be paid. 
(e) APPLICATION OF SECTION IN CASE 
OF TAX WITHHELD ON 
WAGES.—For purposes of applying this section— 
(1) The estimated tax shall be computed without any reduction 
for the amount which the individual estimates as his credit under 
section 31 (relating to tax withheld at source on wages), and 
(2) The amount of the credit allowed under section 31 for the tax-
able year shall be deemed a payment of estimated tax, and an equal 
part of such amount shall be deemed paid on each installment date 
(determined under section 6153) for such taxable year, unless the 
taxpayer establishes the dates on which all amounts were actually 
withheld, in which case the amounts so withheld shall be deemed 
payments of estimated tax on the dates on which such amounts 
were actually withheld. 
(f) 
TAX COMPUTED AFTER APPLICATION OF CREDITS AGAINST 
TAX.—For purposes of subsections (b) and (d), the term "tax" means 
the tax imposed by chapter 1 reduced by the credits against tax al-
lowed by part IV of subchapter A of chapter 1, other than the credit 
against tax provided by section 31 (relating to tax withheld on wages). 
(g) SHORT TAXABLE YEAR.—The application of this section to 
taxable years of less than 12 months shall be in accordance with 
regulations prescribed by the Secretary or his delegate. 
(h) APPLICABILITY.—This section shall apply only with respect to 
taxable years beginning after December 31, 1954; and section 294 (d) 
§ 6654(d)(1)(B) 
CH. 68—ADDITIONS AND PENALTIES 
825 
of the Internal Revenue Code of 1939 shall continue in force with 
respect to taxable years beginning before January 1, 1955. 
SEC. 6655. FAILURE BY CORPORATION TO PAY ESTIMATED INCOME 
TAX. 
(a) ADDITION TO THE TAX.—In case of any underpayment of esti-
mated tax by a corporation, except as provided in subsection (d), 
there shall be added to the tax under chapter 1 for the taxable year 
an amount determined at the rate of 6 percent per annum upon the 
amount of the underpayment (determined under subsection (b)) for 
the period of the underpayment (determined under subsection (c)). 
(b) AMOUNT OF UNDERPAYMENT.—For purposes of subsection (a), 
the amount of the underpayment shall be the excess of— 
(1) The amount of the installment which would be required to 
be paid if the estimated tax were equal to 70 percent of the tax 
shown on the return for the taxable year or, if no return was filed, 
70 percent of the tax for such year, over 
(2) The amount, if any, of the installment paid on or before the 
last date prescribed for payment, 
(c) PERIOD OF UNDERPAYMENT.—The period of the underpayment 
shall run from the date the installment was required to be paid to 
whichever of the following dates is the earlier— 
(1) The 15th day of the third month following the close of the 
taxable year. 
(2) With respect to any portion of the underpayment, the date 
on which such portion is paid. 
For purposes of this paragraph, a 
payment of estimated tax on the 15th day of the 12th month shall 
be considered a payment of any previous underpayment only to the 
extent such payment exceeds the amount of the installment deter-
mined under subsection (b) (1) for the 15th day of the 12th month. 
(d) EXCEPTION.—Notwithstanding the provisions of the preceding 
subsections, the addition to the tax with respect to any underpay-
ment of any installment shall not be imposed if the total amount of 
all payments of estimated tax made on or before the last date pre-
scribed for the payment of such installment equals or exceeds the 
amount which would have been required to be paid on or before such 
date if the estimated tax were whichever of the following is the lesser— 
(1) The tax shown on the return of the corporation for the pre-
ceding taxable year reduced by $100,000, if a return showing a lia-
bility for tax was filed by the corporation for the preceding taxable 
year and such preceding year was a taxable year of 12 months. 
(2) An amount equal to the tax computed at the rates applicable 
to the taxable year but otherwise on the basis of the facts shown on 
the return of the corporation for, and the law applicable to, the pre-
ceding taxable year. 
(3) (A) an amount equal to 70 percent of the tax for the taxable 
year computed by placing on an annualized basis the taxable income: 
(i) for the first 6 months or for the first 8 months of the taxable 
year, in the case of the installment required to be paid in the 
ninth month, and 
(ii) for the first 9 months or for the first 11 months of the 
taxable year, in the case of the installment required to be paid 
in the twelfth month. 
§6655 (d)(3) (A) (ii) 
49012°—54 
55 
826 
INTERNAL REVENUE CODE 
OF 
1954 
(B) For purposes of this paragraph, the taxable income shall be 
placed on an annualized basis by— 
(i) multiplying by 12 the taxable income referred to in sub-
paragraph (A), and 
(ii) dividing the resulting amount by the number of months in 
the taxable year (6 or 8, or 9 or 11, as the case may be) referred to 
in subparagraph (A). 
(e) DEFINITION OF TAX,—For purposes of subsections (b), (d) (2), 
and (d) (3), the term "tax" means the excess of— 
(1) the tax imposed by section 11 or 1201 (a), or subchapter L 
of chapter 1, whichever is applicable, over 
(2) the sum of— 
(A) $100,000, and 
(B) the credits against tax provided in part IV of subchapter A 
of chapter 1. 
(f) SHORT TAXABLE YEAR.—The application of this section to 
taxable years of less than 12 months shall be in accordance with 
regulations prescribed by the Secretary or his delegate. 
SEC. 6656. FAILURE TO MAKE DEPOSIT OF TAXES. 
(a) PENALTY.—In case of failure by any person required by this 
title or by regulation of the Secretary or his delegate under this title 
to deposit on the date prescribed therefor any amount of tax imposed 
by this title in such government depositary as is authorized under 
section 6302(c) to receive such deposit, unless it is shown that 
such failure is due to reasonable cause and not due to willful 
neglect, there shall be imposed upon such person a penalty of 1 percent 
of the amount of the underpayment if the failure is for not more than 
1 month, with an additional 1 percent for each additional month or 
fraction thereof during which such failure continues, not exceeding 
6 percent in the aggregate. For purposes of this subsection, the term 
"underpayment" means the excess of the amount of the tax required 
to be so deposited over the amount, if any, thereof deposited on or 
before the date prescribed therefor. 
(b) PENALTY NOT IMPOSED AFTER D U E DATE FOR RETURN,—For 
purposes of subsection (a), the failure shall be deemed not to continue 
beyond the last date (determined without regard to any extension of 
time) prescribed for payment of the tax required to be deposited or 
beyond the date the tax is paid, whichever is earlier. 
SEC. 6657. BAD CHECKS. 
If any check or money order in payment of any amount receivable 
under this title is not duly paid, in addition to any other penalties 
provided by law, there shall be paid as a penalty by the person who 
tendered such check, upon notice and demand by the Secretary or 
his delegate, in the same manner as tax, an amount equal to 1 percent 
of the amount of such check, except that if the amount of such check 
is less than $500, the penalty under this section shall be $5 or the 
amount of such check, whichever is the lesser. 
This section shall 
not apply if the person tendered such check in good faith and with 
reasonable cause to believe that it would be duly paid. 
SEC. 6658. ADDITION TO TAX IN CASE OF JEOPARDY. 
If a taxpayer violates or attempts to violate section 6851 (relating 
to termination of taxable year) there shall, in addition to all other 
§ 6655(d)(3)(B) 
CH. 68—ADDITIONS AND PENALTIES 
827 
penalties, be added as part of the tax 25 percent of the total amount 
of the tax or deficiency in the tax. 
SEC. 6659. APPLICABLE RULES. 
(a) ADDITIONS TREATED AS TAX.—Except as otherwise provided 
in this title— 
(1) The additions to the tax, additional amounts, and penalties 
provided by this chapter shall be paid upon notice and demand and 
shall be assessed, collected, and paid in the same manner as taxes; 
(2) Any reference in this title to "tax" imposed by this title 
shall be deemed also to refer to the additions to the tax, additional 
amounts, and penalties provided by this chapter. 
(b) ADDITIONS TO TAX FOR FAILURE TO FILE RETURN OR PAY 
TAX.—Any addition under section 6651 or section 6653 to a tax 
imposed by another subtitle of this title shall be considered a part 
of such tax for the purpose of applying the provisions of this title 
relating to the assessment and collection of such tax (including the 
provisions of subchapter B of chapter 63, relating to deficiency pro-
cedures for income, estate^ and gift taxes). 
§ 6659(b) 
828 
INTERNAL REVENUE CODE OF 19 
54 
Subchapter B—^Assessable Penalties 
Sec. 6671. Rules for application of assessable penalties. 
Sec. 6672. Failure to collect and pay over tax, or attempt to evade 
or defeat tax. 
Sec. 6673. Damages assessable for instituting proceedings before 
the Tax Court merely for delay. 
Sec. 6674. Fraudulent statement or failure to furnish statement to 
employee. 
SEC. 6671. RULES FOR APPLICATION OF ASSESSABLE PENALTIES. 
(a) PENALTY ASSESSED AS TAX.—The penalties and liabilities pro-
vided by this subchapter shall be paid upon notice and demand by 
the Secretary or his delegate, and shall be assessed and collected in 
the same manner as taxes. 
Except as otherwise provided, any refer-
ence in this title to "tax" imposed by this title shall be deemed also 
to refer to the penalties and liabihties provided by this subchapter. 
(b) PERSON DEFINED.—The term "person", as used in this sub-
chapter, includes an officer or employee of a corporation, or a member 
or employee of a partnership, who as such officer, employee, or mem-
ber Is under a duty to perform the act in respect of which the violation 
occurs. 
SEC. 6672. FAILURE TO COLLECT AND PAY OVER TAX, OR ATTEMPT 
TO EVADE OR DEFEAT TAX. 
Any person required to collect, truthfully account for, and pay over 
any tax imposed by this title who willfully fails to collect such tax, 
or truthfully account for and pay over such tax, or willfully attempts 
in any manner to evade or defeat any such tax or the payment thereof, 
shall, in addition to other penalties provided by law, be liable to a 
penalty equal to the total amount of the tax evaded, or not collected, 
or not accounted for and paid over. 
No penalty shall be imposed 
under section 6653 for any offense to which this section is applicable. 
SEC. 6673. DAMAGES ASSESSABLE FOR INSTITUTING PROCEEDINGS 
BEFORE THE TAX COURT MERELY FOR DELAY. 
Whenever it appears to the Tax Court that proceedings before it 
have been instituted by the taxpayer merely for delay, damages in an 
amount not in excess of $500 shall be awarded to the United States by 
the Tax Court in its decision. 
Damages so awarded shall be assessed 
at the same time as the deficiency and shall be paid upon notice and 
demand from the Secretary or his delegate and shall be collected as 
a part of the tax. 
SEC. 6674. FRAUDULENT STATEMENT OR FAILURE TO FURNISH 
STATEMENT TO EMPLOYEE. 
In addition to the criminal penalty provided by section 7204, 
any person required under the provisions of section 6051 to furnish a 
statement to an employee who willfully furnishes a false or fraudulent 
statement, or who willfully fails to furnish a statement in the manner, 
at the time, and showing the information required under section 6051, 
or regulations prescribed thereunder, shall for each such failure be 
subject to a penalty under this subchapter of $50, which shall be 
assessed and collected in the same manner as the tax on employers 
imposed by section 3111. 
§ 6671 
CH. 69—GENERAL PROVISIONS RELATING TO STAMPS 
829 
CHAPTER 69—GENERAL PROVISIONS RELATING TO 
STAMPS 
Sec. 6801. Authority for establishment, alteration, and distribution. 
Sec. 6802, Supply and distribution. 
Sec. 6803. Accounting and safeguarding. 
Sec. 6804. Attachment and cancellation. 
Sec. 6805, Redemption of stamps. 
Sec. 6806. Posting occupational tax stamps. 
Sec. 6807. Stamping, marking, and branding seized goods. 
Sec. 6808, Special provisions relating to stamps. 
SEC. 6801. AUTHORITY FOR ESTABLISHMENT, ALTERATION, 
AND 
DISTRIBUTION. 
(a) ESTABLISHMENT AND ALTERATION.—The Secretary or his dele-
gate may establish, and from time to time alter, renew, replace, or 
change the form, style, character, material, and device of any stamp, 
mark, or label under any provision of the laws relating to internal 
revenue. 
(b) PREPARATION AND DISTRIBUTION OF REGULATIONS, FORMS, 
STAMPS AND DIES.—The Secretary or his delegate shall prepare and 
distribute all the instructions, regulations, directions, forms, blanks, 
and stamps; and shall provide proper and sufficient adhesive stamps 
and other stamps or dies for expressing and denoting the several stamp 
taxes. 
SEC. 6802. SUPPLY AND DISTRIBUTION. 
The Secretary or his delegate shall furnish, without prepayment, 
to— 
(1) POSTMASTER GENERAL.—The Postmaster General a suitable 
quantity of adhesive stamps (other than the stamps on plajdng 
cards), coupons, tickets, or such other devices as may be prescribed 
by the Secretary or his delegate pursuant to section 6302 (b) or 
this chapter, to be distributed to, and kept on sale by, the various 
postmasters in the United States in all post offices of the first and 
second classes, and such post offices of the third and fourth classes 
as— 
(A) are located in county seats, or 
(B) are certified by the Secretary to the Postmaster General as 
necessary; 
(2) DESIGNATED DEPOSITARY OF THE UNITED STATES.—Any 
designated depositary of the United States a suitable quantity of 
adhesive stamps to be kept on sale by such designated depositary; 
(3) STATE AGENTS.—Any person who is— 
(A) duly appointed and acting as agent of any State for the 
sale of stock transfer stamps of such State, and 
(B) designated by the Secretary or his delegate for the purpose, 
a suitable quantity of such adhesive stamps as are required by 
section 4301, to be kept on sale by such person. 
§6802 (3) (B)' 
830 
INTERNAL REVENUE CODE OP 1954 
SEC. 6803. ACCOUNTING AND SAFEGUARDING. 
(a) T H E POSTMASTER G E N E R A L . — 
(1) BOND AND ACCOUNTING.—The Postmaster 
General 
may 
require each postmaster under paragraph (1) of section 6802 to 
furnish bond in such increased amount as he may from time to time 
determine, and each such postmaster shall deposit the receipts from 
the sale of such stamps, coupons, tickets, books, or other devices, 
to the credit of, and render accounts to the Postmaster General at 
such times and in such form as the Postmaster General may by 
regulations prescribe. 
(2) DEPOSIT OF RECEIPTS.—The Postmaster General shall at 
least once a month transfer to the Treasury as internal revenue 
collections all receipts so deposited. 
(b) DEPOSITARIES AND STATE AGENTS.— 
(1) BOND.—In cases coming within the provisions of paragraph 
(2) or (3) of section 6802, the Secretary or his delegate may require 
a bond, with sufficient sureties, in a sum to be fixed by the Secretary 
or his delegate, conditioned for the faithful return, whenever so 
required, of all quantities or amounts undisposed of and for the 
payment monthly for all quantities or amounts sold or not remaining 
on hand. 
(2) REGULATIONS.—The Secretary or his delegate may from 
time to time make such regulations as he may find necessary to 
insure the safekeeping or prevent the illegal use of all adhesive 
stamps referred to in paragraphs (2) and (3) of section 6802. 
SEC. 6804. ATTACHMENT AND CANCELLATION. 
Except as otherwise expressly provided in this title, the stamps 
referred to in section 6801 shall be attached, protected, removed, 
canceled, obliterated, and destroyed, in such manner and by such 
instruments or other means as the Secretary or his delegate may 
prescribe by rules or regulations. 
SEC. 6805. REDEMPTION OF STAMPS. 
(a) AUTHORIZATION.—The Secretary or his delegate, subject to 
regulations prescribed by him, may, upon receipt of satisfactory 
evidence of the facts, make allowance for or redeem such of the 
stamps, issued under authority of any internal revenue law, as may 
have been spoiled, destroyed, or rendered useless or unfit for the pur-
pose intended, or for which the owner' may have no use, or which 
through mistake may have been improperly or unnecessarily used, 
or where the rates or duties represented thereby have been excessive 
in amount, paid in error, or in any manner wrongfully collected. 
(b) METHOD AND CONDITIONS OF ALLOWANCE,—Such allowance or 
redemption may be made, either by giving other stamps in lieu of the 
stamps so allowed for or redeemed, or by refunding the amount or 
value to the owner thereof, deducting therefrom, in case of repayment, 
the percentage, if any, allowed to the purchaser thereof; but no 
allowance or redemption shall be made in any case until the stamps so 
spoiled or rendered useless shall have been returned to the Secretary 
or his delegate, or until satisfactory proof has been made showing the 
reason why the same cannot be returned; or, if so required by the 
Secretary or his delegate, when the person presenting the same 
cannot satisfactorily trace the history of said stamps from their 
issuance to the presentation of his claim as aforesaid. 
§6803 
CH. 69—GENERAL PROVISIONS RELATING TO STAMPS 
831 
(c) TIME FOR FILING CLAIMS.—No claim for the redemption of, or 
allowance for, stamps shall be allowed unless presented within 3 years 
after the purchase of such stamps from the Government. 
(d) FINALITY OF DECISIONS.—The findings of fact in and the 
decision of the Secretary or his delegate upon the merits of any claim 
presented under or authorized by this section shall, in the absence of 
fraud or mistake in mathematical calculation, be final and not subject 
to revision by any accounting officer. 
SEC. 6806. POSTING OCCUPATIONAL TAX STAMPS. 
(a) GENERAL RULE.—Every person engaged in any business, 
avocation, or employment, who is thereby made liable to a special 
tax, shall place and keep conspicuously in his establishment or place 
of business all stamps denoting payment of said special tax. 
(b) 
COIN-OPERATED 
AMUSEMENT 
AND GAMING 
DEVICES.—The 
Secretary or his delegate may by regulations require that the stamps 
denoting the payment of the special tax imposed by section 4461 
shall be posted on or in each device in such a manner that it will be 
visible to any person operating the device. 
(c) OCCUPATIONAL 
WAGERING TAX.—Every person liable 
for 
special tax under section 4411 shall place and keep conspicuously in 
his principal place of business the stamp denoting the payment of 
such special tax; except that if he has no such place of business, he 
shall keep such stamp on his person, and exhibit it, upon request, to 
any officer or employee of the Treasury Department. 
SEC. 6807. STAMPING, MARKING, AND BRANDING SEIZED GOODS. 
If any article of manufacture or produce requiring brands, stamps, 
or marks of whatever kind to be placed thereon, is sold upon levy, 
forfeiture (except as provided in section 5688 with respect to distilled 
spirits), or other process provided by law, the same not having been 
branded, stamped, or marked, as required by law, the ofiicer selling 
the same shall, upon sale thereof, fix or cause to be affixed the brands, 
stamps, or marks so required. 
SEC. 6808. SPECIAL PROVISIONS RELATING TO STAMPS. 
For special provisions on stamps relating to— 
(1) Capital stock, see chapter 34. 
(2) Cotton futures, see subchapter D of chapter 39. 
(3) Distilled spirits and fermented liquors, see chapter 51. 
(4) Documents and other instruments, see chapter 34. 
(5) Filled cheese, see subchapter C of chapter 39. 
(6) Machine guns and short-barrelled firearms, see chapter 53. 
(7) Oleomargarine, see subchapter F of chapter 38. 
(8) Opium, opium for smoking, opiates and coca leaves, and 
marihuana, see subchapter A of chapter 39. 
(9) Playing cards, see subchapter A of chapter 36. 
(10) Process, renovated, or adulterated butter, see subchapter C of 
chapter 39. 
(11) Silver bullion, see subchapter F of chapter 39. 
(12) Tobacco, snuff, cigars and cigarettes, see chapter 52. 
(13) White phosphorous matches, see subchapter B of chapter 39. 
§ 6808(13) 
CH. 70 
JEOPARDY, BANKRUPTCY AND RECEIVERSHIPS 
833 
CHAPTER 70—JEOPARDY, BANKRUPTCY AND 
RECEIVERSHIPS 
SUBCHAPTER A. Jeopardy. 
SUBCHAPTER B. Bankruptcy and receiverships. 
Subchapter A—Jeopardy 
Part I. Termination of taxable year. 
Part II. Jeopardy assessments. 
PART I—TERMINATION OF TAXABLE YEAR 
Sec. 6851. Termination of taxable year. 
SEC. 6851. TERMINATION OF TAXABLE YEAR. 
(a) INCOME TAX IN JEOPARDY.— 
(1) IN GENERAL.—If the Secretary or his delegate finds that 
a taxpayer designs quickly to depart from the United States or to 
remove his property therefrom, or to conceal himself or his prop-
erty therein, or to do any other act tending to prejudice or to 
render wholly or partly ineffectual proceedings to collect the 
income tax for the current or the preceding taxable year unless 
such proceedings be brought without delay, the Secretary or his 
delegate shall declare the taxable period for such taxpayer immedi-
ately terminated, and shall cause notice of such finding and declara-
tion to be given the taxpayer, together with a demand for immediate 
payment of the tax for the taxable period so declared terminated 
and of the tax for the preceding taxable year or so much of such 
tax as is unpaid, whether or not the time otherwise allowed by 
law for filing return and paying the tax has expired; and such 
taxes shall thereupon become immediately due and payable. 
In 
any proceeding in court brought to enforce payment of taxes made 
due and payable by virtue of the provisions of this section, the 
finding of the Secretary or his delegate, made as herein provided, 
whether made after notice to the taxpayer or not, shall be for all 
purposes presumptive evidence of jeopardy. 
(2) CORPORATION IN LIQUIDATION.—If the Secretary or his del-
egate finds that the collection of the income tax of a corporation 
for the current or the preceding taxable year will be jeopardized 
by the distribution of all or a portion of the assets of such corpora-
tion in the liquidation of the whole or any part of its capital stock, 
the Secretary or his delegate shall declare the taxable period for 
such taxpayer immediately terminated and shall cause notice of 
such finding and declaration to be given the taxpayer, together 
with a demand for immediate payment of the tax for the taxable 
period so declared terminated and of the tax for the preceding 
taxable year or so much of such tax as is unpaid, whether or not 
the time otherwise allowed by law for filing return and paying the 
tax has expired; and such taxes shall thereupon become immedi-
ately due and payable. 
§ 6851(a)(2) 
834 
INTERNAL REVENUE CODE OF 1954 
(b) REOPENING OF TAXABLE PERIOD.—Notwithstanding the ter-
mination of the taxable period of the taxpayer by the Secretary or 
his delegate, as provided in subsection (a), the Secretary or his 
delegate may reopen such taxable period each time the taxpayer is 
found by the Secretary or his delegate to have received income, 
within the current taxable year, since a termination of the period 
under subsection (a). 
A taxable period so terminated by the Sec-
retary or his delegate may be reopened by the taxpayer (other than a 
nonresident alien) if he files with the Secretary or his delegate a true 
and accurate return of the items of gross income and of the deductions 
and credits allowed under this title for such taxable period, together 
with such other information as the Secretary or his delegate may by 
regulations prescribe. 
If the taxpayer is a nonresident alien the 
taxable period so terminated may be reopened by him if he files, 
or causes to be filed, with the Secretary or his delegate a true and 
accurate return of his total income derived from all sources within the 
United States, in the manner prescribed in this title. 
(c) CITIZENS.—In the case of a citizen of the United States or 
of a possession of the United States about to depart from the United 
States, the Secretary or his delegate may, at his discretion, waive any 
or all of the requirements placed on the taxpayer by this section. 
(d) DEPARTURE OF ALIEN.—No alien shall depart from the United 
States unless he first procures from the Secretary or his delegate a 
certificate that he has complied with all the obligations imposed upon 
him by the income tax laws. 
(e) FURNISHING OF BOND WHERE TAXABLE YEAR I S CLOSED BY 
THE SECRETARY OR H I S DELEGATE.—Payment of taxes shall not be 
enforced by any proceedings under the provisions of this section 
prior to the expiration of the time otherwise allowed for paying such 
taxes if the taxpayer furnishes, under regulations prescribed by the 
Secretary or his delegate, a bond to insure the timely making of 
returns with respect to, and payment of, such taxes or any income or 
excess profits taxes for prior years. 
PART II—JEOPARDY ASSESSMENTS 
Sec. 6861. Jeopardy assessments of income, estate, and gift taxes. 
Sec. 6862. Jeopardy assessment of taxes other than income, estate, 
and gift taxes. 
Sec. 6863. Stay of collection of jeopardy assessments. 
Sec. 6864. Termination of extended period for payment in case of 
carryback. 
SEC. 6861. JEOPARDY ASSESSMENTS OF INCOME, ESTATE, AND GIFT 
TAXES. 
(a) AUTHORITY FOR MAKING.—If the Secretary or his delegate 
believes that the assessment or collection of a deficiency, as defined 
in section 6211, will be jeopardized by delay, he shall, notwithstand-
ing the provisions of section 6213 (a), immediately assess such de-
ficiency (together with all interest, additional amounts, and additions 
to the tax provided for by law), and notice and demand shall be 
made by the Secretary or his delegate for the payment thereof. 
(b) DEFICIENCY LETTERS.—If the jeopardy assessment is made 
before any notice in respect of the tax to which the jeopardy assess-
ment relates has been mailed under section 6212 (a), then the Secre-
§ 6851(b) 
CH. 70—JEOPARDY, BANKRUPTCY AND RECEIVERSHIPS 
835 
tary or his delegate shall mail a notice under such subsection within 
60 days after the making of the assessment. 
(c) AMOUNT ASSESSABLE BEFORE DECISION OF TAX COURT.—The 
jeopardy assessment may be made in respect of a deficiency greater or 
less than that notice of which has been mailed to the taxpayer, despite 
the provisions of section 6212 (c) prohibiting the determination of addi-
tional deficiencies, and whether or not the taxpayer has theretofore 
filed a petition with the Tax Court. 
The Secretary or his delegate 
may, at any time before the decision of the Tax Court is rendered, 
abate such assessment, or any unpaid portion thereof, to the extent 
that he believes the assessment to be excessive in amount. 
The 
Secretary or his delegate shall notify the Tax Court of the amount of 
such assessment, or abatement, if the petition is filed with the Tax 
Court before the making of the assessment or is subsequently filed, 
and the Tax Court shall have jurisdiction to redetermine the entire 
amount of the deficiency and of all amounts assessed at the same time 
in connection therewith. 
(d) AMOUNT ASSESSABLE AFTER DECISION OF TAX COURT.—If the 
jeopardy assessment is made after the decision of the Tax Court is 
rendered, such assessment may be made only in respect of the defi-
ciency determined by the Tax Court in its decision. 
(e) EXPIRATION OF RIGHT TO ASSESS.—A jeopardy assessment may 
not be made after the decision of the Tax Court has become final or after 
the taxpayer has filed a petition for review of the decision of the 
Tax Court. 
(f) COLLECTION OF UNPAID AMOUNTS.—When the petition has been 
filed with the Tax Court and when the amount which should have been 
assessed has been determined by a decision of the Tax Court which has 
become final, then any unpaid portion, the collection of which has been 
stayed by bond as provided in section 6863 (b) shall be collected as 
part of the tax upon notice and demand from the Secretary or his 
delegate, and any remaining portion of the assessment shall be abated. 
If the amount already collected exceeds the amount determined as the 
amount which should have been assessed, such excess shall be credited 
or refunded to the taxpayer as provided in section 6402, without the 
filing of claim therefor. 
If the amount determined as the amount 
which should have been assessed is greater than the amount actually 
assessed, then the difference shall be assessed and shall be collected 
as part of the tax upon notice and demand from the Secretary or his 
delegate. 
(g) ABATEMENT IF JEOPARDY DOES NOT EXIST.—The Secretary or 
his delegate may abate the jeopardy assessment if he finds that 
jeopardy does not exist. 
Such abatement may not be made after a 
decision of the Tax Court in respect of the deficiency has been rendered 
or, if no petition is filed with the Tax Court, after the expiration of the 
period for filing such petition. 
The period of limitation on the making 
of assessments and levy or a proceeding in court for collection, in 
respect of any deficiency, shall be determined as if the jeopardy 
assessment so abated had not been made, except that the running of 
such period shall in any event be suspended for the period from the 
date of such jeopardy assessment until the expiration of the 10th 
day after the day on which such jeopardy assessment is abated. 
§ 6861(g) 
836 
INTERNAL REVENUE CODE 
OF 1954 
(h) CROSS REFERENCES.— 
(1) For the effect of the furnishing of security for payment, see 
section 6863. 
(2) For provision permitting immediate levy in case of jeopardy, see 
section 6331 (a). 
SEC. 6862. JEOPARDY ASSESSMENT OF TAXES OTHER THAN INCOME. 
ESTATE, AND GIFT TAXES. 
(a) IMMEDIATE ASSESSMENT.—If the Secretary or his delegate 
beheves that the collection of any tax (other than income tax, estate 
tax, and gift tax) under any provision of the internal revenue laws 
wUl be jeopardized by delay, he shaU, whether or not the time other-
wise prescribed by law for making return and paying such tax has 
expired, immediately assess such tax (together with all interest, addi-
tional amounts, and additions to the tax provided for by law). 
Such 
tax, additions to the tax, and interest shall thereupon become immedi-
ately due and payable, and immediate notice and demand shall be 
made by the Secretary or his delegate for the payment thereof. 
(b) IMMEDIATE LEVY.— 
For provision permitting immediate levy in case of jeopardy, see 
section 6331 (a). 
SEC. 6863. STAY OF COLLECTION OF JEOPARDY 
ASSESSMENTS. 
(a) BOND TO STAY COLLECTION.—When a jeopardy assessment has 
been made under section 6861 or 6862, the collection of the whole or 
any amount of such assessment may be stayed by filing with the 
Secretary or his delegate, within such time as may be fixed by regula-
tions prescribed by the Secretary or his delegate, a bond in an amount 
equal to the amount as to which the stay is desired, conditioned upon 
the payment of the amount (together with interest thereon) the col-
lection of which is stayed, at the time at which, but for the making of 
the jeopardy assessment, such amount would be due. 
Upon the filing 
of the bond the collection of so much of the amount assessed as is 
covered by the bond shall be stayed. 
The taxpayer shall have the 
right to waive such stay at any time in respect of the whole or any 
part of the amount covered by the bond, and if as a result of such 
waiver any part of the amount covered by the bond is paid, then the 
bond shall, at the request of the taxpayer, be proportionately reduced. 
If any portion of the jeopardy assessment is abated, the bond shall, 
at the request of the taxpayer, be proportionately reduced. 
(b) FURTHER CONDITIONS IN CASE OF INCOME, ESTATE, OR GIFT 
TAXES.—In the case of taxes subject to the jurisdiction of the Tax 
Court— 
(1) PRIOR TO PETITION TO TAX COURT.—If the bond is given 
before the taxpayer has filed his petition under section 6213 (a), 
the bond shall contain a further condition that if a petition is not filed 
within the period provided in such section, then the amount, the 
collection of which is stayed by the bond, will be paid on notice and 
demand at any time after the expiration of such period, together 
with interest thereon from the date of the jeopardy notice and 
demand to the date of notice and demand under this paragraph. 
(2) EFFECT OF TAX COURT DECISION.—The bond shall be con-
ditioned upon the payment of so much of such assessment (collection 
of which is stayed by the bond) as is not abated by a decision of the 
Tax Court which has become final. If the Tax Court determines 
§ 6861(h) 
CH. 70—JEOPARDY, BANKRUPTCY AND RECEIVERSHIPS 
837 
that the amount assessed is greater than the amount which should 
have been assessed, then when the decision of the Tax Court is 
rendered the bond shall, at the request of the taxpayer, be pro-
portionately reduced. 
(3) STAY OF SALE OF SEIZED PROPERTY PENDING TAX COURT 
DECISION. 
(A) GENERAL RULE.—Where, notwithstanding the provisions 
of section 6213 (a), a jeopardy assessment has been made under 
section 6861 the property seized for the collection of the tax shall 
not be sold— 
(i) if section 6861 (b) is applicable, prior to the issuance of 
the notice of deficiency and the expiration of the time provided 
in section 6213 (a) for filing petition with the Tax Court, and 
(ii) if petition is filed with the Tax Court (whether before or 
after the making of such jeopardy assessment under section 
6861), prior to the expiration of the period during which the 
assessment of the deficiency would be prohibited if section 
6861 (a) were not applicable. 
(B) EXCEPTIONS.—Such property may be sold if— 
(i) the taxpayer consents to the sale, 
(ii) the Secretary or his delegate determines that the expenses 
of conservation and maintenance will greatly reduce the net 
proceeds, or 
(iii) the property is of the type described in section 6336. 
(C) APPLICABILITY.—Subparagraphs (A) and (B) shall be 
applicable only with respect to a jeopardy assessment made on 
or after January 1, 1955, and shall apply with respect to taxes 
imposed by this title and with respect to taxes imposed by the 
Internal Revenue Code of 1939. 
SEC. 6864. TERMINATION OF EXTENDED PERIOD FOR PAYMENT IN 
CASE OF CARRYBACK. 
For termination of extensions of time for payment of income tax 
granted to corporations expecting carrybacks in case of jeopardy, see 
section 6164 (h). 
§ 6864 
838 
INTERNAL REVENUE CODE OF 1954 
Subchapter B—Bankruptcy and Receiverships 
Sec. 6871. Claims for income, estate, and gift taxes in bankruptcy 
and receivership proceedings. 
Sec. 6872. Suspension of period on assessment. 
Sec. 6873. Unpaid claims. 
SEC. 6871. CLAIMS FOR INCOME, ESTATE, AND GIFT TAXES IN BANK-
RUPTCY AND RECEIVERSHIP PROCEEDINGS. 
(a) IMMEDIATE ASSESSMENT.—Upon the adjudication of bank-
ruptcy of any taxpayer in any liquidating proceeding, the approval 
of a petition of, or against, any taxpayer in any other bankruptcy 
proceeding, or the appointment of a receiver for any taxpayer in any 
receivership proceeding before any court of the United States or of 
any State or Territory or of the District of Columbia, any deficiency 
(together with all interest, additional amounts, or additions to the tax 
provided by law) determined by the Secretary or his delegate in respect 
of a tax imposed by subtitle A or B upon such taxpayer shall, despite 
the restrictions imposed by section 6213 (a) upon assessments, be im-
mediately assessed if such deficiency has not theretofore been assessed 
in accordance with law. 
(b) CLAIM FILED DESPITE PENDENCY OF TAX COURT PROCEED-
INGS.—In the case of a tax imposed by subtitle A or B claims for the 
deficiency and such interest, additional amounts, and additions to 
the tax may be presented, for adjudication in accordance with law, 
to the court before which the bankruptcy or receivership proceeding 
is pending, despite the pendency of proceedings for the redetermina-
tion of the deficiency in pursuance of a petition to the Tax Court; 
but no petition for any such redetermination shall be filed with the 
Tax Court after the adjudication of bankruptcy, approval of the 
petition in any other bankruptcy proceeding, or the appointment of 
the receiver. 
SEC. 6872. SUSPENSION OF PERIOD ON ASSESSMENT. 
If the regulations issued pursuant to section 6036 require the giving 
of notice by any fiduciary in any proceeding under the Bankruptcy 
Act, or by a receiver in any other court proceeding, to the Secretary or 
his delegate of his qualification as such, the running of the period of 
limitations on the making of assessments shall be suspended for the 
period from the date of the institution of the proceeding to a date 30 
days after the date upon which the notice from the receiver or other 
fiduciary is received by the Secretary or his delegate; but the suspen-
sion under this sentence shall in no case be for a period in excess of 
2 years. 
SEC. 6873. UNPAID CLAIMS. 
(a) GENERAL RULE.—Any portion of a claim for taxes allowed in a 
receivership proceeding or any proceeding under the Bankruptcy Act 
§6871 
CH. 70—JEOPARDY, BANKRUPTCY AND RECEIVERSHIPS 
839 
which is unpaid shall be paid by the taxpayer upon notice and demand 
from the Secretary or his delegate after the termination of such pro-
ceeding. 
(b) CROSS REFERENCES.— 
(1) For suspension of running of period of limitations on collection, 
see section 6503 (b). 
(2) For extension of time for payment, see section 6161 (c). 
§ 6873(b) (2) 
CH. 71—TRANSFEREES AND FIDUCIARIES 
841 
CHAPTER 71—TRANSFEREES AND FIDUCIARIES 
Sec. 6901. Transferred assets. 
Sec. 6902. Provisions of special application to transferees. 
Sec. 6903. Notice of fiduciary relationship. 
Sec. 6904. Prohibition of injunctions. 
SEC. 6901. TRANSFERRED ASSETS. 
(a) METHOD OF COLLECTION.—The amounts of the following liabili-
ties shall, except as hereinafter in this section provided, be assessed, 
paid, and collected in the same manner and subject to the same pro-
visions and limitations as in the case of the taxes with respect to which 
the liabilities were incurred: 
(1) INCOME, ESTATE, AND G-IFT TAXES.— 
(A) TRANSFEREES,—The liability, at law or in equity, of a 
transferee of property— 
(i) of a taxpayer in the case of a tax imposed by subtitle A 
(relating to income taxes), 
(ii) of a decedent in the case of a tax imposed by chapter 11 
(relating to estate taxes), or 
(iii) of a donor in the case of a tax imposed by chapter 12 
(relating to gift taxes), 
in respect of the tax imposed by subtitle A or B. 
(B) FIDUCIARIES.—The liability of a fiduciary under section 
3467 of the Revised Statutes (31 U. S. C. 192) in respect of the 
payment of any tax described in subparagraph (A) from the estate 
of the taxpayer, the decedent, or the donor, as the case may be. 
(2) OTHER TAXES.—The liability, at law or in equity of a trans-
feree of property of any person liable in respect of any tax imposed 
by this title (other than a tax imposed by subtitle A or B), but only 
if such liability arises on the liquidation of a partnership or cor-
poration, or on a reorganization within the meaning of section 
368 (a). 
(b) LIABILITY.—Any liability referred to in subsection (a) may be 
either as to the amount of tax shown on a return or as to any deficiency 
or underpayment of any tax. 
(c) PERIOD OP LIMITATIONS.—The period of limitations for assess-
ment of any such liability of a transferee or a fiduciary shall be as 
follows: 
(1) INITIAL TRANSFEREE.—In the case of the liability of an initial 
transferee, within 1 year after the expiration of the period of 
limitation for assessment against the transferor; 
(2) TRANSFEREE OF TRANSFEREE.—In the case of the liability of 
a transferee of a transferee, within 1 year after the expiration of 
the period of limitation for assessment against the preceding trans-
feree, but not more than 3 years after the expiration of the period 
of limitation for assessment against the initial transferor; 
except that if, before the expiration of the period of limitation for the 
assessment of the liability of the transferee, a court proceeding for the 
collection of the tax or liability in respect thereof has been begun 
49012 "—54 
56 
§ 6901 (c) 
842 
INTERNAL REVENUE CODE OF 1954 
against the initial transferor or the last preceding transferee, respec-
tively, then the period of limitation for assessment of the liability of 
the transferee shall expire 1 year after the retm'n of execution in the 
court proceeding. 
(3) FIDUCIARY.—In the case of the liability of a fiduciary, not 
later than 1 year after the liability arises or not later than the 
expiration of the period for collection of the tax in respect of which 
such liability arises, whichever is the later. 
(d) EXTENSION BY AGREEMENT.— 
(1) EXTENSION OF TIME FOR ASSESSMENT.—If before the expira-
tion of the time prescribed in subsection (c) for the assessment of 
the liability, the Secretary or his delegate and the transferee or 
fiduciary have both consented in writing to its assessment after 
such time, the liability may be assessed at any time prior to the 
expiration of the period agreed upon. 
The period so agreed upon 
may be extended by subsequent agreements in writing made before 
the expiration of the period previously agreed upon. For the pur-
pose of determining the period of limitation on credit or refund to 
the transferee or fiduciary of overpayments of tax made by such 
transferee or fiduciary or overpayments of tax made by the trans-
feror of which the transferee or fiduciary is legally entitled to credit 
or refund, such agreement and any extension thereof shall be 
deemed an agreement and extension thereof referred to in section 
6511 (c). 
(2) EXTENSION OF TIME FOR CREDIT OR REFUND.—If the agree-
ment is executed after the expiration of the period of limitation 
for assessment against the taxpayer with reference to whom the 
liability of such transferee or fiduciary arises, then in applying the 
limitations under section 6511 (c) on the amount of the credit or 
refund, the periods specified in section 6511 (b) (2) shall be increased 
by the period from the date of such expiration to the date of the 
agreement. 
(e) PERIOD FOR ASSESSMENT AGAINST TRANSFEROR.—For purposes 
of this section, if any person is deceased, or is a corporation which 
has terminated its existence, the period of limitation for assessment 
against such person shall be the period that would be in effect had 
death or termination of existence not occurred. 
(f) SUSPENSION OF RUNNING OF PERIOD OF LIMITATIONS.—The 
running of the period of limitations upon the assessment of the lia-
bility of a transferee or fiduciary shall, after the mailing to the trans-
feree or fiduciary of the notice provided for in section 6212 (relating 
to income, estate, and gift taxes), be suspended for the period during 
which the Secretary or his delegate is prohibited from making the 
assessment in respect of the liability of the transferee or 
fiduciary 
(and in any event, if a proceeding in respect of the liability is placed 
on the docket of the Tax Court, until the decision of the Tax Court 
becomes final), and for 60 days thereafter. 
(g) ADDRESS FOR NOTICE OF LIABILITY.—In the absence of notice 
to the Secretary or his delegate under section 6903 of the existence of 
a fiduciary relationship, any notice of liability enforceable under this 
section required to be mailed to such person, shall, if mailed to the 
person subject to the liability at his last known address, be sufficient 
for purposes of this title, even if such person is deceased, or is under 
§ 6901(c) 
CH. 71—TRANSFEREES AND FIDUCIARIES 
843 
a legal disability, or, in the case of a corporation, has terminated its 
existence. 
(h) DEFINITION OF TRANSFEREE.—As used in this section, the term 
"transferee" includes donee, heir, legatee, devisee, and distributee, 
and with respect to estate taxes, also includes any person who, under 
section 6324 (a) (2), is personally liable for any part of such tax. 
(i) EXTENSION OF TIME.— 
For extensions of time by reason of armed service in a combat zone, 
see section 7508. 
SEC. 6902. PROVISIONS OF SPECIAL APPLICATION TO TRANSFEREES. 
(a) BURDEN OF PROOF.—In proceedings before the Tax Court the 
burden of proof shall be upon the Secretary or his delegate to show 
that a petitioner is liable as a transferee of property of a taxpayer, 
but not to show that the taxpayer was liable for the tax. 
(b) EVIDENCE.—Upon application to the Tax Court, a transferee 
of property of a taxpayer shall be entitled, under rules prescribed by 
the Tax Court, to a preliminary examination of books, papers, docu-
ments, correspondence, and other evidence of the taxpayer or a pre-
ceding transferee of the taxpayer's property, if the transferee making 
the application is a petitioner before the Tax Court for the redeter-
mination of his liability in respect of the tax (including interest, addi-
tional amounts, and additions to the tax provided by law) imposed 
upon the taxpayer. 
Upon such application, the Tax Court may 
require by subpoena, ordered by the Tax Court or any division 
thereof and signed by a judge, the production of all such books, 
papers, documents, correspondence, and other evidence within the 
United States the production of which, in the opinion of the Tax 
Court or division thereof, is necessary to enable the transferee to 
ascertain the liability of the taxpayer or preceding transferee and 
will not result in undue hardship to the taxpayer or preceding trans-
feree. 
Such examination shall be had at such time and place as 
may be designated in the subpoena. 
SEC. 6903. NOTICE OF FIDUCIARY RELATIONSHIP. 
(a) RIGHTS AND OBLIGATIONS OF FIDUCIARY.—Upon notice to the 
Secretary or his delegate that any person is acting for another person 
in a fiduciary capacity, such fiduciary shall assume the powers, rights, 
duties, and privileges of such other person in respect of a tax imposed 
by this title (except as otherwise specifically provided and except 
that the tax shall be collected from the estate of such other person), 
until notice is given that the fiduciary capacity has terminated. 
(b) MANNER OF NOTICE.—Notice under this section shall be given 
in accordance with regulations prescribed by the Secretary or his 
delegate. 
SEC. 6904. PROHIBITION OF INJUNCTIONS, 
For prohibition of suits to restrain enforcement of liability of transferee, 
or fiduciary, see section 7421 (b). 
6904 
CH. 72—LICENSING AND REGISTRATION 
845 
CHAPTER 72—LICENSING AND REGISTRATION 
SUBCHAPTER A. Licensing. 
SUBCHAPTER B . Registration. 
Subchapter A—^Licensing 
See. 7001. Collection of foreign items. 
SEC. 7001. COLLECTION OF FOREIGN ITEMS. 
(a) LICENSE.—All persons undertaking as a matter of business or 
for profit the collection of foreign payments of interest or dividends 
by means of coupons, checks, or bills of exchange shall obtain a license 
from the Secretary or his delegate and shall be subject to such regula-
tions enabling the Government to obtain the information required 
under subtitle A (relating to income taxes) as the Secretary or his 
delegate shall prescribe. 
(b) PENALTY FOE FAILURE TO OBTAIN LICENSE.— 
For penalty for failure to obtain the license provided for in this sec-
tion, see section 7231. 
§ 7001(b) 
846 
INTERNAL REVENUE CODE OF 1954 
Subchapter B—^Registration 
Sec. 7011. Registration—persons paying a special tax. 
Sec. 7012. Cross references. 
SEC. 7011. REGISTRATION—PERSONS PAYING A SPECIAL TAX. 
(a) REQUIREMENT.—Every person engaged in any trade or busi-
ness on which a special tax is imposed by law shall register with the 
Secretary or his delegate his name or style, place of residence, trade 
or business, and the place where such trade or business is to be 
carried on. 
In case of a firm or company, the names of the several 
persons constituting the same, and the places of residence, shall be so 
registered. 
(b) REGISTRATION IN CASE OF DEATH OR CHANGE OF LOCATION.— 
Any person exempted under the provisions of section 4905 from 
the payment of a special tax, shall register with the Secretary or his 
delegate in accordance with regulations prescribed by the Secretary 
or his delegate. 
SEC. 7012. CROSS REFERENCES. 
(a) Narcotic Drugs.—For provisions relating to registration in relation 
to narcotic drugs, see section 4722. 
(b) Marihuana.—For provisions relating to registration in relation to 
marihuana, see section 4753. 
(c) Firearms.—For provisions relating to registration in connection 
with firearms, see sections 5802, 5841, and 5854. 
(d) For provisions relating to registration in relation to the manu-
facture of playing cards, see section 4455. 
(e) For provisions relating to registration in relation to the manu-
facture of white phosphorus matches, see section 4804 (d). 
(f) For special rules with respect to registration by persons engaged 
in receiving wagers, see section 4412. 
(g) For provisions relating to registration in relation to the produc-
tion or importation of gasoline, see section 4101. 
(h) For provisions relating to registration in relation to the manu-
facture or production of lubricating oils, see section 4101. 
(i) For provisions relating to registration in relation to transportation 
of property for hire, see section 4273. 
(j) Penalty.— 
(1) For penalty for failure to register, see section 7272. 
(2) For other penalties for failure to register with respect to 
wagering, see section 7262. 
§7011 
CH. 73—BONDS 
847 
CHAPTER 73—BONDS 
Sec. 7101. Form of bonds. 
Sec. 7102. Single bond in lieu of multiple bonds. 
Sec. 7103. Cross references—other provisions for bonds. 
SEC. 7101. FORM OF BONDS. 
Whenever, pursuant to the provisions of this title (other than 
sections 7485 and 6803 (a) (1)), or rules or regulations prescribed under 
authority of this title, a person is required to furnish a bond or 
security— 
(1) GENERAL RULE.—Such bond or security shall be in such form 
and with such surety or sureties as may be prescribed by regulations 
issued by the Secretary or his delegate. 
(2) UNITED STATES BONDS AND NOTES IN LIEU OF SURETY BONDS.— 
The person required to furnish such bond or security may, in lieu 
thereof, deposit bonds or notes of the United States as provided in 
6 U. S. C. 15. 
SEC. 7102. SINGLE BOND IN LIEU OF MULTIPLE BONDS. 
In any case in which two or more bonds are required or authorized, 
the Secretary or his delegate may provide for the acceptance of a 
single bond complying with the requirements for which the several 
bonds are required or authorized. 
SEC. 7103. CROSS REFERENCES—OTHER PROVISIONS FOR BONDS. 
(a) EXTENSIONS OP TIME.— 
(1) For bond where time to pay tax or deficiency has been extended, 
see section 6165. 
(2) For bond to stay collection of a jeopardy assessment, see section 
6863. 
(3) For bond to stay assessment and collection prior to review of a 
Tax Court decision, see section 7485. 
(4) For furnishing of bond where taxable year is closed by the Secre-
tary or his delegate, see section 6851 (e). 
(5) For bond in case of an election to postpone payment of estate tax 
where the value of a reversionary or remainder interest is included in 
the gross estate, see section 6165. 
(b) RELEASE OF LIEN OR SEIZED PROPERTY.— 
(1) For the release of the lien provided for in section 6325 by furnish-
ing the Secretary or his delegate a bond, see section 6325 (a) (2). 
(2) For bond to obtain release of perishable goods which have been 
seized under forfeiture proceeding, see section 7324 (3). 
(3) For bond to release perishable goods under levy, see section 6336. 
(4) For bond executed by claimant of seized goods valued at $1000 or 
less, see section 7325 (3). 
(c) 
M I S C E L L A N E O U S . — 
(1) For bond as a condition precedent to the allowance of the credit 
for accrued foreign taxes, see section 905 (c). 
(2) For bonds relating to alcohol and tobacco taxes, see generally 
subtitle E. 
§ 7103(c)(2) 
848 
INTERNAL REVENUE CODE OF 19 54 
(d) BONDS REQUIRED W I T H RESPECT TO CERTAIN PRODUCTS.— 
(1) For bond in case of articles taxable under subchapter B of chap-
ter 37 processed for exportation without payment of the tax provided 
therein, see section 4513 (c). 
(2) For bond in case of oleomargarine removed from the place of 
manufacture for exportation to a foreign country, see section 4593 (b). 
(3) For requirement of bonds with respect to certain industries see— 
(A) section 4596 relating to a manufacturer of oleomargarine; 
(B) section 4814 (c) relating to a manufacturer of process or 
renovated butter or adulterated butter; 
(C) section 4833 (c) relating to a manufacturer of filled cheese; 
(D) section 4713 (b) relating to a manufacturer of opium suitable 
for smoking purposes; 
(E) section 4804 (c) relating to a manufacturer of white phosphorus 
matches; 
(F) section 4101 relating to a producer or importer of gasoline or 
a manufacturer or producer of lubricating oils subject to tax under 
chapter 32. 
(e) PERSONNEL BONDS.— 
(1) For bonds of internal revenue personnel to insure faithful per-
formance of duties, see section 7803 (c). 
(2) For jurisdiction of United States district courts, concurrently with 
the courts of the several States, in an action on the official bond of any 
internal revenue officer or employee, see section 7402 (d). 
(3) For bonds of postmasters to whom stamps have been furnished 
under section 6802 (1), see section 6803 (a) (1). 
(4) For bonds in cases coming within the provisions of section 
6802 (2) or (3), relating to stamps furnished a designated depositary of 
the United States or State agent, see section 6803 (b) (1). 
§ 7103(d) 
CH. 74—CLOSING AGREEMENTS AND COMPROMISES 
849 
CHAPTER 74—CLOSING AGREEMENTS AND 
COMPROMISES 
Sec. 7121. Closing agreements. 
Sec. 7122. Compromises. 
Sec. 7123. Cross references. 
SEC. 7121. CLOSING AGREEMENTS. 
(a) AUTHORIZATION.—The Secretary or his delegate is authorized 
to enter into an agreement in writing with any person relating to the 
liability of such person (or of the person or estate for whom he acts) 
in respect of any internal revenue tax for any taxable period. 
(b) FINALITY.—If such agreement is approved by the Secretary or 
his delegate (within such time as may be stated in such agreement, or 
later agreed to) such agreement shaU be final and conclusive, and, 
except upon a showing of fraud or malfeasance, or misrepresentation 
of a material fact— 
(1) the case shall not be reopened as to the matters agreed upon 
or the agreement modified by any officer, employee, or agent of the 
United States, and 
(2) in any suit, action, or proceeding, such agreement, or any 
determination, assessment, collection, payment, abatement, refund, 
or credit made in accordance therewith, shall not be annulled, 
modified, set aside, or disregarded. 
SEC. 7122. COMPROMISES. 
(a) AUTHORIZATION.—The Secretary or his delegate may com-
promise any civil or criminal case arising under the internal revenue 
laws prior to reference to the Department of Justice for prosecution or 
defense; and the Attorney General or his delegate may compromise 
any such case after reference to the Department of Justice for prose-
cution or defense. 
(b) RECORD.—Whenever a compromise is made by the Secretary or 
his delegate in any case, there shall be placed on file in the office of the 
Secretary or his delegate the opinion of the General Counsel for the 
Department of the Treasury or his delegate, with his reasons therefor, 
with a statement of— 
(1) The amount of tax assessed, 
(2) The amount of interest, additional amount, addition to the 
tax, or assessable penalty, imposed by law on the person against 
whom the tax is assessed, and 
(3) The amount actually paid in accordance with the terms of the 
compromise. 
Notwithstanding the foregoing provisions of this subsection, no such 
opinion shall be required with respect to the compromise of any civil 
case in which the unpaid amount of tax assessed (including any inter-
est, additional amount, addition to the tax, or assessable penalty) is 
less than $500. 
§ 7122(b) 
850 
INTERNAL REVENUE CODE OF 1954 
SEC. 7123. CROSS REFERENCES. 
(a) 
C R I M I N A L P E N A L T I E S . — 
For criminal penalties for concealment of property, false statement, 
or falsifying and destroying records, in connection with any closing 
agreement, compromise, or oflFer of compromise, see section 7206. 
(b) 
COMPROMISES A F T E R J U D G M E N T . — 
For compromises after judgment, see R. S. 3469 (31 U. S. C. 194). 
§7123 
CH. 75 
CRIMES, OTHER OFFENSES, AND FORFEITURES 
851 
CHAPTER 75—CRIMES, OTHER OFFENSES, AND 
FORFEITURES 
SUBCHAPTER A. Crimes. 
STTBCHAPTER B . Other offenses. 
SUBCHAPTER C. Forfeitures. 
SuBCHAPTEB D. MiscellaEeous penalty and forfeiture provisions. 
Subchapter A—Crimes 
Part I. General provisions. 
Part II. Penalties applicable to certain taxes. 
PART I—GENERAL PROVISIONS 
Sec. 7201. Attempt to evade or defeat tax. 
Sec. 7202. Willful failure to collect or pay over tax. 
Sec. 7203. Willful failure to file return, supply information, or pay 
tax. 
Sec. 7204. Fraudulent statement or failure to make statement to 
employees. 
Sec. 7205. Fraudulent withholding exemption certificate or failure 
to supply information. 
Sec. 7206. Fraud and false statements. 
Sec. 7207. Fraudulent returns, statements, or other documents. 
Sec. 7208. Offenses relating to stamps. 
Sec. 7209. Unauthorized use or sale of stamps. 
Sec. 7210. Failure to obey summons. 
Sec, 7211. False statements to purchasers or lessees relating to tax. 
Sec. 7212. Attempts to interfere with administration of internal 
revenue laws. 
Sec. 7213. Unauthorized disclosure of information. 
Sec. 7214. Offenses by officers and employees of the United States. 
SEC. 7201. ATTEMPT TO EVADE OR DEFEAT TAX. 
Any person who willfuUj attempts in any manner to evade or defeat 
any tax imposed b y this title or the payment thereof shall, in addition 
to other penalties provided b y law, be guilty of a felony and, upon con-
viction thereof, shall be fined not more than $10,000, or imprisoned 
not more than 5 years, or both, together with the costs of prosecution. 
SEC. 7202. WILLFUL FAILURE TO COLLECT OR PAY OVER TAX. 
Any person required under this title to collect, account for, and 
pay over a n y tax imposed b y this title who willfully fails to collect 
or truthfully account for and p a y over such tax shall, in addition to 
other penalties provided b y law, be guilty of a felony and, upon 
conviction thereof, shall b e fined not more than $10,000, or imprisoned 
not more t h a n 5 years, or both, together with the costs of prosecution. 
SEC. 7203. WILLFUL FAILURE TO FILE RETURN, SUPPLY INFORMA-
TION, OR PAY TAX. 
Any person required under this title to pay any estimated tax or tax, 
or required b y this title or b y regulations made under authority 
thereof to make a return (other tiian a return required under authority 
§ 7203 
852 
INTERNAL REVENUE CODE 
OF 19 
54 
of section 6015 or section 6016), keep any records, or supply any 
information, who willfully fails to pay such estimated tax or tax, 
make such return, keep such records, or supply such information, 
at the time or times required by law or regulations, shall, in addition 
to other penalties provided by law, be guilty of a misdemeanor and, 
upon conviction thereof, shall be fined not more than $10,000, or 
imprisoned not more than 1 year, or both, together with the costs of 
prosecution. 
SEC. 7204. FRAUDULENT STATEMENT OR FAILURE TO MAKE STATE-
MENT TO EMPLOYEES. 
In lieu of any other penalty provided by law (except the penalty 
provided by section 6674) any person required under the provisions of 
section 6051 to furnish a statement who willfully furnishes a false or 
fraudulent statement or who willfully fails to furnish a statement in 
the manner, at the time, and showing the information required under 
section 6051, or regulations prescribed thereunder, shall, for each such 
offense, upon conviction thereof, be fined not more than $1,000, or 
imprisoned not more than 1 year, or both. 
SEC. 7205. FRAUDULENT WITHHOLDING EXEMPTION CERTIFICATE 
OR FAILURE TO SUPPLY INFORMATION. 
Any individual required to supply information to his employer under 
section 3402 (f) who willfully supplies false or fraudulent information, 
or who willfully fails to supply information thereunder which would 
require an increase in the tax to be withheld under section 3402, shall, 
in lieu of any penalty otherwise provided, upon conviction thereof, 
be fined not more than $500, or imprisoned not more than 1 year, or 
both. 
SEC. 7206. FRAUD ,AND FALSE STATEMENTS. 
Any person who— 
(1) DECLARATION 
UNDER 
PENALTIES 
OF 
PERJURY.—Willfully 
makes and subscribes any return, statement, or other document, 
which contains or is verified by a written declaration that it is 
made under the penalties of perjury, and which he does not believe 
to be true and correct as to every material matter; or 
(2) AID OR ASSISTANCE.—Willfully aids or assists in, or procures, 
counsels, or advises the preparation or presentation under, or in 
connection with any matter arising under, the internal revenue 
laws, of a return, affidavit, claim, or other document, which is 
fraudulent or is false as to any material matter, whether or not 
such falsity or fraud is with the knowledge or consent of the person 
authorized or required to present such return, affidavit, claim, or 
document; or 
(3) FRAUDULENT BONDS, PERMITS, AND ENTRIES.—Simulates or 
falsely or fraudulently executes or signs any bond, permit, entry, 
or other document required by the provisions of the internal revenue 
laws, or by any regulation made in pursuance thereof, or procures 
the same to be falsely or fraudulently executed, or advises, aids in, 
or connives at such execution thereof; or 
(4) REMOVAL OR CONCEALMENT WITH INTENT TO DEFRAUD.— 
Removes, deposits, or conceals, or is concerned in removing, deposit-
ing, or concealing, any goods or commodities for or in respect 
whereof any tax is or shall be imposed, or any property upon which 
§ 7203 
CH. 75—CRIMES, OTHER OFFENSES, AND FORFEITURES 
853 
levy is authorized by section 6331, with intent to evade or defeat 
the assessment or collection of any tax imposed by this title; or 
(5) COMPEOMISES AND CLOSING AGREEMENTS.—In 
COimection 
with any compromise under section 7122, or offer of such com-
promise, or in connection with any closing agreement under section 
7121, or offer to enter into any such agreement, willfully— 
(A) CONCEALMENT OP PROPERTY.—Conceals from any officer 
or employee of the United States any property belonging to the 
estate of a taxpayer or other person Hable in respect of the tax, or 
(B) WITHHOLDING, FALSIFYING, AND DESTROYING RECORDS.— 
Receives, withholds, destroys, mutilates, or falsifies any book, 
document, or record, or makes any false statement, relating to 
the estate or financial condition of the taxpayer or other person 
liable in respect of the tax; 
shall be guilty of a felony and, upon conviction thereof, shall be fined 
not more than $5,000, or imprisoned not more than 3 years, or both, 
together with the costs of prosecution. 
SEC. 7207. FRAUDULENT 
RETURNS, 
STATEMENTS, 
OR 
OTHER 
DOCUMENTS. 
Any person who willfully delivers or discloses to the Secretary or 
his delegate any list, return, account, statement, or other document, 
known by him to be fraudulent or to be false as to any material 
matter, shall be fined not more than $1,000, or imprisoned not more 
than 1 year, or both. 
SEC. 7208. OFFENSES RELATING TO STAMPS. 
Any person who— 
(1) COUNTERFEITING.—With intent to defraud, alters, forges, 
makes, or counterfeits any stamp, coupon, ticket, book, or other 
device prescribed under authority of this title for the collection or 
payment of any tax imposed by this title, or sells, lends, or has in 
his possession any such altered, forged, or counterfeited stamp, 
coupon, ticket, book, or other device, or makes, uses, sells, or has 
in his possession any material in imitation of the material used in 
the manufacture of such stamp, coupon, ticket, book, or other 
device; or 
(2) MUTILATION 
OR REMOVAL.—Fraudulently cuts, tears, or 
removes from any vellum, parchment, paper, instrument, writing, 
package, or article, upon which any tax is imposed by this title, 
any adhesive stamp or the impression of any stamp, die, plate, or 
other article provided, made, or used in pursuance of this title; or 
(3) U S E 
OF 
MUTILATED, 
INSUFFICIENT, 
OR 
COUNTERFEITED 
STAMPS.—Fraudulently uses, joins, fixes, or places to, with, or upon 
any vellum, parchment, paper, instrument, writing, package, or 
article, upon which any tax is imposed by this title, 
(A) any adhesive stamp, or the impression of any stamp, die, 
plate,-or other article, which has been cut, torn, or removed from 
any other vellum, parchment, paper, instrument, writing, pack-
age, or article, upon which any tax is imposed by this title; or 
(B) any adhesive stamp or the impression of any stamp, die, 
plate, or other article of insufficient value; or 
(C) any forged or counterfeited stamp, or the impression of 
any forged or counterfeited stamp, die, plate, or other article; or 
§ 7208(3) (C) 
854 
INTERNAL REVENUE CODE OF 1954 
(4) REUSE or STAMPS.— 
(A) PREPARATION FOR REUSE.—Willfully removes, or alters 
the cancellation or defacing marks of, or otherwise prepares, any 
adhesive stamp, with intent to use, or cause the same to be used, 
after it has already been used; or 
(B) TRAFFICKING.—Knowingly or willfully buys, sells, offers 
for sale, or gives away, any such washed or restored stamp to 
any person for use, or knowingly uses the same; or 
(C) POSSESSION.—Knowingly and without lawful excuse (the 
burden of proof of such excuse being on the accused) has in 
possession any washed, restored, or altered stamp, which has 
been removed from any vellum, parchment, paper, instrument, 
writing, package, or article; or 
(5) EMPTIED 
STAMPED PACKAGES.—Commits the offense 
de-
scribed m section 7271 (relating to disposal and receipt of stamped 
packages) with intent to defraud the revenue, or to defraud any 
person; 
shall be guilty of a felony and, upon conviction thereof, shall be 
fined not more than $10,000, or imprisoned not more than 5 years, or 
both. 
SEC. 7209. UNAUTHORIZED USE OR SALE OF STAMPS. 
Any person who buys, sells, offers for sale, uses, transfers, takes or 
gives in exchange, or pledges or gives in pledge, except as authorized 
in this title or in regulations made pursuant thereto, any stamp, 
coupon, ticket, book, or other device prescribed by the Secretary or 
his delegate under this title for the collection or payment of any tax 
imposed by this title, shall, upon conviction thereof, be fined not 
more than $1,000, or imprisoned not more than 6 months, or both. 
SEC. 7210. FAILURE TO OBEY SUMMONS. 
Any person who, being duly summoned to appear to testify, or to 
appear and produce books, accounts, records, memoranda, or other 
papers, as required under sections 7602, 7603, and 7604 (b), neglects 
to appear or to produce such books, accounts, records, memoranda, or 
other papers, shall, upon conviction thereof, be fined not more than 
$1,000, or imprisoned not more than 1 year, or both, together with 
costs of prosecution. 
SEC. 7211. FALSE STATEMENTS TO PURCHASERS OR LESSEES RELAT-
ING TO TAX. 
Whoever in connection with the sale or lease, or offer for sale or 
lease, of any article, or for the purpose of making such sale or lease, 
makes any statement, written or oral— 
(1) intended or calculated to lead any person to believe that 
any part of the price at which such article is sold or leased, or 
offered for sale or lease, consists of a tax imposed under the author-
ity of the United States, or 
(2) ascribing a particular part of such price to a tax imposed 
under the authority of the United States, 
knowing that such statement is false or that the tax is not so great 
as the portion of such price ascribed to such tax, shall be guilty of a 
misdemeanor and, upon conviction thereof, shall be punished by a 
fine of not more than $1,000, or by imprisonment for not more than 
1 year, or both. 
§ 7208(4) 
CH. 75—CRIMES, OTHER OFFENSES, AND FORFEITURES 
855 
SEC. 7212. ATTEMPTS TO INTERFERE 
WITH ADMINISTRATION 
OF 
INTERNAL REVENUE LAWS. 
(a) CORRUPT OR FORCIBLE INTERFERENCE.—Whoever corruptly or 
by force or threats of force (including any threatening letter or com-
munication) endeavors to intimidate or impede any officer or employee 
of the United States acting in an official capacity under this title, or 
in any other way corruptly or by force or threats of force (including 
any threatening letter or communication) obstructs or impedes, or 
endeavors to obstruct or impede, the due administration of this title, 
shall, upon conviction thereof, be fined not more than $5,000, or 
imprisoned not more than 3 years, or both, except that if the offense 
is committed only by threats of force, the person convicted thereof 
shall be fined not more than $3,000, or imprisoned not more than 1 
year, or both. The term "threats of force", as used in this subsection, 
means threats of bodily harm to the officer or employee of the United 
States or to a member of his family. 
(b) FORCIBLE RESCUE OF SEIZED PROPERTY.—Any person who 
forcibly rescues or causes to be rescued any property after it shall have 
been seized under this title, or shall attempt or endeavor so to do, shall, 
excepting in cases otherwise provided for, for every such offense, be fined 
not more than $500, or not more than double the value of the property 
so rescued, whichever is the greater, or be imprisoned not more than 
2 years. 
SEC. 7213. UNAUTHORIZED DISCLOSURE OF INFORMATION. 
(a) INCOME RETURNS.— 
(1) FEDERAL EMPLOYEES AND OTHER PERSONS.—It shall be un-
lawful for any officer or employee of the United States to divulge or 
to make known in any manner whatever not provided by law to 
any person the amount or source of income, profits, losses, expendi-
tures, or any particular thereof, set forth or disclosed in any income 
return, or to permit any income return or copy thereof or any book 
containing any abstract or particulars thereof to be seen or examined 
by any person except as provided by law; and it shall be unlawful 
for any person to print or publish in any maimer whatever not 
provided by law any income return, or any part thereof or source 
of income, profits, losses, or expenditures appearing in any income 
return; and any person committing an offense against the foregoing 
provision shall be guilty of a misdemeanor and, upon conviction 
thereof, shall be fined not more than $1,000, or imprisoned not more 
than 1 year, or both, together with the costs of prosecution; and if 
the offender be an officer or employee of the United States he shall 
be dismissed from office or discharged from employment. 
(2) STATE EMPLOYEES.—Any officer, employee, or agent of any 
State or political subdivision, who divulges (except as authorized 
in section 6103 (b), or when called upon to testify in any judicial 
or administrative proceeding to which the State or political sub-
division, or such State or local official, body, or commission, as 
such, is a party), or who makes known to any person in any manner 
whatever not provided by law, any information acquired by him 
through an inspection permitted him or another under section 
6103 (b), or who permits any income return or copy thereof or any 
book containing any abstract or particulars thereof, or any other 
information, acquired by him through an inspection permitted him 
§ 7213(a)(2) 
856 
INTERNAL REVENUE CODE OF 19 
54 
or another under section 6103 (b), to be seen or examined by any 
person except as provided by law, shall be guilty of a misdemeanor 
and, upon conviction thereof, shall be fined not more than $1,000, or 
imprisoned not more than 1 year, or both, together with the costs 
of prosecution. 
(3) SHAREHOLDERS.—Any shareholder who pursuant to the pro-
visions of section 6103 (c) is allowed to examine the return of any 
corporation, and who makes known in any manner whatever not 
provided by law the amount or source of income, profits, losses, 
expenditures, or any particular thereof, set forth or disclosed in 
any such return, shall be guilty of a misdemeanor and, upon con-
viction thereof, shall be fined not more than $1,000, or imprisoned 
not more than 1 year, or both, together with the costs of prosecution. 
(b) DISCLOSURE 
OF OPERATIONS OF MANUFACTURER 
OR PRO-
DUCER.—Any officer or employee of the United States who divulges 
or makes known in any manner whatever not provided by law to any 
person the operations, style of work, or apparatus of any manufacturer 
or producer visited by him in the discharge of his official duties shall 
be guilty of a misdemeanor and, upon conviction thereof, shall be 
fined not more than $1,000, or imprisoned not more than 1 year, or 
both, together with the costs of prosecution; and the offender shall 
be dismissed from office or discharged from employment. 
(c) CROSS REFERENCES.— 
(1) RETURNS OF FEDERAL UNEMPLOYMENT TAX.— 
For special provisions applicable to returns of tax under chapter 23 
(relating to Federal Unemployment Tax), see section 6106. 
(2) P E N A L T I E S FOR DISCLOSURE OF CONFIDENTIAL INFORMATION.— 
For penalties for disclosure of confidential information by any officer 
or employee of the United States or any department or agency thereof, 
see 18 U. S. C. 1905. 
SEC. 7214. OFFENSES BY OFFICERS AND EMPLOYEES OF THE UNITED 
STATES. 
(a) UNLAWFUL ACTS OF REVENUE OFFICERS OR AGENTS.—^Any 
officer or employee of the United States acting in connection with any 
revenue law of the United States— 
(1) who is guilty of any extortion or willful oppression under 
color of law; or 
(2) who knowingly demands other or greater sums than are 
authorized by law, or receives any fee, compensation, or reward, 
except as by law prescribed, for the performance of any duty; or 
(3) who with intent to defeat the application of any provision 
of this title fails to perform any of the duties of his office or em-
ployment; or 
(4) who conspires or colludes with any other person to defraud 
the United States; or 
(5) who knowingly makes opportunity for any person to defraud 
the United States; or 
(6) who does or omits to do any act with intent to enable any 
other person to defraud the United States; or 
(7) who makes or signs any fraudulent entry in any book, or 
makes or signs any fraudulent certificate, return, or statement; or 
(8) who, having knowledge or information of the violation of any 
revenue law by any person, or of fraud committed by any person 
§ 7213(a)(2) 
CH. 75—CRIMES, OTHER OFFENSES, AND FORFEITURES 
857 
against the United States under any revenue law, fails to report, in 
writing, such knowledge or information to the Secretary or his 
delegate; or 
(9) who demands, or accepts, or attempts to collect, directly or 
indirectly as payment or gift, or otherwise, any sum of money or 
other thing of value for the compromise, adjustment, or settlement 
of any charge or complaint for any violation or alleged violation of 
law, except as expressly authorized by law so to do; 
shall be dismissed from ofiice or discharged from employment and, 
upon conviction thereof, shall be fined not more than $10,000, or 
imprisoned not more than 5 years, or both. 
The court may in its 
discretion award out of the fine so imposed an amount, not in excess 
of one-half thereof, for the use of the informer, if any, who shall be 
ascertained by the judgment of the court. 
The court also shall 
render judgment against the said officer or employee for the amount 
of damages sustained in favor of the party injured, to be collected 
by execution. 
(b) INTEREST OF INTERNAL REVENUE OFFICER OR EMPLOYEE IN 
TOBACCO OR LIQUOR PRODUCTION.—Any internal revenue officer or 
employee interested, directly or indirectly, in the manufacture of 
tobacco, snuff, or cigarettes, or in the production, rectification, or 
redistillation of distilled spirits, shall be dismissed from office; and 
each such officer or employee so interested in any such manufacture 
or production, rectification, or redistillation or production of fer-
mented liquors shall be fined not more than $5,000. 
(c) CROSS REFERENCES.— 
> 
(1) For penalty imposed for unlawfully removing or permitting to be 
removed distilled spirits from a bonded warehouse, see section 5632. 
(2) For penalty on collecting or disbursing officers trading in jpublic 
funds or debts or property, see 18 U. S. C. 1901. 
PART 
II—PENALTIES 
APPLICABLE 
TO 
CERTAIN TAXES 
Sec. 7231. Failure to obtain license for collection of foreign items. 
Sec. 7232. Failure to register or give bond, or false statement by 
-—soyf.' 
manufacturer or producer of gasoline or lubricating oil. 
Sec. 7233. Failure to pay, or attempt to evade payment of, tax on 
cotton futures, and other violations. 
Sec. 7234. Violation of laws relating to oleomargarine or adulterated 
butter operations. 
Sec. 7235. Violation of laws relating to adulterated butter and 
process or renovated butter. 
Sec. 7236. Violation of laws relating to filled cheese. 
Sec. 7237. Violation of laws relating to narcotic drugs and to 
marihuana. 
Sec. 7238. Violation of laws relating to opium for smoking. 
Sec. 7239. Violations of laws relating to white phosphorus matches. 
Sec. 7240. Officials investing or speculating in sugar. 
SEC. 7231. FAILURE 
TO OBTAIN 
LICENSE 
FOR COLLECTION 
OF 
FOREIGN ITEMS. 
Any person required by section 7001 (relating to collection of certain 
foreign items) to obtain a license who knowingly undertakes to collect 
the payments described in section 7001 without having obtained a 
license therefor, or without complying with regulations prescribed 
under section 7001, shall be guilty of a misdemeanor and, upon con-
viction thereof, shall be fined not more than $5,000, or imprisoned 
not more than 1 year, or both. 
§7231 
49012°—54 
57 
858 
INTERNAL REVENUE CODE OF 1954 
^t .H) 
SEC. 7232. FAILURE TO REGISTER OR GIVE BOND, OR FALSE STATE-
MENT BY MANUFACTURER OR PRODUCER OF GASOLINE 
OR LUBRICATING OIL. 
Every person who fails to register or give bond as required by section 
4101, or who in connection with any purchase of gasoline or lubri-
cating oil falsely represents himself to be registered and bonded as 
provided by section 4101, or who willfully makes any false statement 
in an application for registration under section 4101, shall, upon con-
viction thereof, be fined not more than $5,000, or imprisoned not 
more than 5 years, or both, together with the costs of prosecution. 
SEC. 7233. FAILURE TO PAY, OR ATTEMPT TO EVADE PAYMENT OF, 
TAX ON COTTON FUTURES, AND OTHER VIOLATIONS. 
Any person— 
(1) NONPAYMENT OR EVASION OF TAX.—Liable to the payment of 
any tax imposed by subchapter D of chapter 39, who fails to pay, or 
evades, or attempts to evade the payment of such tax; and 
(2) OTHER VIOLATIONS.—Who otherwise violates any provision 
of subchapter D of chapter 39, or any rule or regulation made in 
pursuance thereof; 
shall, upon conviction thereof, be fined not less than $100 nor more 
than $20,000, in the discretion of the court; and, in case of natural 
persons, may, in addition, be punished by imprisonment for not less 
than 60 days nor more than 3 years, in the discretion of the court. 
SEC. 7234. VIOLATION OF LAWS RELATING TO OLEOMARGARINE 
OR ADULTERATED BUTTER OPERATIONS. 
(a) FALSE BRANDING, SELLING, OR PACKING, IN VIOLATION OF 
LAW.—Every person who knowingly sells or offers for sale, or delivers 
or offers to deliver, any oleomargarine in any other form than in new 
wooden, tin-plate, or paper packages, as described in section 4594 
(a) and (b), or who packs in any package any oleomargarine in any 
manner contrary to law, or who falsely brands any package or affixes 
a stamp on any package denoting a less amount of tax than that 
required by law shall be fined for each offense not more than $1,000, 
and be imprisoned not more than 2 years. 
(b) REMOVAL OR DEFACEMENT OF STAMPS, MARKS, OR BRANDS.— 
Any person who shall willfully remove or deface the stamps, marks, 
or brands on a package containing oleomargarine or adulterated butter, 
taxed as provided by subchapter F of chapter 38, or subchapter C of 
chapter 39, respectively, shall be guilty of a misdemeanor, and shall 
be punished by a fine of not less than $100 nor more than $2,000, and 
by imprisonment for not less than 30 days nor more than 6 months. 
(c) FAILURE OF WHOLESALE DEALERS To K E E P OR PERMIT INSPEC-
TION OF BOOKS, OR T O RENDER RETURNS.—Any person who willfully 
violates any of the provisions of section 4597 (a) shall for each such 
offense be fined not less than $50 and not exceeding $500, and im-
prisoned not less than 30 days nor more than 6 months. 
(d) IMPORTED OLEOMARGARINE OR ADULTERATED BUTTER.— 
(1) FAILURE OF CUSTOMS OFFICER TO COMPLY WITH LAW.—Every 
ofl&cer or employee of the Treasury Department having duties under 
section 4591 who permits any imported oleomargarine or adulterated 
butter to pass out of his custody or control without compliance by 
the owner or importer thereof with the provisions of section 4591 
relating thereto, shall be fined not less than $1,000 nor more than 
§7232 
CH. 75—CRIMES^ OTHER OFFENSES, AND FORFEITURES 
859 
$5,000, and imprisoned not less than 6 months nor more than 3 
years. 
(2) EMPTY PACKAGES.— 
(A) FAILURE TO DESTROY STAMPS.—Any person who wUlfully 
neglects or refuses to destroy utterly the stamps on any empty 
package which contained oleomargarine or adulterated butter, or 
i ,,. fiUed cheese shall for each such offense be fined not exceeding $50, 
and imprisoned not less than 10 days nor more than 6 months; and 
(B) TRAFFICKING.—Any person who fraudulently gives away 
or accepts from another, or who sells, buys, or uses for packing 
oleomargarine or adulterated butter, any such stamped package 
shall for each such offense be fined not exceeding $100, and be 
imprisoned not more than 1 year. 
(3) SALE WHEN IMPROPERLY PACKED OR STAMPED.'—Every person 
who sells or offers for sale any imported oleomargarine or adulterated 
butter, or oleomargarine or adulterated butter purporting or 
claimed to have been imported, not put up in packages and stamped 
as provided by subchapter F of chapter 38 or subchapter C of 
chapter 39, shall be fined not less than $500 nor more than $5,000, 
and be imprisoned not less than 6 months nor more than 2 years. 
(4) FRAUD BY IMPORTER.—Whenever any person importing oleo-
margarine defrauds, or attempts to defraud, the United States of 
the tax on the oleomargarine imported by him, or any part thereof, 
he shall be fined not less than $500 nor more than $5,000, and shall 
be imprisoned not less than 6 months nor more than 3 years. 
SEC. 7235. VIOLATION OF LAWS RELATING TO ADULTERATED BUTTER 
AND PROCESS OR RENOVATED BUTTER. 
(a) ADULTERATED BUTTER—FALSE BRANDING, SALE, PACKING, OR 
STAMPING IN VIOLATION OF LAW.—Every person who knowingly sells 
or offers for sale, or delivers or offers to deliver, any adulterated butter 
in any other form than in new wooden, tin-plate, or paper packages 
as described in section 4815 (a), or who packs in any package any 
adulterated butter in any manner contrary to law, or who falsely 
brands any package or affixes a stamp on any package denoting a 
less amount of tax than that required by law, shall be fined for each 
offense not more than $1,000, and be imprisoned not more than 2 
years. 
(b) FAILURE OF WHOLESALE DEALERS T O K E E P OR PERMIT I N -
SPECTION OF BOOKS, OR T O RENDER RETURNS.—Any person who 
willfully violates any of the provisions of section 4815 (b) shall for each 
such offense be fined not less than $50 and not exceeding $500, and 
imprisoned not less than 30 days nor more than 6 months. 
(c) FAILURE T O COMPLY WITH 
PROVISIONS RELATING TO THE 
MANUFACTURE, STORAGE, AND MARKING OF PROCESS OR RENOVATED 
BUTTER.—Any person, firm, or corporation violating any of the pro-
visions of section 4817 shall be deemed guilty of a misdemeanor and 
on conviction thereof shall be punished by a fine of not more than 
$1,000, or by imprisonment for not more than 6 months, or by both 
such fine and imprisonment, in the discretion of the court. 
(d) DEALERS IN ADULTERATED BUTTER.—Every person who carries 
on the business of a dealer in adulterated butter without having paid 
the special tax therefor, as required by law, shall, besides being liable 
§ 7235(d) 
860 
INTERNAL REVENUE CODE OF 1954 
' • tiJ 
to the payment of the tax, be fined not less than $50 nor more than 
$500 for each offense. 
(e) FRAUD BY MANUFACTURER.—Whenever any person manufac-
turing adulterated butter defrauds, or attempts to defraud, the United 
States of the tax on the adulterated butter manufactured by him, or 
any part thereof, he shall be fined not less than $500 nor more than 
$5,000, and shall be imprisoned not less than 6 months nor more than 
3 years. 
SEC. 7236. VIOLATION OF LAWS RELATING TO FILLED CHEESE. 
FALSE BRANDING, SALE, PACKING, OR STAMPING IN VIOLATION OP 
LAW.—Every person who knowingly sells or offers to sell, or delivers 
or offers to deliver, filled cheese in any other form than in new wooden 
or paper packages, marked and branded as provided for and de-
scribed in section 4834 (b), or who packs in any package or packages 
filled cheese in any manner contrary to law, or who falsely brands 
any package or affixes a stamp on any package denoting a less amount 
of tax than that required by law, shall upon conviction thereof be 
fined for each and every offense not less than $50 and not more than 
$500, or be imprisoned not less than 30 days nor more than 1 year. 
SEC. 7237. VIOLATION OF LAWS RELATING TO NARCOTIC DRUGS 
AND TO MARIHUANA. 
(a) VIOLATION OP LAW RELATING TO OPIUM AND COCA LEAVES 
AND MARIHUANA.—Whoever commits an offense or conspires to com-
mit an offense described in subpart C of part I, or part II of sub-
chapter A of chapter 39 for which no specific penalty is otherwise 
provided, shall be fined not more than $2,000 and imprisoned not 
less than 2 or more than 5 years. 
For a second offense, the offender 
shall be fined not more than $2,000 and imprisoned not less than 
5 or more than 10 years. 
For a third or subsequent offense, the 
offender shall be fined not more than $2,000 and imprisoned not 
less than 10 or more than 20 years. 
Upon conviction for a second 
or subsequent offense, the imposition or execution of sentence shall 
not be suspended and probation shall not be granted. 
For the 
purpose of this subsection, an offender shall be considered a second 
or subsequent offender, as the case may be, if he previously has been 
convicted of any offense the penalty for which is provided in this sub-
section or in section 2 (c) of the Narcotic Drugs Import and Export 
Act, as amended (21 U. S. C. 174), or if he previously has been con-
victed of any offense the penalty for which was provided in section 9, 
chapter 1, of the act of December 17, 1914 (38 Stat. 789), as amended; 
section 1, chapter 202, of the act of May 26, 1922 (42 Stat. 596), as 
amended; section 12, chapter 553, of the act of August 2, 1937 (50 Stat. 
556), as amended; or sections 2557 (b) (1) or 2596 of the Internal 
Revenue Code enacted February 10, 1939 (ch. 2, 53 Stat. 274, 282), as 
amended. 
After conviction, but prior to pronouncement of sentence, 
the court shaU be advised by the United States attorney whether the 
conviction is the offender's first or a subsequent offense. 
If it is not a 
first offense, the United States attorney shall file an information set-
ting forth the prior convictions. 
The offender shall have the oppor-
tunity in open court to affirm or deny that he is identical with the 
person previously convicted. 
If he denies the identity, sentence shall 
be postponed for such time as to permit a trial before a jury on the sole 
issue of the offender's identity with the person previously convicted. 
§ 7235(d) 
CH. 75—CRIMES, OTHER OFFENSES/AND FORFEITURES 
861 
If the offender is found by the jury to be the person previously con-
victed, or if he acknowledges that he is such person, he shall be 
sentenced as prescribed in this subsection. 
(b) UNLAWFUL DISCLOSURE OF INFORMATION ON RETURNS OR 
ORDER FORMS.—Any person who shall disclose the information con-
tained in the statements or returns required under section 4732 (b) 
or in the duplicate order forms required in section 4705 (e), except as 
expressly provided in section 4773, and except for the purpose of 
enforcing the provisions of subpart C of part I of subchapter A of 
chapter 39, or for the purpose of enforcing any law of any State or 
Territory or the District of Columbia, or any insular possession of 
the United States, or ordinance of any organized municipality therein, 
regulating the sale, prescribing, dispensing, dealing in, or distribution 
of narcotic drugs, shall, on conviction, be fined or imprisoned as 
provided by subsection (a) of this section. 
SEC. 7238, VIOLATION OF LAWS RELATING TO OPIUM FOR SMOKING. 
A penalty of not less than $10,000 or imprisonment for not less 
than 5 years, or both, in the discretion of the court, shall be imposed 
for each and every violation of subpart B of part I of subchapter A of 
chapter 39 (relating to opium for smoking) by any person or persons. 
SEC. 7239. VIOLATIONS OF LAWS RELATING TO WHITE PHOSPHORUS 
MATCHES. 
(a) SELLING UNSTAMPED MATCHES.—Any manufacturer of matches 
who manufactures, sells, removes, distributes, or offers to sell or 
distribute, white phosphorus matches without there being aflixed 
thereto an adhesive stamp, denoting the tax required by subchapter 
B of chapter 39 effectually canceled as provided by section 4804 (a) (2), 
shall, for each offense, be guilty of a felony and, upon conviction 
thereof, shall be fined not more than $1,000, or imprisoned not more 
than 2 years, or both. 
(b) U S E OF INSUFFICIENT STAMPS,—Every person who affixes a 
stamp on any package of white phosphorus matches denoting a less 
amount of tax than that required by law shall, for each offense, be 
guilty of a felony and, upon conviction thereof, shall be fined not 
more than $1,000, or imprisoned not more than 2 years, or both. 
SEC. 7240. OFFICIALS INVESTING OR SPECULATING IN SUGAR. 
Any person, while acting in any official capacity in the administra-
tion of subchapter A of chapter 37, relating to manufactured sugar, 
who invests or speculates in sugar or liquid sugar, contracts relating 
thereto, or the stock or membership interests of any association or 
corporation engaged in the production or manufacture of sugar or 
liquid sugar, shall be dismissed from office or discharged from employ-
ment and shall be guilty of a felony and, upon conviction thereof, be 
fined not more than $10,000, or imprisoned not more than 2 years, or 
both. 
7240 
862 .
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INTERNAL REVENUE CODE OF 1954 : 
^ .H'J 
O 
i- Z . J 
Subchapter B—Other Offenses 
Sec. 7261. Representation that retailers' excise tax is excluded from 
t 
price of article. 
i 
Sec. 7262. Violation of occupational tax laws relating to wagering— 
failure to pay special tax. 
1 
Sec. 7263. Penalties relating to cotton futures. 
Sec. 7264. Offenses relating to renovated or adulterated butter. 
Sec. 7265. Other offenses relating to oleomargarine or adulterated 
f 
butter operations. 
cH 
Sec. 7266. Oflfenses relating to filled cheese. 
Sec. 7267. Offenses relating to white phosphorus matches. 
Sec. 7268. Possession with intent to sell in fraud of law or to evade 
.' 
tax. 
J
, 
Sec. 7269. Failure to produce records. 
j^ 
Sec. 7270. Insurance policies. 
, , ,
- 
. ff? 
!:/ 
Sec. 7271. Penalties for offenses relating to stamps. 
' • 
'""i 
' 
Sec. 7272. Penalty for failure to register. 
,c 
Sec. 7273. Penalties for oflfenses relating to special taxes. 
Sec. 7274. Penalty for oflfenses relating to white 
phosphorus 
•^a^iv" 
matches. 
Sec. 7275. Failure to print correct price on tickets. 
SEC. 7261. REPRESENTATION THAT RETAILERS' EXCISE TAX IS EX-
CLUDED FROM PRICE OF ARTICLE. 
Whoever, in connection with the sale or lease, or offer for sale or 
lease, of any article taxable under chapter 31, makes any statement, 
written or oral, in advertisement or otherwise, intended or calculated 
to lead any person to believe that the price of the article does not 
include the tax imposed by chapter 31, shall on conviction thereof be 
fined not more than $1,000. 
SEC. 7262. VIOLATION OF OCCUPATIONAL TAX LAWS RELATING TO 
WAGERING—FAILURE TO PAY SPECIAL TAX. 
Any person who does any act which makes him liable for special tax 
under subchapter B of chapter 35 without having paid such tax, 
shall, besides being liable to the payment of the tax, be fined not less 
than $1,000 and not more than $5,000. 
SEC. 7263. PENALTIES RELATING TO COTTON FUTURES. 
(a) WITHHOLDING INFORMATION.—Any person engaged in the busi-
ness of dealing in cotton who shall, within a reasonable time prescribed 
by the Secretary of Agriculture or any agent acting under his instruc-
tions, willfully fail or refuse to answer questions or to produce books, 
letters, papers, or documents, as required under section 4862 (b), or 
who shall willfully give any answer that is false or misleading, shall, 
upon conviction thereof, be fined not more than $500. 
(b) CIVIL PENALTIES.—In addition to the criminal penalties pro-
vided by section 7233, there shall be imposed, on account of each 
violation of subchapter D of chapter 39, relating to cotton futures, a 
penalty of $2,000, to be recovered in a civil action founded on sub-
chapter D of chapter 39 in the name of the United States as plaintiff, 
and when so recovered one-half of said amount shall be paid over to 
the person giving the information upon which such recovery was based. 
§7261 
CH. 75—CRIMES, OTHER OFFENSES, AND FORFEITURES 
863 
It shall be the duty of United States attorneys, to whom satisfactory 
evidence of violations of subchapter D of chapter 39 is furnished, to 
institute and prosecute actions for the recovery of the penalties pre-
scribed by this subsection. 
SEC. 7264. OFFENSES RELATING TO RENOVATED OR ADULTERATED 
BUTTER. 
Every person who carries on the business of a manufacturer of pro-
cess or renovated butter or adulterated butter without having paid 
the special tax therefor, as required by law, shall, besides being liable 
to the payment of the tax, be fined not less than $1,000 nor more than 
$5,000. 
SEC. 7265. OTHER OFFENSES RELATING TO OLEOMARGARINE OR 
ADULTERATED BUTTER OPERATIONS. 
(a) OMISSION OE REMOVAL O F L A B E L . — 
(1) Every manufacturer of oleomargarine who neglects to affix 
the label described in section 4594 (c) to any package containing 
oleomargarine made by him, or sold or offered for sale by or for him, 
and every person who removes any such label so afiixed from any 
such package, shall be fined $50 for each package in respect to which 
such offense is committed. 
(2) Every manufacturer of adulterated butter who neglects to 
afl&x the label required under section 4814 (a) (1) to any package 
containing adulterated butter made by him, or sold or offered for 
sale for or by him, and every person who removes any such label 
so affixed from any such package shall be fined $50 for each package 
in respect to which such offense is committed. 
(b) PURCHASING W H E N NOT PROPEELY BRANDED OR STAMPED.— 
Every person who knowingly purchases or receives for sale any oleo-
margarine or adulterated butter which has not been branded or 
stamped according to law shall be liable to a penalty of $50 for each 
such offense. 
(c) OTHEE OFFENSES.—If any manufacturer of oleomargarine or 
adulterated butter, any dealer therein or any importer or exporter 
thereof shall knowingly or willfully omit, neglect, or refuse to do, or 
cause to be done, any of the things required by law in the carrying on 
or conducting of his business, or shall do anything prohibited by sub-
chapter F of chapter 38 or subchapter C of chapter 39, if there be no 
specific penalty or punishment imposed by any other provision of this 
chapter or chapter 68 for the neglecting, omitting, or refusing to do, 
or for the doing or causing to be done, the things required or pro-
hibited, he shall pay a penalty of $1,000, 
SEC. 7266. OFFENSES RELATING TO FILLED CHEESE. 
(a) FAILURE TO PAY SPECIAL TAX.—Every person, firm, or cor-
poration— 
(1) MANUFACTURERS.—Who carries on the business of a manu-
facturer of filled cheese without having paid the special tax therefor, 
as required by law, shall, besides being liable to the payment of the 
tax, be fined not less than $400 nor more than $3,000; and 
(2) WHOLESALE DEALERS.—Who carries on the business of a 
wholesale dealer in filled cheese without having paid the special 
tax therefor, as required by law, shall, besides being liable to the 
payment of the tax, be fined not less than $250 nor more than 
$1,000; and 
§ 7266(a)(2) 
864 *
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^
' 
INTERNAL REVENUE CODE OF 1954 '
'
•
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^
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^ 
(3) RETAIL DEALERS.—Who carries on the business of a retail 
* dealer in filled cheese without having paid the special tax therefor, 
as required by law, shall, besides being liable for the payment of the 
tax, be fined not less than $40 nor more than $500 for each and every 
^ 
offense. 
(b) OTHER OFFENSES.—Any manufacturer of filled cheese who fails 
to comply with the provisions of section 4833 (b) and (c), or with 
the regulations therein authorized, shall be deemed guilty of a mis-
demeanor and upon conviction thereof shall be fined not less than $500 
nor more than $1,000. 
(c) FAILURE OF WHOLESALE AND RETAIL DEALERS TO DISPLAY 
SIGNS.—Any wholesale or retail dealer in filled cheese who fails or 
neglects to comply with the provisions of section 4834 (a) shall be 
deemed guilty of a misdemeanor, and shall on conviction thereof be 
fined for each and every offense not less than $50 and not more than 
$200. 
(d) OMISSION OR REMOVAL OF LABEL.—Every manufacturer of 
filled cheese who neglects to affix the label provided for in section 
4833 (a) (2) to any package containing filled cheese made by him or 
sold or offered for sale by or for him, and every person who removes 
any such label so affixed from any such package, shall be fined $50 
for each package in respect to which such offense is committed. 
(e) PURCHASING W H E N SPECIAL TAX NOT PAID.—Every person 
who knowingly purchases or receives for sale any filled cheese from 
any manufacturer or importer who has not paid the special tax pro-
vided for in section 4841 shall be liable, for each offense, to a penalty 
of $100. 
(f) 
PURCHASING W H E N 
NOT STAMPED, BRANDED, OR MARKED 
ACCORDING TO LAW.—Any person who knowingly purchases or re-
ceives for sale any filled cheese which has not been branded or stamped 
according to law, or which is contained in packages not branded or 
marked according to law, shall be liable to a penalty of $50 for each 
such offense. 
SEC. 7267. OFFENSES RELATING TO WHITE PHOSPHORUS MATCHES. 
(a) EXPORTATION OF MATCHES.—Any person guilty of violation of 
section 4805 (b) shall be fined not less than $1,000 and not more than 
$5,000. 
(b) OFFENSES N O T SPECIFICALLY COVERED.—If any manufacturer 
of white phosphorus matches, or any importer or exporter of matches, 
shall omit, neglect, or refuse to do or cause to be done any of the 
things required by law in carrying on or conducting his business, or 
shall do anything prohibited by subchapter B of chapter 39, if there 
be no specific penalty or punishment imposed by any other provision 
of this chapter or chapter 68 for the neglecting, omitting, or refusing 
to do, or for the doing or causing to be done, the thing required or 
prohibited, he shall be fined $1,000 for each offense. 
(c) OMISSION OF LABEL FROM PACKAGES.—Every manufacturer of 
white phosphorus matches who neglects to affix the label required by 
section 4804 (a) (4) to any original package containing stamped 
packages of white phosphorus matches made by him or sold or re-
moved by or for him, and every person who removes any such label 
so affixed from any such original package, shall be fined not more 
7266(a)(3) 
CH. 75—CRIMES, OTHER OFFENSES, AND FORFEITURES 
865 
ithan $50 for each package in respect of which such offense is com-
mitted, 
(d) OMISSION or FACTORY NUMBER FROM PACKAGES.—Every man-
ufacturer of white phosphorus matches who omits to mark, brand, 
affix, stamp, or print the factory number required under section 
4804 (b) on every package of white phosphorus matches manufac-
tured, sold, or removed by him shall be fined not more than $50 for 
each package in respect of which such offense is committed. 
SEC. 7268. POSSESSION WITH INTENT TO SELL IN FRAUD OF LAW 
OR TO EVADE TAX. 
Every person who shall have in his custody or possession any goods, 
wares, merchandise, articles, or objects on which taxes are imposed by 
law, for the purpose of selling the same in fraud of the internal revenue 
laws, or with design to avoid payment of the taxes imposed thereon, 
shall be liable to a penalty of $500 or not less than double the amount 
of taxes fraudulently attempted to be evaded. 
SEC. 7269. FAILURE TO PRODUCE RECORDS. 
Whoever fails to comply with any duty imposed upon him by sec-
tion 6018, 6036 (in the case of an executor), or 6075 (a), or, having 
in his possession or control any record, file, or paper, containing or 
supposed to contain any information concerning the estate of the 
decedent, or, having in his possession or control any property com-
prised in the gross estate of the decedent, fails to exhibit the same 
upon request to the Secretary or his delegate who desires to examine 
the same in the performance of his duties under chapter 11 (relating 
to estate taxes), shall be liable to a penalty of not exceeding $500, to 
be recovered, with costs of suit, in a civil action in the name of the 
United States. 
SEC. 7270. INSURANCE POLICIES. 
Any person who fails to comply with the requirements of section 
4374 (relating to the affixing of stamps on insurance policies, etc.), with 
intent to evade the tax shall, in addition to other penalties provided 
therefor, pay a fine of double the amount of the tax. 
SEC. 7271. PENALTIES FOR OFFENSES RELATING TO STAMPS. 
Any person who with respect to any tax payable by stamps— 
(1) FAILURE TO ATTACH OR CANCEL STAMPS, ETC.—Fails to com-
ply with rules or regulations prescribed pursuant to section 6804 
(relating to attachment, cancellation, etc., of stamps), unless such 
failure is shown to be due to reasonable cause and not willful neglect; 
or 
(2) MANUFACTURE OR OFFER FOR SALE.—Manufactures or im-
ports and sells, or offers for sale, or causes to be manufactured or 
imported and sold, or offered for sale, any playing cards, package, 
or other article without the full amount of tax being duly paid; or 
(3) INSTRUMENTS.—Makes, signs, issues, or accepts, or causes to 
be made, signed, issued, or accepted, any instrument, document, or 
paper of any kind or description whatsoever without the full amount 
of tax thereon being duly paid; or 
(4) DISPOSAL AND RECEIPT OF STAMPED PACKAGES.—In the case 
of any container which is stamped, branded, or marked (whether 
or not under authority of law) in such manner as to show that the 
provisions of the internal revenue laws with respect to the contents 
§7271(4) 
866 
iiH rn 
INTERNAL REVENUE CODE OF 1954 
: .no 
-; or intended contents thereof have been complied with, and which 
is empty or contains any contents other than contents therein when 
- the container was lawfully stamped, branded, or marked— 
(A) Transfers or receives (whether by sale, gift, or otherwise) 
such container knowing it to be empty or to contain such other 
contents; or 
j 
(B) Stamps, brands, or marks such container, or otherwise 
produces such a stamped, branded, or marked container, know-
ing it to be empty or to contain such other contents; ^^v, . t-^i-; 
shall be liable for each such offense to a penalty of $50. 
SEC. 7272. PENALTY FOR FAILURE TO REGISTER. 
(a) I N GENERAL.—Any person who fails to register with the Secre-
tary or his delegate as required by this title or by regulations issued 
thereunder shall be liable to a penalty of $50. 
(b) 
CROSS REFERENCES.— 
'''''• 
For provisions relating to persons required by this title to register, 
see sections 4101, 4273, 4412, 4455, 4722, 4753, 4804 (d), 5802, 5841, 
and 7011. 
SEC. 7273. PENALTIES FOR OFFENSES RELATING TO SPECIAL TAXES. 
(a) GENERAL RULE.—Any person who shall fail to place and keep 
stamps denoting the payment of the special tax as provided in section 
6806 (a) or (b) (whichever is applicable) shall be liable to a penalty 
equal to the special tax for which his business rendered him liable 
(unless such failure is shown to be due to reasonable cause); but in no 
case shall said penalty be less than $10. 
Where the failure to comply 
with the provisions of section 6806 (a) or (b) shall be through willful 
neglect or refusal, then the penalty shall be double the amount above 
prescribed. 
Nothing in this subsection shall in any way affect the 
liability of any person for exercising or carrying on any trade, busi-
ness, or profession, or doing any act for the exercising, carrying on, 
or doing of which a special tax is imposed by law, without the payment 
thereof. 
(b) FAILURE TO POST OR EXHIBIT SPECIAL WAGERING TAX STAMP. — 
Any person who, through negligence, fails to comply with section 
6806 (c) relating to the posting or exhibiting of the special wagering 
tax stamp, shall be liable to a penalty of $50. 
Any person who, 
through willful neglect or refusal, fails to comply with section 6806 (c) 
shall be liable to a penalty of $100. 
SEC. 7274. PENALTY FOR OFFENSES RELATING TO WHITE PHOS-
PHORUS MATCHES. 
Any manufacturer of white phosphorus matches who omits to mark, 
brand, affix, stamp, or print the factory number required under 
section 4804 (b) on every package of white phosphorus matches manu-
factured, sold, or removed by him shall be liable to a penalty of $50 
for each package in respect of which such offense is committed. 
SEC. 7275. FAILURE TO PRINT CORRECT PRICE ON TICKETS. 
For penalty applicable to certain offenses relating to admissions 
taxes, see section 4234 (b). 
u i f 
, - i j l 
! < - 
- . ; ] ' 
: < , ' - '•)'>: 
••''••";.' 
! • - • . 
« ' ) 
§ 7271(4) 
CH. 75—CRIMES, OTHER OFFENSES, AND FORFEITURES 
867 
Subchapter C—Forfeitures 
i**''*'--'- 
Part I. Property subject to forfeiture. 
Part II. Provisions common to forfeitures. 
PART I—PROPERTY SUBJECT TO FORFEITURE 
Sec. 7301. Property subject to tax. 
Sec. 7302. Property used in violation of internal revenue laws. '' 
Sec. 7303. Other property subject to forfeiture. 
, 
Sec. 7304. Penalty for fraudulently claiming drawback. 
SEC. 7301. PROPERTY SUBJECT TO TAX. 
(a) TAXABLE ARTICLES.'—Any property on which, or for or in 
respect whereof, any tax is imposed by this title which shall be found 
in the possession or custody or within the control of any person, for 
the purpose of being sold or removed by him in fraud of the internal 
revenue laws, or with design to avoid payment of such tax, or which 
is removed, deposited, or concealed, with intent to defraud the United 
States of such tax or any part thereof, may be seized, and shall be 
forfeited to the United States. 
(b) RAW MATERIALS.—All property found in the possession of any 
person intending to manufacture the same into property of a kind 
subject to tax for the purpose of selling such taxable property in fraud 
of the internal revenue laws, or with design to evade the payment of 
such tax, may also be seized, and shall be forfeited to the United 
States. 
(c) EQUIPMENT.—All property whatsoever, in the place or building, 
or any yard or enclosure, where the property described in subsection 
(a) or (b) is found, or which is intended to be used in the making of 
property described in subsection (a), with intent to defraud the 
United States of tax or any part thereof, on the property described in 
subsection (a) may also be seized, and shall be forfeited to the United 
States. 
(d) PACKAGES.—All property used as a container for, or which shall 
have contained, property described in subsection (a) or (b) may also 
be seized, and shall be forfeited to the United States. 
(e) CONVEYANCES.—Any property 
(including aircraft, vehicles, 
vessels, or draft animals) used to transport or for the deposit or con-
cealment of property described in subsection (a) or (b) may also be 
seized, and shall be forfeited to the United States, 
SEC. 7302. PROPERTY USED IN VIOLATION OF INTERNAL 
REVENUE 
LAWS. 
It shall be unlawful to have or possess any property intended for 
use in violating the provisions of the internal revenue laws, or regula-
tions prescribed under such laws, or which has been so used, and no 
property rights shall exist in any such property. 
A search warrant 
may issue as provided in chapter 205 of title 18 of the United States 
Code and the Federal Rules of Criminal Procedure for the seizure of 
such property. 
Nothing in this section shall in any manner limit or 
§ 7302 
868 
INTERNAL REVENUE CODE OF 1954 
?
>
X -tf^ 
affect any criminal or forfeiture provision of the internal revenue laws, 
or of any other law. 
The seizure and forfeiture of any property under 
the provisions of this section and the disposition of such property 
subsequent to seizure and forfeiture, or the disposition of the proceeds 
from the sale of such property, shall be in accordance with existing 
laws or those hereafter in existence relating to seizures, forfeitures, 
and disposition of property or proceeds, for violation of the internal 
revenue laws. 
SEC. 7303. OTHER PROPERTY SUBJECT TO FORFEITURE. 
There may be seized and forfeited to the United States the following: 
(1) COUNTERFEIT STAMPS.—Every stamp involved in the offense 
described in section 7208 (relating to counterfeit, reused, cancelled, 
etc., stamps), and the vellum, parchment, document, paper, pack-
age, or article upon which such stamp was placed or impressed in 
connection with such offense. 
^ 
(2) OLEOMARGARINE AND FILLED CHEESE.—Any oleomargarine, 
filled cheese, or adulterated butter, intended for human consump-
tion which contains any ingredient adjudged, as provided in section 
4817, 4818, or 4835, whichever is applicable, to be deleterious to the 
public health. 
(3) O F F E N S E S BY MANUFACTURER OR IMPORTER O F OR WHOLE-
SALE DEALER IN OLEOMARGARINE OR ADULTERATED BUTTER. 
All 
oleomargarine or adulterated butter owned by any manufacturer 
or importer of or wholesale dealer in oleomargarine or adulterated 
butter, or in which he has any interest as owner, if he shall know-
ingly or willfully omit, neglect, or refuse to do, or cause to be done, 
any of the things required by law in the carrying on or conducting 
of his business, or if he shall do anything prohibited by subchapter 
F of chapter 38, or subchapter C of chapter 39. 
(4) PURCHASE OR RECEIPT OF FILLED CHEESE OR ADULTERATED 
j BUTTER.—All articles of filled cheese or adulterated butter (or the 
I full value thereof) knowingly purchased or received by any person 
from any manufacturer or importer who has not paid the special 
; tax provided in section 4821 or 4841. 
J 
(5) PACKAGES OF OLEOMARGARINE OR FILLED 
CHEESE.—All 
packages of oleomargarine or filled cheese subject to the tax under 
r subchapter F of chapter 38, or part II of subchapter C of chapter 
39, whichever is applicable, that shall be found without the stamps 
or marks provided for in the applicable subchapter or part thereof. 
(6) WHITE PHOSPHORUS MATCHES.— 
' 
(A) All packages of white phosphorus matches subject to tax 
' 
under subchapter B of chapter 39 and found without the stamps 
required by subchapter B of chapter 39. 
(B) AU the white phosphorus matches owned by any manu-
'
* 
facturer of white phosphorus matches, or any importer or 
exporter of matches, or in which he has any interest as owner 
• 
if he shall omit, neglect, or refuse to do or cause to be done any 
of the things required by law in carrying on or conducting his 
;
, 
business, or shall do anything prohibited by subchapter B of 
chapter 39, if there be no specific penalty or punishment imposed 
by any other provision of subchapter B of chapter 39 for the 
neglecting, omitting, or refusing to do, or for the doing or causing 
to be done, the thing required or prohibited. 
§ 7302 
CH. 75 
CRIMES, OTHER OFFENSES, AND FORFEITURES 
869 
(7) FALSE STAMPING OF PACKAGES.—Any container involved in 
the offense described in section 7271 (relating to disposal of stamped 
packages), and of the contents of such container. 
(8) FRAUDULENT BONDS, PERMITS, AND ENTRIES.—All property 
to which any false or fraudulent instrument involved in the offense 
described in section 7207 relates. 
SEC. 7304. PENALTY FOR FRAUDULENTLY CLAIMING DRAWBACK. 
Whenever any person fraudulently claims or seeks to obtain an 
allowance of drawback on goods, wares, or merchandise on which no 
internal tax shall have been paid, or fraudulently claims any greater 
allowance of drawback than the tax actually paid, he shall forfeit 
triple the amount wrongfully or fraudulently claimed or sought to be 
obtained, or the sum of $500, at the election of the Secretary or his 
delegate. 
PART II—PROVISIONS COMMON TO FORFEITURES 
Sec. 7321. Authority to seize property subject to forfeiture. 
Sec. 7322. Delivery of seized personal property to United States 
marshal. 
,, 
Sec. 7323. Judicial action to enforce forfeiture. 
Sec. 7324. Special disposition of perishable goods. 
,:j 
Sec. 7325. Personal property valued at $1,000 or less. 
Sec. 7326. Disposal of forfeited or abandoned property in special 
cases. 
Sec. 7327. Customs laws applicable. 
Sec. 7328. Confiscation of matches exported. 
•••• 
Sec. 7329. Cross references. 
SEC. 7321. AUTHORITY TO SEIZE PROPERTY SUBJECT TO FORFEITURE. 
Any property subject to forfeiture to the United States under any 
provision of this title may be seized by the Secretary or his delegate. 
SEC. 7322. DELIVERY OF SEIZED PERSONAL PROPERTY TO UNITED 
STATES MARSHAL. 
Any forfeitable property which may be seized under the provisions 
of this title may, at the option of the Secretary or his delegate, be 
delivered to the United States marshal of the district, and remain in 
the care and custody and under the control of such marshal, pending 
disposal thereof as provided by law. 
SEC. 7323. JUDICIAL ACTION TO ENFORCE FORFEITURE. 
(a) NATURE AND VENUE.—The proceedings to enforce such for-
feitures shall be in the nature of a proceeding in rem in the United 
States District Court for the district where such seizure is made. 
(b) SERVICE OF PROCESS W H E N PROPERTY HAS BEEN KETURNED 
UNDER BOND.^—In case bond as provided in section 7324 (3) shall 
have been executed and the property returned before seizure thereof 
by virtue of process in the proceedings in rem authorized in subsection 
(a) of this section, the marshal shall give notice of pendency of pro-
ceedings in court to the parties executing said bond, by personal 
service or publication, and in such manner and form as the court may 
direct, and the court shall thereupon have jurisdiction of said matter 
and parties in the same manner as if such property had been seized 
by virtue of the process aforesaid. 
(c) COST OP SEIZURE TAXABLE.—The cost of seizure made before 
process issues shall be taxable by the court. 
§ 7323(c) 
870 
an rij 
INTERNAL REVENUE CODE OF 1954 
T .HO 
SEC. 7324. SPECIAL DISPOSITION OF PERISHABLE GOODS. 
When any property which is seized under the provisions of section 
7301 is liable to perish or become greatly reduced in price or value by 
keeping, or when it cannot be kept without great expense— 
(1) APPLICATION FOR EXAMINATION.—The owner thereof, or the 
United States marshal of the district, may apply to the Secretary or 
his delegate to examine it; and 
(2) APPRAISAL.—If, in the opinion of the Secretary or his delegate, 
it shall be necessary that such property should be sold to prevent 
such waste or expense, the Secretary or his delegate shall appraise 
the same; and thereupon 
(3) RETURN TO OWNER UNDER BOND.—The owner shall have such 
property returned to him upon giving bond in an amount equal to 
such appraised value to abide the final order, decree, or judgment of 
the court having cognizance of the case, and to pay the amount of said 
appraised value to the Secretary or his delegate, the United States 
marshal, or otherwise, as may be ordered and directed by the court, 
which bond shall be filed by the Secretary or his delegate with the 
United States district attorney for the district in which the proceed-
ings in rem authorized in section 7323 may be commenced. 
(4) SALE IN ABSENCE OF BOND.— 
(A) ORDER TO SELL.—If such owner shall neglect or refuse to 
if 
give such bond, the Secretary or his delegate shall issue to any 
Treasury officer or employee or to the United States marshal an 
order to sell the same. 
(B) MANNER OF SALE.—Such Treasury officer or employee or 
the marshal shall as soon as practicable make public sale of such 
property in accordance with such regulations as may be prescribed 
by the Secretary or his delegate. 
(C) DISPOSITION OF PROCEEDS.—^The proceeds of the sale, after 
0 
deducting the reasonable costs of the seizure and sale, shall be 
paid to the court to abide its final order, decree, or judgment. 
? 
(5) FORM OF BOND AND SURETIES.— 
For provisions relating to form and sureties on bonds, see section 
7101. f 
SEC. 7325. PERSONAL PROPERTY VALUED AT $1,000 OR LESS. 
In all cases of seizure of any goods, wares, or merchandise as being 
subject to forfeiture under any provision of this title which, in the 
opinion of the Secretary or his delegate, are of the appraised value of 
$1,000 or less, the Secretary or his delegate shall, except in cases other-
wise provided, proceed as follows: 
(1) LIST AND APPRAISEMENT.—The Secretary or his delegate shall 
cause a list containing a particular description of the goods, wares, 
or merchandise seized to be prepared in duplicate, and an appraise-
ment thereof to be made by three sworn appraisers, to be selected 
by the Secretary or his delegate who shall be respectable and dis-
interested citizens of the United States residing within the internal 
revenue district wherein the seizure was made. 
Such list and 
appraisement shall be properly attested by the Secretary or his 
delegate and such appraisers. 
Each appraiser shall be allowed for 
his services such compensation as the Secretary or his delegate shall 
Q by regulations prescribe, to be paid in the manner similar to that 
§7324 I 
CH. 75—CRIMES, OTHER OFFENSES, AND FORFEITURES 
871 
provided for other necessary charges incurred in collecting internal 
revenue. 
(2) NOTICE OF SEIZURE.—If such goods are found by such ap-
praisers to be of the value of $1,000 or less, the Secretary or his 
delegate shall publish a notice for 3 weeks, in some newspaper 
of the district where the seizure was made, describing the articles 
and stating the time, place, and cause of their seizure, and requiring 
any person claiming them to appear and make such claim within 
30 days from the date of the first publication of such notice. 
(3) EXECUTION OF BOND BY CLAIMANT.—Any person claiming the 
goods, wares, or merchandise so seized, within the time specified 
in the notice, may file with the Secretary or his delegate a claim, 
stating his interest in the articles seized, and may execute a bond to 
the United States in the penal sum of $250, conditioned that, in 
case of condemnation of the articles so seized, the obligors shall pay 
all the costs and expenses of the proceedings to obtain such con-
demnation; and upon the delivery of such bond to the Secretary 
or his delegate, he shall transmit the same, with the duplicate list 
or description of the goods seized, to the United States district 
attorney for the district, and such attorney shall proceed thereon 
in the ordinary manner prescribed by law. 
(4) SALE IN ABSENCE OF BOND.—If no claim is interposed and no 
bond is given within the time above specified, the Secretary or his 
delegate shall give reasonable notice of the sale of the goods, wares, 
or merchandise by publication, and, at the time and place specified 
in the notice, shall sell the articles so seized at public auction, or 
upon competitive bids, in accordance with such regulations as may 
be prescribed by the Secretary or his delegate. 
SEC. 7326. DISPOSAL OF FORFEITED OR ABANDONED PROPERTY IN 
SPECIAL CASES. 
v.; 
(1) For provisions relating to disposal of forfeited narcotic drugs, see 
sections 4714, 4733, and 4745 (d). 
(2) For provisions relating to disposal of forfeited 
firearms, 
see 
section 5862 (b). 
SEC. 7327. CUSTOMS LAWS APPLICABLE. 
The provisions of law apphcable to the remission or mitigation by 
the Secretary or his delegate of forfeitures under the customs laws 
shall apply to forfeitures incurred or alleged to have been incurred 
under the internal revenue laws. 
SEC. 7328. CONFISCATION OF MATCHES EXPORTED. 
Any white phosphorus matches exported or attempted to be 
exported shall be confiscated to the United States and destroyed in 
such manner as may be prescribed by the Secretary or his delegate. 
SEC. 7329. CROSS REFERENCES. 
(1) For the issuance of certificates of probable cause relieving officers 
making seizures of responsibility for damages, see 28 U. S. C. 2465. 
(2) For provisions relating to forfeitures generally in connection with 
alcohol taxes, see chapter 51. 
(3) For provisions relating to forfeitures generally in connection with 
tobacco taxes, see chapter 52. 
(4) For provisions relating to forfeitures generally in connection with 
taxes on certain firearms, see chapter 53. 
§ 7329(4) 
872 
INTERNAL REVENUE CODE OF 1954 
t .110 
ianieiLii j^rfi JooKoo ni bsriiioni n'ygmih v:iB8ayoari -rydio lol b'lbivo'iq 
Subchapter D—^Miscellaneous Penalty and Forfeiture 
Provisions 
Sec. 7341. Penalty for sales to evade tax. 
,j . 
Sec. 7342. Penalty for refusal to permit entry or examination. 
Sec. 7343. Definition of term "person". 
Sec. 7344. Extended application of penalties relating to officers of 
the Treasury Department. 
SEC. 7341. PENALTY FOR SALES TO EVADE TAX. 
(a) NoNENFORCEABiLiTY OF CONTRACT.—Whenever any person 
who is Hable to pay any tax imposed by this title upon, for, or in 
respect of, any property sells or causes or allows the same to be sold 
before such tax is paid, with intent to avoid such tax, or in fraud of the 
internal revenue laws, any debt contracted in such sale, and any 
security given therefor, unless the same shall have been bona fide 
transferred to an innocent holder, shall be void, and the collection 
thereof shall not be enforced in any court. 
(b) FORFEITURE OF SUM PAID ON CONTRACT.—If such property 
has been paid for, in whole or in part, the sum so paid shall be deemed 
forfeited. 
(c) MOIETY. 
Any person who shall sue for the sum so paid (in an 
action of debt) shall recover from the seller the amount so paid, one-
half to his own use and the other half to the use of the United States. 
SEC. 7342. PENALTY FOR REFUSAL TO PERMIT ENTRY OR EXAMI-
NATION. 
Any owner of any buUding or place, or person having the agency 
or superintendence of the same, who refuses to admit any officer or 
employee of the Treasury Department acting under the authority of 
section 7606 (relating to entry of premises for examination of taxable 
articles) or refuses to permit him to examine such article or articles, 
shall, for every such refusal, forfeit $500. 
^ , 
SEC. 7343. DEFINITION OF TERM "PERSON". 
The term "person" as used in this chapter includes an officer or 
employee of a corporation, or a member or employee of a partnership, 
who as such officer, employee, or member is under a duty to perform 
the act in respect of which the violation occurs. 
SEC. 7344. EXTENDED APPLICATION OF PENALTIES RELATING TO 
OFFICERS OF THE TREASURY DEPARTMENT. 
All provisions of law imposing fines, penalties, or other punishment 
for offenses committed by an internal revenue officer or other officer 
of the Department of the Treasury, or under any agency or office 
thereof, shall apply to all persons whomsoever, employed, appointed, 
or acting under the authority of any internal revenue law, or any 
revenue provision of any law of the United States, when such persons 
are designated or acting as officers or employees in connection with 
such law, or are persons having the custody or disposition of any 
public money. 
. 
§7341 5 
CH. 76 
JUDICIAL PROCEEDINGS 
875 
CHAPTER 76—JUDICIAL PROCEEDINGS 
SUBCHAPTER A. Civil actions by the United States. 
,,r_, ,. 
SUBCHAPTER B . Proceedings by taxpayers. 
'^^ - 
SUBCHAPTER C. The Tax Court. 
SUBCHAPTER D . Court review of Tax Court decisions. 
j . )f' 
SUBCHAPTER E . Miscellaneous provisions. 
'') 
Subchapter A—Civil Actions by the United States 
Sec. 7401. Authorization. 
Sec. 7402. Jurisdiction of district courts. 
Sec. 7403. Action to enforce lien or to subject property to payment 
of tax. 
Sec. 7404. Authority to bring civil action for estate taxes. 
Sec. 7406. Action for recovery of erroneous refunds. 
Y'"- 
Sec. 7406. Disposition of judgments and moneys recovered. 
Sec. 7407. Cross references. 
SEC. 7401. AUTHORIZATION. 
No civil action for the collection or recovery of taxes, or of any 
fine, penalty, or forfeiture, shall be commenced unless the Secretary 
or his delegate authorizes or sanctions the proceedings and the At-
torney General or his delegate directs that the action be commenced. 
SEC. 7402. JURISDICTION OF DISTRICT COURTS. 
(a) To ISSUE ORDERS, PROCESSES, AND JUDGMENTS.—The district 
courts of the United States at the instance of the United States shall 
have such jurisdiction to make and issue in civil actions, writs and 
orders of injunction, and of ne exeat republica, orders appointing 
receivers, and such other orders and processes, and to render such 
judgments and decrees as may be necessary or appropriate for the 
enforcement of the internal revenue laws. 
The remedies hereby pro-
vided are in addition to and not exclusive of any and all other reme-
dies of the United States in such courts or otherwise to enforce such 
laws. 
(b) To ENFORCE SUMMONS.—If any person is summoned under 
the internal revenue laws to appear, to testify, or to produce books, 
papers, or other data, the district court of the United States for the 
district in which such person resides or may be found shall have juris-
diction by appropriate process to compel such attendance, testimony, 
or production of books, papers, or other data. 
(c) FOR DAMAGES TO U N I T E D 
S T A T E S 
OFFICERS 
OR E M -
PLOYEES.—Any officer or employee of the United States acting under 
authority of this title, or any person acting under or by authority of 
any such officer or employee, receiving any injury to his person or 
property in the discharge of his duty shall be entitled to maintain 
an action for damages therefor, in the district court of the United 
States, in the district wherein the party doing the injury may reside 
or shall be found. 
(d) ACTION ON BONDS.—The United States district courts, con-
currently with the courts of the several States, shall have jurisdiction 
§ 7402(d) 
49012=^54 
58 
874 
INTERNAL REVENUE CODE OF 1954 
of any action brought on the official bond of any internal revenue 
officer or employee required to give bond under regulations promul-
gated by authority of section 7803. 
(e) GENERAL JURISDICTION.— 
For general jurisdiction of the district'cburlS of tKe tfnited States 
In civil actions involving internal revenue, see section 1340 of title 28 
of the United States Code. 
SEC. 7403. ACTION TO ENFORCE LIEN OR TO SUBJECT PROPERTY TO 
PAYMENT OF TAX. 
(a) FILING.—In any case where there has been a refusal or neglect 
to pay any tax, or to discharge any liability in respect thereof, whether 
or not levy has been made, the Attorney General or his delegate, at 
the request of the Secretary or his delegate, may direct a civil action 
to be filed in a district court of the United States to enforce the lien 
of the United States under this title with respect to such tax or liability 
or to subject any property, of whatever nature, of the delinquent, or 
in which he has any right, title, or interest, to the payment of such 
tax or liability. 
(b) PARTIES.—All persons having liens upon or claiming any 
interest in the property involved in such action shall be made parties 
thereto. 
(c) ADJUDICATION AND DECREE.—The court shall, after the parties 
have been duly notified of the action, proceed to adjudicate all mat-
ters involved therein and finally determine the merits of all claims to 
and liens upon the property, and, in all cases where a claim or interest 
of the United States therein is established, may decree a sale of such 
property, by the proper officer of the court, and a distribution of the 
proceeds of such sale according to the findings of the court in respect 
to the interests of the parties and of the United States. 
(d) RECEIVERSHIP.—In any such proceeding, at the instance of the 
United States, the court may appoint a receiver to enforce the lien, 
or, upon certification by the Secretary or his delegate during the pend-
ency of such proceedings that it is in the public interest, may appoint 
a receiver with all the powers of a receiver in equity. 
SEC. 7404. AUTHORITY TO BRING CIVIL ACTION FOR ESTATE TAXES. 
If the estate tax imposed by chapter 11 is not paid on or before the 
due date thereof, the Secretary or his delegate shall proceed to collect 
the tax under the provisions of general law; or appropriate proceedings 
in the name of the United States may be commenced in any court 
of the United States having jurisdiction to subject the property of 
the decedent to be sold under the judgment or decree of the court. 
From the proceeds of such sale the amount of the tax, together with 
the costs and expenses of every description to be allowed by the court, 
shall be first paid, and the balance shall be deposited according to the 
order of the court, to be paid under its direction to the person entitled 
thereto. 
This section insofar as it applies to the collection of a 
deficiency shall be subject to the provisions of sections 6213 and 6601. 
SEC. 7405. ACTION FOR RECOVERY OF ERRONEOUS 
REFUNDS. 
(a) REFUNDS AFTER LIMITATION PERIOD.—Any portion of a 
tax 
imposed by this title, refund of which is erroneously made, within 
the meaning of section 6514, may be recovered by civil action brought 
in the name of the United States. ,f ^QT yj evpo ^ ^un nuw /Hnrnu;) 
§ 7402(d) 
CH. 76—JUDICIAL PROCEEDINGS 
g76 
(b) REFUNDS OTHERWISE ERRONEOUS.—Any portion of a tax im-
posed by this title which has been erroneously refunded (if such refund 
would not be considered as erroneous under section 6514) may be 
recovered by civil action brought in the name of the United States. 
(c) INTEREST.— 
For provision relating to interest on erroneous refunds, see section 
6602. 
(d) 
P E R I O D S o r L I M I T A T I O N . — 
For periods of limitations on actions under this section, see section 
6532 (b). 
SEC. 7406. DISPOSITION OF JUDGMENTS AND MONEYS RECOVERED. 
All judgments and moneys recovered or received for taxes, costs, 
forfeitures, and penalties shall be paid to the Secretary or his delegate 
as collections of internal revenue taxes. 
SEC. 7407. CROSS REFERENCES. 
(1) For provisions for collecting taxes in general, see chapter 64. 
(2) For venue in a civil action for the collection of any tax, see sectioq 
1396 of Title 28 of the United States Code. 
(3) For venue of a proceeding for the recovery of any fine, penalty, 
o'j-t'i 
or forfeiture, see section 1395 of Title 28 of the United States Code. 
lu 
i liSJifrj'jLi 
L^jiJ i'j 
mii-
•L'f\ 
§ 7407(3) 
876 
INTERNAL REVENUE CODE OF 1&54 
i • ' 
'' V 
Subchapters—Proceedings by Taxpayers 
' 
Sec. 7421. Prohibition of suits to restrain assessment or collection. 
Sec. 7422. Civil actions for refund. 
.. jt V , 
Sec. 7423. Repayments to officers or employees. 
Sec. 7424. Civil action to clear title to property. 
--^ 
Sec. 7425. Cross references. 
SEC. 7421. PROHIBITION OF SUITS TO RESTRAIN ASSESSMENT OR 
COLLECTION. 
(a) TAX.—Except as provided in sections 6212 (a) and (c), and 
6213 (a), no suit for the purpose of restraining the assessment or 
collection of any tax shall be maintained in any court. 
(b) LIABILITY OF TRANSFEREE OR FIDUCIARY.—No suit shall be 
maintained in any court for the purpose of restraining the assessment 
or collection (pursuant to the provisions of chapter 71) of— 
(1) the amount of the liability, at law or in equity, of a transferee 
of property of a taxpayer in respect of any internal revenue tax, or 
(2) the amount of the liability of a fiduciary imder section 3467 
of the Revised Statutes (31 U. S. C. 192) in respect of any such tax. 
SEC. 7422. CIVIL ACTIONS FOR REFUND. 
(a) No SUIT PRIOR TO FILING CLAIM FOR REFUND.—No suit or 
proceeding shall be maintained in any court for the recovery of any 
internal revenue tax alleged to have been erroneously or illegally 
assessed or collected, or of any penalty claimed to have been collected 
without authority, or of any sum alleged to have been excessive or in 
any manner wrongfully collected, until a claim for refund or credit 
has been duly filed with the Secretary or his delegate, according to the 
provisions of law in that regard, and the regulations of the Secretary 
or his delegate established in pursuance thereof. 
(b) PROTEST OR DURESS.—Such suit or proceeding may be main-
tained whether or not such tax, penalty, or sum has been paid under 
protest or duress. 
(c) SUITS AGAINST COLLECTION OFFICER A BAR.—A suit against 
any officer or employee of the United States (or former ofiicer or 
employee) or his personal representative for the recovery of any in-
ternal revenue tax alleged to have been erroneously or illegally 
assessed or collected, or of any penalty claimed to have been collected 
without authority, or of any sum alleged to have been excessive or 
in any manner wrongfully collected shall be treated as if the United 
States had been a party to such suit in applying the doctrine of res 
judicata in all suits instituted after June 15, 1942, in respect of any 
internal revenue tax, and in all proceedings in the Tax Court and on 
review of decisions of the Tax Court where the petition to the Tax 
Court was filed after such date. 
(d) CREDIT TREATED AS PAYMENT. —The credit of an overpayment 
of any tax in satisfaction of any tax liability shall, for the purpose of 
any suit for refund of such tax liability so satisfied, be deemed to be 
a payment in respect of such tax liability at the time such credit is 
allowed. 
§ 7421 } 
CH. 76—JUDICIAL PROCEEDINGS 
877 
(e) STAY OF PROCEEDINGS.—If the Secretary or his delegate prior 
to the hearing of a suit brought by a taxpayer in a district court or 
the Court of Claims for the recovery of any income tax, estate tax, 
or gift tax (or any penalty relating to such taxes) mails to the taxpayer 
a notice that a deficiency has been determined in respect of the tax 
which is the subject matter of taxpayer's suit, the proceedings in 
taxpayer's suit shall be stayed during the period of time in which 
the taxpayer may file a petition with the Tax Court for a redetermina-
tion of the asserted deficiency, and for 60 days thereafter. 
If the 
taxpayer fUes a petition with the Tax Court, the district court or the 
Court of Claims, as the case may be, shall lose jurisdiction of tax-
payer's suit to whatever extent jurisdiction is acquired by the Tax 
Court of the subject matter of taxpayer's suit for refund. If the tax-
payer does not file a petition with the Tax Court for a redetermination 
of the asserted deficiency, the United States may counterclaim in 
the taxpayer's suit, or intervene in the event of a suit as described in 
subsection (c) (relating to suits against officers or employees of the 
United States), within the period of the stay of proceedings notwith-
standing that the time for such pleading may have otherwise expired. 
The taxpayer shall have the burden of proof with respect to the 
issues raised by such counterclaim or intervention of the United 
States except as to the issue of whether the taxpayer has been guilty 
of fraud with intent to evade tax. 
This subsection shall not apply 
to a suit by a taxpayer which, prior to the date of enactment of this 
title, is commenced, instituted, or pending in a district court or the 
Court of Claims for the recovery of any income tax, estate tax, or gift 
tax (or any penalty relating to such taxes). 
(f) CROSS REFERENCES.— 
(1) For provisions relating generally to claims for refund or credit, 
^,,: . 
see chapter 65 (relating to abatements, credit, and refund) and chapter 
66 (relating to limitations). 
u 
(2) For duty of United States district attorneys to defend suits, see 
section 507 of Title 28 of the United States Code. 
(3) For jurisdiction of United States district courts, see section 1346 
of Title 28 of the United States Code. 
(4) For payment by the Treasury of judgments against internal 
revenue officers or employees, upon certificate of probable cause, see 
section 2006 of Title 28 of the United States Code. 
SEC. 7423. REPAYMENTS TO OFFICERS OR EMPLOYEES. 
The Secretary or his delegate, subject to regulations prescribed by 
the Secretary or his delegate, is authorized to repay— 
(1) COLLECTIONS RECOVERED.—To any officer or employee of 
the United States the full amount of such sums of money as may 
be recovered against him in any court, for any internal revenue 
taxes collected by him, with the cost and expense of suit; also 
(2) DAMAGES AND COSTS.—All damages and costs recovered 
against any officer or employee of the United States in any suit 
brought against him by reason of anything done in the due perform-
ance of his official duty under this title. 
SEC. 7424. CIVIL ACTION TO CLEAR TITLE TO PROPERTY. 
(a) OBTAINING LEAVE TO F I L E . — 
(I) REQUEST FOR INSTITUTION OF PROCEEDINGS BY UNITED 
STATES.—Any person having a lien upon or any interest in the 
property referred to in section 7403, notice of which has been duly 
§ 7424(a)(1) 
878 
INTERNAL REVENUE CODE OF 1954 
. 
. filed of record in the jurisdiction in which the property is located, 
prior to the filing of notice of the lien of the United States as pro-
vided in section 6323, or any person purchasing the property at a 
sale to satisfy such prior lien or interest, may make written request 
to the Secretary or his delegate to authorize the filing of a civil 
action as provided in section 7403. 
(2) PETITION TO COURT.—If the Secretary or his delegate fails 
to authorize the filing of such civil action within 6 months after 
receipt of such written request, such person or purchaser may, 
after giving notice to the Secretary or his delegate, file a petition 
in the district court of the United States for the district in which 
the property is located, praying leave to file a civil action for a final 
determination of all claims to or liens upon the property in question. 
(3) COURT ORDER.—After a full hearing in open court, the district 
court may in its discretion enter an order granting leave to file such 
civil action, in which the United States and all persons having liens 
upon or claiming any interest in the property shall be made parties. 
(b) ADJUDICATION.—Upon the filing of such civU action, the district 
court shall proceed to adjudicate the matters involved therein, in the 
same manner as in the case of civU actions filed under section 7403. 
For the purpose of such adjudication, the assessment of the tax upon 
which the lien of the United States is based shall be conclusively 
presumed to be valid. 
(c) COSTS.—All costs of the proceedings on the petition and the 
civil action shall be borne by the person filing the civU action. 
SEC. 7425. CROSS REFERENCES. 
• 
(1) For exclusion of tax liability from discharge in bankruptcy, see 
section 17 of the Bankruptcy Act, as amended (52 Stat. 851; 11 U. S. C. 
35). 
(2) For limit on amount allowed in bankruptcy proceedings on debts 
owing to the United States, see section 57 (j) of the Bankruptcy Act, as 
amended (52 Stat. 867; 11 U. S. C. 93). 
n "
^
^ 
(3) For recognition of tax liens in proceedings under the Bankruptcy 
Act, see section 67 (b) and (c) of that act, as amended (52 Stat. 876-877; 
i) 
11 U. S. C. 107). 
(4) For collection of taxes in connection with wage earners' plans in 
bankruptcy courts, see section 680 of the Bankruptcy Act, as added June 
22, 1938 (52 Stat. 938; 11 U. S. C. 1080). 
(5) For provisions permitting the United States to be made party 
defendant in a proceeding in a State court for the foreclosure of a lien 
upon real estate where the United States may have claim upon the 
premises involved, see section 2410 of Title 28 of the United States Code. 
(6) For priority of lien of the United States in case of insolvency, see 
R. S. 3466 (31 U. S. C. 191). 
(7) For interest on judgments for overpayments, see section 2411 (a) 
of Title 28 of the United States Code. 
(8) For review of a Tax Court decision, see section 7482. 
(9) For statute prohibiting suits to replevy property taken under 
revenue laws, see section 2463 of Title 28 of the United States Code. 
§ 7424(a)(1) 
CH. 76—JUDICIAL PROCEEDINGS 
S79 
• 
Subchapter C—The Tax Court 
j ' ^ ' * ' 
' 
Part 
I. Organization and jurisdiction. 
Part II. Procedure. 
,, : 
Part III. Miscellaneous provisions. 
PART I—ORGANIZATION AND JURISDICTION 
Sec. 7441. Status. 
Sec. 7442, Jurisdiction. 
Sec. 7443. Membership. 
Sec. 7444. Organization. 
> 
: 
Sec. 7445. Offices. 
"" 
Sec. 7446. Times and places of sessions. 
Sec. 7447. Retirement. 
SEC. 7441. STATUS. 
The Board.of Tax Appeals shall be continued as an independent 
agency in the Executive Branch of the Government, and shall be 
known as the Tax Court of the United States. The members thereof 
shall be known as the chief judge and the judges of the Tax Court. 
SEC. 7442. JURISDICTION. 
The Tax Court and its divisions shall have such jurisdiction as is 
conferred on them by this title, by chapters 1, 2, 3, and 4 of the 
Internal Revenue Code of 1939, by title II and title III of the Revenue 
Act of 1926 (44 Stat. 10-87), or by laws enacted subsequent to Feb-
ruary 26, 1926. 
SEC. 7443. MEMBERSHIP. 
(a) NUMBER.—The Tax Court shall be composed of 16 members. 
(b) APPOINTMENT,—Judges of the Tax Court shall be appointed by 
the JPresident, by and with the advice and consent of the Senate, 
solely on the grounds of fitness to perform the duties of the office. 
(c) SALARY.—Each judge shall receive salary at the rate of $15,000 
per annum, to be paid in monthly installments. 
(d) EXPENSES FOR TRAVEL AND SUBSISTENCE.—Judges of the Tax 
Court shall receive necessary traveling expenses, and expenses actually 
incurred for subsistence while traveling on duty and away from their 
designated stations, subject to the same limitations in amount as are 
now or may hereafter be applicable to the United States Customs 
Court. 
(e) TERM OF OFFICE.—The terms of office of all judges of the Tax 
Court shall expire 12 years after the expiration of the terms for which 
their predecessors were appointed; but any judge appointed to fill a 
vacancy occurring prior to the expiration of the term for which his 
predecessor was appointed shall be appointed only for the unexpired 
term of his predecessor. 
(f) REMOVAL FROM OFFICE.—Judges of the Tax Court may be re-
moved by the President, after notice and opportunity for public 
hearing, for inefficiency, neglect of duty, or malfeasance in office, but 
for no other cause. 
§ 7443(f) 
880 
INTERNAL REVENUE CODE OF 1954 
(g) DisBABMENT OF REMOVED JuDGEs.—A judge of the Tax Court 
removed from office in accordance with subsection (f) shall not be per-
mitted at any time to practice before the Tax Court. 
SEC. 7444. ORGANIZATION. 
(a) SEAL.—The Tax Court shall have a seal which shall be judicially-
noticed. 
(b) DESIGNATION OF CHIEF JUDGE.—The Tax Court shall at least 
biennially designate a judge to act as chief judge. 
(c) DIVISIONS.—The chief judge may from time to time divide the 
Tax Court into divisions of one or more judges, assign the judges of 
the Tax Court thereto, and in case of a division of more than one judge, 
designate the chief thereof. 
If a division, as a result of a vacancy 
or the absence or inability of a judge assigned thereto to serve thereon, 
is composed of less than the number of judges designated for the 
division, the chief judge may assign other judges to the division or 
direct the division to proceed with the transaction of business without 
awaiting any additional assignment of judges thereto. 
(d) QUORUM.—A majority of the judges of the Tax Court or of 
any division thereof shall constitute a quorum for the transaction of 
the business of the Tax Court or of the division, respectively. 
A 
vacancy in the Tax Court or in any division thereof shall not impair the 
powers nor affect the duties of the Tax Court or division nor of the 
remaining judges of the Tax Court or division, respectively. 
SEC. 7445. OFFICES. 
The principal office of the Tax Court shall be in the District of 
Columbia, but the Tax Court or any of its divisions may sit at any 
place within the United States. 
SEC. 7446. TIMES AND PLACES OF SESSIONS. 
The times and places of the sessions of the Tax Court and of its 
divisions shall be prescribed by the chief judge with a view to securing 
reasonable opportunity to taxpayers to appear before the Tax Court 
or any of its divisions, with as little inconvenience and expense to 
taxpayers as is practicable. 
SEC. 7447. RETIREMENT. 
(a) DEFINITIONS.—For purposes of this section— 
(1) The term "Tax Court" means the Tax Court of the United 
States. 
(2) The term "Civil Service Commission" means the United 
States Civil Service Commission. 
(3) The term "judge" means the chief judge or a judge of the Tax 
Court; but such term does not include any individual performing 
judicial duties pursuant to subsection (c). 
(4) The term "Civil Service Retirement Act" means the Civil 
Service Retirement Act of May 29, 1930, as amended. 
(5) In any determination of length of service as judge there 
shall be included all periods (whether or not consecutive) during 
which an individual served as judge or as a member of the Board. 
(b) 
RETIREMENT.— 
(1) Any judge who has served as judge for 18 years or more may 
retire at any time. 
(2) Any judge who has served as judge for 10 years or more and 
has attained the age of 70 shall retire not later than the close of the 
§ 7443(g) 
CH. 76—JUDICIAL PROCEEDINGS 
' 
'^gl 
third month beginning after whichever of the following months is 
the latest: 
(A) the month in which he attained age 70; 
(B) The month in which he completed 10 years of service as 
judge; or 
(C) August 1953. 
Section 2 (a) of the Civil Service Retirement Act (relating to auto-
matic separation from the service) shall not apply in respect of 
judges. 
(c) RECALLING OF RETIRED JUDGES.—Any individual who is 
receiving retired pay under subsection (d) may be called upon by 
the chief judge of the Tax Court to perform such judicial duties with 
the Tax Court as may be requested of him for any period or periods 
specified by the chief judge; except that in the case of any such 
individual— 
(1) the aggregate of such periods in any one calendar year shall 
not (without his consent) exceed 90 calendar days; and 
(2) he shall be relieved of performing such duties during any 
period in which illness or disability precludes the performance of 
such duties. 
Any act, or failure to act, by an individual performing judicial duties 
pursuant to this subsection shall have the same force and effect as if 
it were the act (or failure to act) of a judge of the Tax Court; but any 
such individual shall not be counted as a judge of the Tax Court for 
purposes of section 7443 (a). 
Any individual who is performing 
judicial duties pursuant to this subsection shall be paid the same 
compensation (in lieu of retired pay) and allowances for travel and 
other expenses as a judge. 
(d) RETIRED PAY.—'Any individual who after August 7, 1953— 
(1) ceases to be a judge by reason of paragraph (2) of subsection 
(b), or ceases to be a judge after having served as judge for 18 
years or more; and 
(2) elects under subsection (e) to receive retired pay under this 
subsection, 
shall receive retired pay at a rate which bears the same ratio to the 
rate of the salary payable to him as judge at the time he ceases to be 
a judge as the number of years he has served as judge bears to 24; 
except that the rate of such retired pay shall be not less than one-half 
of the rate of such salary and not more than the rate of such salary. 
Such retired pay shall begin to accrue on the day following the day 
on which his salary as judge ceases to accrue, and shall continue to 
accrue during the remainder of his life. Retired pay under this sub-
section shall be paid in the same maimer as the salary of a judge. 
In computing the rate of the retired pay under this subsection for 
any individual who is entitled thereto, that portion of the aggregate 
number of years he has served as a judge which is a fractional part of 
1 year shall be eliminated if it is less than 6 months, or shall be 
counted as a full year if it is 6 months or more. 
(e) ELECTION T O RECEIVE RETIRED PAY.—Any judge may elect 
to receive retired pay under subsection (d). 
Such an election— 
(1) may be made only while an individual is a judge (except 
that in the case of an individual who fails to be reappointed as 
judge at the expiration of a term of office, it may be made at any 
' 
§ 7447(e)(1) 
882 
INTERNAL REVENUE CODE OF 1954 
J
,
;
, time before the day after the day on which his successor takes 
ofl&ce); 
,f 
(2) once made, shall be irrevocable; 
• j 
_ 
(3) in the case of any judge other than the chief judge, shall be 
made by filing notice thereof in writing with the chief judge; and 
(4) in the case of the chief judge, shall be made by filing notice 
thereof in writing with the Civil Service Commission. 
The chief judge shall transmit to the Civil Service Commission a copy 
of each notice filed with him under this subsection. 
(f) INDIVIDUALS RECEIVING RETIRED PAY T O B E AVAILABLE FOR 
RECALL.—Any individual who has elected to receive retired pay under 
subsection (d) who thereafter— 
(1) accepts civil ofiice or employment under the Government of 
the United States (other than the performance of judicial duties 
pursuant to subsection (c)); or 
(2) performs (or supervises or directs the performance of) legal 
or accounting services in the field of Federal taxation or in the 
field of the renegotiation of Federal contracts for his client, his 
employer, or any of his employer's clients, 
shall forfeit all rights to retired pay under subsection (d) for all 
periods beginning on or after the first day on which he accepts such 
ofiice or employment or engages in any activity described in para-
graph (2). 
Any individual who has elected to receive retired pay 
under subsection (d) who thereafter during any calendar year fails 
to perform judicial duties required of him by subsection (c) shall forfeit 
all rights to retired pay under subsection (d) for the 1-year period 
which begins on the first day on which he so fails to perform such 
duties. 
(g) COORDINATION W I T H CIVIL SERVICE RETIREMENT.— 
(1) GENERAL RULE.—Except as otherwise provided in this sub-
section, the provisions of the Civil Service Retirement Act (including 
the provisions relating to the deduction and withholding of amounts 
from basic pay, salary, and compensation) shall apply in respect of 
service as a judge (together with other service as an ofiicer or em-
ployee to whom such Act applies) as if this section had not been 
enacted. 
(2) EFFECT OF ELECTING RETIRED PAY.—In the case of any 
individual who has filed an election to receive retired pay under 
subsection (d) and who has not filed a waiver under paragraph (3) 
of this subsection— 
(A) he shall not be entitled to any annuity under section 1,2, 
3A, 6, or 7 of the Civil Service Retirement Act for any period 
beginning on or after the day on which he files such election; 
(B) no amoimt shall be returned to him under section 7 (a) of 
such Act; 
(C) subsections (b) and (c) of section 4 of such Act, and sub-
section (c) of section 12 of such Act, shall apply in respect of such 
individual as if he were retiring or had retired under section 1 of 
such Act on the date on which his retired pay under subsection 
(d) of this section began to accrue; except that— 
(i) the amount of any annuity payable to a survivor of such 
individual under subsection (b) or (c) of such section 4 or under 
subsection (c) of such section 12 shall be based on a life annuity 
§ 7447(e)(1) 
CH. 76—JUDICIAL PROCEEDINGS 
$^ 
• :' 
for such individual computed as provided in subsection (a) of 
such section 4, and 
(ii) if such individual makes the election provided by sub-
section (b) or (c) of such section 4, his retired pay under 
subsection (d) of this section shall be reduced by the amount 
by which a life annuity computed as provided in subsection (a) 
of such section 4 would be reduced; 
(D) in computing the aggregate amount of the annuity paid 
for purposes of section 12 (g) of such Act, any retired pay which 
/tic has accrued under subsection (d) of this section (including any 
such retired pay forfeited under subsection (f)) shall be included 
as if it were an annuity payable to him imder such Act; and 
(E) no deduction for purposes of the civil service retirement 
and disability fund shall be made from the retired pay payable 
to him imder subsection (d) of this section, or from any other 
salary, pay, or compensation payable to him, for any period after 
the date on which such retired pay began to accrue. 
(3) WAIVER OF CIVIL SERVICE BENEFITS.— 
(A) Any individual who has elected to receive retired pay 
under subsection (d) of this section may (at any time thereafter 
during the period prescribed hy subsection (e) (1)) waive all 
benefits under the Civil Service Retirement Act. 
Such a 
waiver— 
(i) once made, shall be irrevocable, and 
(ii) shall be made in the same manner as is provided for an 
election by such individual under subsection (e). 
The chief 
judge shall transmit to the Civil Service Commission a copy 
of each notice of waiver filed with him under this paragraph. 
)
f j 
(B) In the case of any individual who has made a waiver under 
this paragraph— 
(i) no annuity shall be payable to any person under the 
Civil Service Retirement Act with respect to any service per-
formed by such individual (whether performed before or after 
such waiver is filed and whether performed as judge or other-
wise) ; 
(ii) no deduction shall be made from any salary, pay, or 
compensation of such individual for purposes of the civil 
service retirement and disability fund for any period beginning 
after the day on which such waiver is filed; 
(iii) except as provided in clause (iv), no refund shall be 
made under the Civil Service Retirement Act of any amount 
credited to the account of such individual or of any interest 
on any amount so credited: 
.riM 
(iv) additional sums voluntarily deposited by such indi-
vidual under the second paragraph of section 10 of the Civil 
Service Retirement Act shall be promptly refunded, together 
with interest on such additional sums at 3 percent per annum 
(compounded on December 31 of each year) to the day of such 
i„ 
filing; 
and 
(v) subsections (e) and (g) of section 12 of the Civil Service 
Retirement Act shall not apply. 
(4) EMPLOYEES' COMPENSATION.—The fourth and sixth para-
graphs of section 6 of the Civil Service Retirement Act shall apply 
§ 7447(g)(4) 
884 
INTERNAL REVENUE CODE OF 1954 
i in respect of retired pay accruing under subsection (d) of this 
section as if such retired pay were an annuity payable under such 
act. 
PART II—PROCEDURE 
(Bi tu'i • 
Sec. 7451. Fee for filing petition. 
; 
Sec. 7452. Representation of parties. 
j^ 
Sec. 7453. Rules of practice, procedure, and evidence. 
Sec. 7454. Burden of proof in fraud and transferee cases. 
' 
Sec. 7455. Service of process. 
Sec. 7456. Administration of oaths and procurement of testimony. 
j 
Sec. 7457. Witness fees. 
Sec. 7458. Hearings. 
. 
.' 
Sec. 7459. Reports and decisions. 
" 
' 
Sec. 7460. Provisions of special application to divisions. 
Sec. 7461. Publicity of proceedings. 
i\ 
.-. 
Sec. 7462. Publication of reports. 
Sec. 7463. Provisions of special application to transferees. 
SEC. 7451. FEE FOR FILING PETITION. 
The Tax Court is authorized to impose a fee in an amount not in 
excess of $10 to be fixed by the Tax Court for the filing of any petition 
for the redetermination of a deficiency. 
SEC. 7452. REPRESENTATION OF PARTIES. 
The Secretary or his delegate shall be represented by the Assistant 
General Counsel of the Treasury Department serving as Chief Coun-
sel of the Internal Revenue Service, or the delegate of such Chief 
Counsel, in the same manner before the Tax Court as he has here-
tofore been represented in proceedings before such Court. 
The tax-
payer shall continue to be represented in accordance with the rules of 
practice prescribed by the Court. 
No qualified person shall be denied 
admission to practice before the Tax Court because of his failure to be 
a member of any profession or calling. 
SEC. 7453. RULES OF PRACTICE, PROCEDURE, AND EVIDENCE. 
The proceedings of the Tax Court and its divisions shall be con-
ducted in accordance with such rules of practice and procedure (other 
than rules of evidence) as the Tax Court may prescribe and in accord-
ance with the rules of evidence applicable in trials without a jury in 
the United States District Court of the District of Columbia. 
SEC. 7454. BURDEN OF PROOF IN FRAUD AND TRANSFEREE CASES. 
(a) FRAUD.—In any proceeding involving the issue whether the 
petitioner has been guilty of fraud with intent to evade tax, the 
burden of proof in respect of such issue shall be upon the Secretary 
or his delegate. 
(b) 
CROSS REFERENCE.— 
For provisions relating to burden of proof as to transferee liability, 
see section 6902 (a). 
SEC. 7455. SERVICE OF PROCESS. 
The mailing by registered mail of any pleading, decision, order, 
notice, or process in respect of proceedings before the Tax Court shall 
be held sufiicient service of such pleading, decision, order, notice, or 
process. 
§ 7447(g)(4) 
CH. 76—JUDICIAL PROCEEDINGS 
885 
SEC. 7456. ADMINISTRATION OF OATHS AND 
PROCUREMENT OF 
TESTIMONY. 
(a) I N GENERAL.—For the efficient administration of the functions 
vested in the Tax Court or any division thereof, any judge of the Tax 
Court, the clerk of the court or his deputies, as such, or any other 
emplojree of the Tax Court designated in writing for the purpose by 
the chief judge, may administer oaths, and any judge of the Tax 
Court may examine witnesses and require, by subpoena ordered by 
the Tax Court or any division thereof and signed by the judge (or by 
the clerk of the Tax Court or by any other employee of the Tax Court 
when acting as deputy clerk)— 
(1) the attendance and testimony of witnesses, and the produc-
' tion of all necessary returns, books, papers, documents, correspond-
ence, and other evidence, from any place in the United States at 
any designated place of hearing, or 
(2) the taking of a deposition before any designated individual 
= competent to administer oaths under this title. 
In the case of a 
deposition the testimony shall be reduced to writing by the indi-
vidual taking the deposition or under his direction and shall then 
be subscribed by the deponent. 
(b) PRODUCTION OP RECORDS IN THE CASE OF FOREIGN CORPORA-
TIONS, FOREIGN 
TRUSTS OR ESTATES AND NONRESIDENT 
ALIEN 
INDIVIDUALS.—The Tax Court or any division thereof, upon motion 
and notice by the Secretary or his delegate, and upon good cause shown 
therefor, shall order any foreign corporation, foreign trust or estate, or 
nonresident alien individual, who has filed a petition with the Tax 
Court, to produce, or, upon satisfactory proof to the Tax Court or 
any of its divisions, that the petitioner is unable to produce, to make 
available to the Secretary or his delegate, and, in either case, to per-
mit the inspection, copying, or photographing of, such books, records, 
documents, memoranda, correspondence and other papers, wherever 
situated, as the Tax Court or any division thereof, may deem relevant 
to the proceedings and which are in the possession, custody or control 
of the petitioner, or of any person directly or indirectly under his 
control or having control over him or subject to the same common 
control. 
If the petitioner fails or refuses to comply with any of the 
provisions of such order, after reasonable time for compliance has 
been afforded to him, the Tax Court or any division thereof, upon 
motion, shall make an order striking out pleadings or parts thereof, 
or dismissing the proceeding or any part thereof, or rendering a 
judgment by default against the petitioner. 
For the purpose of this 
subsection, the term "foreign trust or estate" includes an estate or 
trust, any fiduciary of which is a foreign corporation or nonresident 
alien individual; and the term "control" is not limited to legal control. 
(c) COMMISSIONERS.—The chief judge may from time to time by 
written order designate an attorney from the legal staff of the Tax 
Court to act as a commissioner in a particular case. The commissioner 
so designated shall proceed under such rules and regulations as may 
be promulgated by the Tax Court. The commissioner shall receive the 
same travel and subsistence allowances now or hereafter provided by 
law for commissioners of the United States Court of Claims. 
§ 7456(c) 
886 
, INTERNAL REVENUE CODE OF 1954 
SEC. 7457. WITNESS FEES. 
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(a) AMOUNT.—Any witness summoned or whose deposition is taken 
under section 7456 shall receive the same fees and mileage as witnesses 
in courts of the United States. 
(b) PAYMENT.—Such fees and mileage and the expenses of taking 
any such deposition shall be paid as follows: 
(1) WITNESSES FOR SECRETARY^OR HIS DELEGATE.—In the case of 
witnesses for the Secretary or his delegate, such payments shall be 
made by the Secretarjr or his delegate out of any moneys appro-
priated for the collection of internal revenue taxes, and may be 
made in advance. 
(2) OTHER WITNESSES.—In the case of any other witnesses, 
such payments shall be made, subject to rules prescribed by the 
Tax Court, by the party at whose instance the witness appears or 
the deposition is taken. 
SEC. 7458. HEARINGS. 
Notice and opportunity to be heard upon any proceeding instituted 
before the Tax Court shall be given to the taxpayer and the Secretary 
or his delegate. 
If an opportunity to be heard upon the proceeding 
is given before a division of the Tax Court, neither the taxpayer nor 
the Secretary nor his delegate shall be entitled to notice and op-
portunity to be heard before the Tax Court upon review, except upon a 
specific order of the chief judge. 
Hearings before the Tax Court and 
its divisions shall be open to the public, and the testimony, and, if 
the Tax Court so requires, the argument, shall be stenographically 
reported. 
The Tax Court is authorized to contract (by renewal of 
contract or otherwise) for the reporting of such hearings, and in such 
contract to fix the terms and conditions under which transcripts will be 
supplied by the contractor to the Tax Court and to other persons and 
agencies. 
SEC. 7459. REPORTS AND DECISIONS. 
(a) REQUIREMENT.—A report upon any proceeding instituted before 
the Tax Court and a decision thereon shall be made as quickly as 
practicable. 
The decision shall be made by a judge in accordance 
with the report of the Tax Court, and such decision so made shall, 
when entered, be the decision of the Tax Court. 
(b) INCLUSION OF FINDINGS OP FACT OR OPINIONS IN REPORT.—It 
shall be the duty of the Tax Court and of each division to include in 
its report upon any proceeding its findings of fact or opinion or memo-
randum opinion. 
The Tax Court shall report in writing all its 
findings of fact, opinions, and memorandum opinions. 
(c) DATE OF DECISION.—A decision of the Tax Court (except a 
decision dismissing a proceeding for lack of jurisdiction) shall be held 
to be rendered upon the date that an order specifying the amount of 
the deficiency is entered in the records of the Tax Court. 
If the Tax 
Court dismisses a proceeding for reasons other than lack of jurisdiction 
and is unable from the record to determine the amount of the deficiency 
determined by the Secretary or his delegate, or if the Tax Court dis-
misses a proceeding for lack of jurisdiction, an order to that effect 
shall be entered in the records of the Tax Court, and the decision of 
the Tax Com-t shall be held to be rendered upon the date of such entry. 
(d) EFFECT OF DECISION DISMISSING PETITION.—If a petition for a 
redetermination of a deficiency has been filed by the taxpayer, a deci-
§ 7457 ;; 
CH. 76—JUDICIAL PROCEEDINGS 
887 
sion of the Tax Court dismissing the proceeding shall be considered as 
its decision that the deficiency is the amount determined by the 
Secretary or his delegate. An order specifying such amount shall be 
entered in the records of the Tax Court unless the Tax Court cannot 
determine such amount from the record in the proceeding, or unless the 
dismissal is for lack of jurisdiction. 
(e) EFFECT OF DECISION THAT TAX IS BARRED BY LIMITATION.—If 
the assessment or collection of any tax is barred by any statute of 
limitations, the decision of the Tax Court to that effect shall be con-
sidered as its decision that there is no deficiency in respect of such tax. 
(f) FINDINGS OF FACT AS EVIDENCE.—The findings of the Board 
of Tax Appeals made in connection with any decision prior to February 
26, 1926, shall, notwithstanding the enactment of the Revenue Act of 
1926 (44 Stat. 9), continue to be prima facie evidence of the facts 
therein stated. 
(g) PENALTY.— 
For penalty for taxpayer instituting proceedings before Tax Court 
merely for delay, see section 6673. 
SEC. 7460. PROVISIONS OF SPECIAL APPLICATION TO DIVISIONS. 
(a) HEARINGS, DETERMINATIONS, AND REPORTS.—A division shall 
hear, and make a determination upon, any proceeding instituted before 
the Tax Court and an;^ motion in connection therewith, assigned to 
such division by the chief judge, and shall make a report of any such 
determination which constitutes its final disposition of the proceeding. 
(b) EFFECT OF ACTION BY A DIVISION.—The report of the division 
shall become the report of the Tax Court within 30 days after such 
report by the division, unless within such period the chief judge has 
directed that such report shaU be reviewed by the Tax Court. Any 
preliminary action by a division which does not form the basis for the 
entry of the final decision shall not be subject to review by the Tax 
Court except in accordance with such rules as the Tax Court may 
prescribe. The report of a division shall not be a part of the record 
in any case in which the chief judge directs that such report shall be 
reviewed by the Tax Court. 
SEC. 7461. PUBLICITY OF PROCEEDINGS. 
All reports of the Tax Court and all evidence received by the Tax 
Court and its divisions, including a transcript of the stenographic 
report of the hearings, shall be public records open to the inspection 
of the public; except that after the decision of the Tax Court in any 
proceeding has become final the Tax Court may, upon motion of the 
taxpayer or the Secretary or his delegate, permit the withdrawal by 
the party entitled thereto of originals of books, documents, and 
records, and of models, diagrams, and other exhibits, introduced in 
evidence before the Tax Court or any division; or the Tax Court may, 
on its own motion, make such other disposition thereof as it deems 
advisable. 
SEC. 7462. PUBLICATION OF REPORTS. 
The Tax Court shall provide for the publication of its reports at 
the Government Printing Office in such form and manner as may be 
best adapted for public information and use, and such authorized 
publication shall be competent evidence of the reports of the Tax 
Court therein contained in all courts of the United States and of the 
§7462 
888 
INTERNAL REVENUE CODE OF 1954 
several States without any further proof or authentication thereof. 
Such reports shall be subject to sale in the same manner and upon 
the same terms as other public documents. 
SEC. 7463. PROVISIONS OF SPECIAL APPLICATION TO TRANSFEREES. 
(1) For rules of burden of proof in transferee proceedings, see sec-
tion 6902 (a). 
' 
(2) For authority of Tax Court to prescribe rules by which a trans-
feree of property of a taxpayer shall be entitled to examine books, 
records and other evidence, see section 6902 (b). 
PART III—MISCELLANEOUS PROVISIONS 
Sec. 7471. Employees. 
' . 
Sec, 7472. Expenditures. 
,. < 
Sec. 7473. Disposition of fees. 
Sec. 7474. Fee for transcript of record. 
' 
• ^ 
SEC. 7471. EMPLOYEES. 
(a) APPOINTMENT AND COMPENSATION.—The Tax Court is author-
ized in accordance with the civil service laws to appoint, and in ac-
cordance with the Classification Act of 1949 (63 Stat. 954; 5 U. S. C. 
chapter 21), as amended, to fix the compensation of, such employees 
as may be necessary efficiently to execute the functions vested in the 
Tax Court. 
(b) 
EXPENSES FOR TRAVEL AND SUBSISTENCE.—The employees of 
the Tax Court shall receive their necessary traveling expenses, and 
expenses for subsistence while traveling on duty and away from their 
designated stations, as provided in the Travel Expense Act of 1949 
(63 Stat. 166; 5 U. S. C. chapter 16). 
(c) COMMISSIONERS.— 
For travel and subsistence allowances of commissioners of the Tax 
Court, see section 7456 (c). 
SEC. 7472. EXPENDITURES. 
The Tax Court is authorized to make such expenditures (including 
expenditures for personal services and rent at the seat of Government 
and elsewhere, and for law books, books of reference, and periodicals), 
as may be necessary eflBciently to execute the functions vested in the 
Tax Court. 
All expenditures of the Tax Court shall be allowed and 
paid, out of any moneys appropriated for purposes of the Tax 
Court, upon presentation of itemized vouchers therefor signed by the 
certifying officer designated by the chief judge. 
SEC. 7473. DISPOSITION OF FEES. 
All fees received by the Tax Court shall be covered into the Treasury 
as miscellaneous receipts. 
SEC. 7474. FEE FOR TRANSCRIPT OF RECORD. 
The Tax Court is authorized to fix a fee, not in excess of the fee 
fixed by law to be charged and collected therefor by the clerks of the 
district courts, for comparing, or for preparing and comparing, a 
transcript of the record, or for copying any record, entry, or other 
paper and the comparison and certification thereof. 
7462 
CH. 76—JUDICIAL PROCEEDINGS 
889 
Subchapter D—Court Review of Tax Court Decisions 
Sec. 7481. Date when Tax Court decision becomes final. 
f 
Sec. 7482. Courts of review. 
^'^•* 
Sec. 7483. Petition for review. 
Sec. 7484. Change of incumbent in office. 
Sec. 7485. Bond to stay assessment and collection. 
,. ^ 
Sec. 7486. Refund, credit, or abatement of amounts disallowed. 
Sec. 7487. Cross reference. 
SEC. 7481. DATE WHEN TAX COURT DECISION BECOMES FINAL. 
The decision of the Tax Court shall become final— 
(1) TIMELY PETITION FOR REVIEW NOT FILED.—Upon the expira-
tion of the time allowed for filing a petition for review, if no such 
petition has been duly filed within such time; or 
(2) DECISION AFFIRMED OR PETITION FOR REVIEW DISMISSED.— 
(A) PETITION FOR CERTIORARI NOT FILED ON TIME.—Upon the 
expiration of the time allowed for filing a petition for certiorari, 
if the decision of the Tax Court has been affirmed or the petition 
for review dismissed by the United States Court of Appeals and 
no petition for certiorari has been duly filed; or 
(B) PETITION FOR CERTIORARI DENIED.—Upon the denial of a 
petition for certiorari, if the decision of the Tax Court has been 
afiirmed or the petition for review dismissed by the United States 
Court of Appeals; or 
(C) AFTER MANDATE OF SUPREME COURT.—Upon the expiration 
of 30 days from the date of issuance of the mandate of the Supreme 
Court, if such Court directs that the decision of the Tax Court be 
aflSrmed or the petition for review dismissed. 
(3) DECISION MODIFIED OR REVERSED.— 
(A) UPON 
MANDATE OP SUPREME COURT.—If the Supreme 
Court directs that the decision of the Tax Court be modified or 
reversed, the decision of the Tax Court rendered in accordance 
with the mandate of the Supreme Court shall become final upon 
the expiration of 30 days from the time it was rendered, unless 
within such 30 days either the Secretary or his delegate or the 
taxpayer has instituted proceedings to have such decision cor-
rected to accord with the mandate, in which event the decision of 
the Tax Court shall become final when so corrected. 
(B) UPON MANDATE OF THE COURT OF APPEALS.—^If the decision 
of the Tax Court is modified or reversed by the United States 
Court of Appeals, and if— 
(i) the time allowed for filing a petition for certiorari has 
expired and no such petition has been duly filed, or 
; 
(ii) the petition for certiorari has been denied, or 
, 
(iii) the decision of the United States Court of Appeals has 
, ,
^ 
been afl&rmed by the Supreme Court, then the decision of the 
Tax Court rendered in accordance with the mandate of the 
United States Court of Appeals shall become final on the 
expiration of 30 days from the time such decision of the Tax 
Court was rendered, unless within such 30 days either the 
, 
§ 7481 (3) (B)(iii) 
49012°—54 
59 
890 
INTERNAL REVENUE CODE OF 1954 
Secretary or his delegate or the taxpayer has instituted pro-
ceedings to have such decision corrected so that it will accord 
with the mandate, in which event the decision of the Tax Court 
shall become final when so corrected. 
(4) REHEARING.—If the Supreme Court orders a rehearing; or if 
the case is remanded by the United States Court of Appeals to the 
Tax Court for a rehearing, and if— 
(A) the time allowed for filing a petition for certiorari has 
expired and no such petition has been duly filed, or 
(B) the petition for certiorari has been denied, or 
(C) the decision of the United States Court of Appeals has 
been affirmed by the Supreme Court, 
then the decision of the Tax Court rendered upon such rehearing 
shall become final in the same manner as though no prior decision of 
the Tax Court has been rendered. 
(5) DEFINITION OF "MANDATE".—As used in this section, the 
term "mandate", in case a mandate has been recalled prior to the 
expiration of 30 days from the date of issuance thereof, means the 
final mandate. 
SEC. 7482. COURTS OF REVIEW. 
(a) JURISDICTION.—The United States Courts of Appeals shall have 
exclusive jurisdiction to review the decisions of the Tax Court, except 
as provided in section 1254 of Title 28 of the United States Code, in 
the same manner and to the same extent as decisions of the district 
courts in civil actions tried without a jury; and the judgment of any 
such court shall be final, except that it shall be subject to review by the 
Supreme Court of the United States upon certiorari, in the manner 
provided in section 1254 of Title 28 of the United States Code. 
(b) 
VENUE.— 
(1) IN GENERAL.—Except as provided in paragraph (2), such 
decisions may be reviewed by the United States Court of Appeals 
for the circuit in which is located the office to which was made 
the return of the tax in respect of which the liability arises, or, 
if no return was made, then by the United States Court of Appeals 
for the District of Columbia. 
(2) B Y AGREEMENT.—Notwithstanding the provisions of para-
graph (1), such decisions may be reviewed by any United States 
Court of Appeals which may be designated by the Secretary or 
his delegate and the taxpayer by stipulation in writing. 
(c) 
POWERS.— 
(1) T o AFFIRM, MODIFY, OR REVERSE. 
UpOU SUch TCvicW, SUch 
courts shall have power to affirm or, if the decision of the Tax Court 
is not in accordance with law, to modify or to reverse the decision 
of the Tax Court, with or without remanding the case for a rehear-
ing, as justice may require. 
(2) To MAKE RULES.—Rules for review of decisions of the Tax 
Court shall be those prescribed by^the Supreme Court under section 
2074 of title 28 of the United States Code. 
Until such rules become 
effective the rules adopted under authority of section 1141 (c) (2) 
of the Internal Revenue Code of 1939 shall remain in effect. 
§7481(3)(B)(iii) 
CH. 76—JUDICIAL PROCEEDINGS 
891 
(3) To REQUIRE ADDITIONAL SECURITY.—Nothing in section 7483 
shall be construed as relieving the petitioner from making or filing 
such undertakings as the court may require as a condition of or in 
connection with the review. 
(4) To IMPOSE DAMAGES.—The United States Court of Appeals 
and the Supreme Court shall have power to impose damages in any 
case where the decision of the Tax Court is affirmed and it appears 
that the petition was filed merely for delay. 
SEC. 7483. PETITION FOR REVIEW. 
The decision of the Tax Court may be reviewed by a United States 
Court of Appeals as provided in section 7482 if a petition for such 
review is filed by either the Secretary (or his delegate) or the taxpayer 
within 3 months after the decision is rendered. If, however, a petition 
for such review is so filed by one party to the proceeding, a petition 
for review of the decision of the Tax Court may be filed by any other 
party to the proceeding within 4 months after such decision is rendered. 
SEC. 7484. CHANGE OF INCUMBENT IN OFFICE. 
When the incumbent of the office of Secretary or his delegate 
changes, no substitution of the name of his successor shall be required 
in proceedings pending before any appellate court reviewing the action 
of the Tax Court. 
SEC. 7485. BOND TO STAY ASSESSMENT AND COLLECTION. 
(a) UpoN PETITION FOR REVIEW.—Notwithstanding any provi-
sion of law imposing restrictions on the assessment and collection of 
deficiencies, the review under section 7483 shall not operate as a stay 
of assessment or collection of any portion of the amount of the defi-
ciency determined by the Tax Court unless a petition for review in 
respect of such portion is duly filed by the taxpayer, and then only if 
the taxpayer— 
(1) on or before the time his petition for review is filed has filed 
with the Tax Court a bond in a sum fixed by the Tax Court not 
exceeding double the amount of the portion of the deficiency in 
respect of which the petition for review is filed, and with surety 
approved by the Tax Court, conditioned upon the payment of the 
deficiency as finally determined, together with any interest, addi-
tional amounts, or additions to the tax provided for by law, or 
(2) has filed a jeopardy bond under the income or estate tax 
laws. 
If as a result of a waiver of the restrictions on the assessment and 
collection of a deficiency any part of the amount determined by the 
Tax Court is paid after the filing of the review bond, such bond shall, 
at the request of the taxpayer, be proportionately reduced. 
(b) CROSS REFERENCES.— 
(1) For requirement of additional security notwithstanding this 
section, see section 7482 (c) (3). 
(2) For deposit of United States bonds or notes in lieu of sureties, see 
6 U. S. C. 15. 
SEC. 7486. REFUND, CREDIT, OR ABATEMENT OF AMOUNTS DISAL-
LOWED. 
In cases where assessment or collection has not been stayed by the 
filing of a bond, then if the amount of the deficiency determined by 
§7486 
892 
INTERNAL REVENUE CODE OF 1954 
the Tax Court is disallowed in whole or in part by the court of review, 
the amount so disallowed shall be credited or refunded to the taxpayer, 
without the making of claim therefor, or, if collection has not been 
made, shall be abated. 
SEC. 7487. CROSS REFERENCE. 
For authority of the Tax Court to fix fees for transcripts pf records, 
see section 7474. 
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§7486 
CH. 76—JUDICIAL PROCEEDINGS 
893 
Subchapter E—^Miscellaneous Provisions 
Sec. 7491. Burden of proof of exemptions in case of marihuana 
offenses. 
Sec. 7492. Enforceability of cotton futures contracts. 
Sec. 7493. Immunity of witnesses in cases relating to cotton futures. 
SEC. 7491. BURDEN OF PROOF OF EXEMPTIONS IN CASE OF MARI-
HUANA OFFENSES. 
It shall not be necessary to negative any exemptions set forth in 
part II of subchapter A of chapter 39, relating to marihuana, in any 
complaint, information, indictment, or other writ or proceeding laid 
or brought with respect to part II of subchapter A of chapter 39 and 
the burden of proof of any such exemption shall be upon the defendant. 
In the absence of the production of evidence by the defendant that 
he has complied with the provisions of section 4753 relating to regis-
tration, or that he has complied with the provisions of section 4742 
relating to order forms, he shall be presumed not to have complied 
with such provisions of such section, as the case may be. 
SEC. 7492. ENFORCEABILITY OF COTTON FUTURES CONTRACTS. 
No contract of sale of cotton for future delivery mentioned in sec-
tion 4851 (a), which does not conform to the requirements of section 
4853 and has not the necessary stamps affixed thereto as required by 
section 4871, shaU be enforceable in any court of the United States 
by, or on behalf of, any party to such contract or his privies. 
SEC. 7493. IMMUNITY OF WITNESSES IN CASES RELATING TO COTTON 
FUTURES. 
No person whose evidence is deemed material by the officer prose-
cuting on behalf of the United States in any case brought under any 
provision of subchapter D of chapter 39 (relating to cotton futures) 
shall withhold his testimony because of complicity by him in any 
violation of subchapter D of chapter 39, or of any regulation made 
pursuant to such chapter, but any such person called by such officer 
who testifies in such case shall be exempt from prosecution for any 
offense to which his testimony relates. 
§7493 
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CH. 77 
MISCELLANEOUS PROVISIONS 
895 
CHAPTER 77—MISCELLANEOUS PROVISIONS 
Sec. 7501. Liability for taxes withheld or collected. 
Sec. 7502. Timely mailing treated as timely filing. 
Hiiia 
Sec. 7603. Time for performance of acts where last day falls on 
Saturday, Sunday, or legal holiday. 
I. ^ 
Sec. 7504. Fractional parts of a dollar. 
®" • 
Sec. 7505. Sale of personal property purchased by the United 
States. 
y^^l 
Sec. 7506. Administration of real estate acquired by the United 
States. 
Sec. 7507. Exemption of insolvent banks from tax. 
Sec. 7508. Time for performing certain acts postponed by reason of 
I 
war. 
, 
Sec. 7509. Expenditures incurred by the Post Office Department. 
Sec. 7510. Exemption from tax of domestic goods purchased for the 
United States. 
• 
Sec. 7511. Exemption of consular officers and employees of foreign 
> 
states from payment of internal revenue taxes on 
imported articles. 
SEC. 7501. LIABILITY FOR TAXES WITHHELD OR COLLECTED. 
(a) GENERAL RULE.—Whenever any person is required to collect or 
withhold any internal revenue tax from any other person and to pay 
over such tax to the United States, the amount of tax so collected or 
withheld shall be held to be a special fund in trust for the United 
States. 
The amount of such fund shall be assessed, collected, and 
paid in the same manner and subject to the same provisions and lim-
itations (including penalties) as are applicable with respect to the 
taxes from which such fund arose. 
(b) 
PENALTIES.— 
For penalties applicable to violations of this section, see sections 6672 
and 7202. 
SEC. 7502. TIMELY MAILING TREATED AS TIMELY FILING. 
(a) GENERAL RULE.—If any claim, statement, or other document 
(other than a return or other document required under authority of 
chapter 61), required to be filed within a prescribed period or on 
or before a prescribed date under authority of any provision of the 
internal revenue laws is, after such period or such date, delivered by 
United States mail to the agency, officer, or office with which such 
claim, statement, or other document is required to be filed, the date 
of the United States postmark stamped on the cover in which such 
claim, statement, or other document is mailed shall be deemed to be 
the date of delivery. This subsection shall apply only if the postmark 
date falls within the prescribed period or on or before the prescribed 
date for the filing of the claim, statement, or other document, deter-
mined with regard to any extension granted for such filing, and only 
if the claim, statement, or other document was, within the prescribed 
time, deposited in the mail in the United States in an envelope or 
other appropriate wrapper, postage prepaid, properly addressed to 
the agency, office, or officer with which the claim, statement, or other 
document is required to be filed. 
' 
§ 7602(a) 
896 
INTERNAL REVENUE CODE OF 1954 
(b) STAMP MACHINE.—This section shall apply in the case of post-
marks not made by the United States Post Office only if and to the 
extent provided by regulations prescribed by the Secretary or his 
delegate. 
(c) REGISTERED MAIL.—If any such claim, statement, or other 
document is sent by United States registered mail, such registration 
shall be prima facie evidence that the claim, statement, or other 
document was delivered to the agency, office, or officer to which 
addressed, and the date of registration shall be deemed the postmark 
date. 
(d) EXCEPTION.—This section shall not apply with respect to the 
filing of a document in any court other than the Tax Court. 
SEC. 7503. TIME FOR PERFORMANCE OF ACTS WHERE LAST DAY 
FALLS ON SATURDAY, SUNDAY, OR LEGAL HOLIDAY. 
When the last day prescribed under authority of the internal revenue 
laws for performing any act falls on Saturday, Sunday, or a legal 
holiday, the performance of such act shall be considered timely if it is 
performed on the next succeeding day which is not a Saturday, 
Sunday, or a legal holiday. 
For purposes of this section, the last 
day for the performance of any act shall be determined by including 
any authorized extension of time; the term "legal holiday" means 
a legal holiday in the District of Columbia; and in the case of any 
return, statement, or other document required to be filed, or any other 
act required under authority of the internal revenue laws to be 
performed, at any office of the Secretary or his delegate, or at any other 
office of the United States or any agency thereof, located outside the 
District of Columbia but within an internal revenue district, the 
term "legal holiday" also means a Statewide legal holiday in the State 
where such office is located. 
SEC. 7504. FRACTIONAL PARTS OF A DOLLAR. 
The Secretary or his delegate may by regulations provide that in 
the allowance of any amount as a credit or refund, or in the collection 
of any amount as a deficiency or underpayment, of any tax imposed 
by this title, a fractional part of a dollar shall be disregarded, unless 
it amounts to 50 cents or more, in which case it shall be increased to 
1 dollar. 
SEC. 7505. SALE 
OF PERSONAL 
PROPERTY 
PURCHASED 
BY THE 
UNITED STATES. 
(a) SALE.—Any personal property purchased by the United States 
under the authority of section 6335 (e) (relating to purchase for the 
account of the United States of property sold under levy) may be sold 
by the Secretary or his delegate in accordance with such regulations 
as may be prescribed by the Secretary or his delegate. 
(b) ACCOUNTING.—In case of the resale of such property, the pro-
ceeds of the sale shaU be paid into the Treasury as internal revenue 
collections, and there shall be rendered a distinct account of all 
charges incurred in such sales. 
SEC. 7506. ADMINISTRATION OF REAL ESTATE ACQUIRED BY THE 
UNITED STATES. 
(a) PERSON CHARGED WITH.—The Secretary or his delegate shall 
have charge of all real estate which is or shaU become the property of 
the United States by judgment of forfeiture under the internal revenue 
§ 7502(b) 
CH. 77—MISCELLANEOUS PROVISIONS 
897 
laws, or which has been or shall be assigned, set off, or conveyed by-
purchase or otherwise to the United States in payment of debts or 
penalties arising under the laws relating to internal revenue, or which 
has been or shall be vested in the United States by mortgage or other 
security for the payment of such debts, and of all trusts created for 
the use of the United States in payment of such debts due them. 
(b) SALE.—The Secretary or his delegate, may, at public sale, and 
upon not less than 20 days' notice, sell and dispose of any real estate 
owned or held by the United States as aforesaid. 
(c) LEASE.—Until such sale, the Secretary or his delegate may 
lease such real estate owned as aforesaid on such terms and for such 
period as the Secretary or his delegate shall deem proper. 
(d) KELEASE TO DEBTOR.—In cases where real estate has or may 
become the property of the United States by conveyance or other-
wise, in payment of or as security for a debt arising under the laws 
relating to internal revenue, and such debt shall have been paid, 
together with the interest thereon, at the rate of 1 percent per month, 
to the United States, within 2 years from the date of the acquisition 
of such real estate, it shall be lawful for the Secretary or his delegate 
to release by deed or otherwise convey such real estate to the debtor 
from whom it was taken, or to his heirs or other legal representatives. 
SEC. 7507. EXEMPTION OF INSOLVENT BANKS FROM TAX. 
(a) ASSETS IN GENERAL.—Whenever and after any bank or trust 
company, a substantial portion of the business of which consists of 
receiving deposits and making loans and discounts, has ceased to do 
business by reason of insolvency or bankruptcy, no tax shall be 
assessed or collected, or paid into the Treasury of the United States, 
on account of such bank or trust company, which shall diminish the 
assets thereof necessary for the full payment of all its depositors; 
and such tax shall be abated from such national banks as are found by 
the Comptroller of the Currency to be insolvent; and the Secretary 
or his delegate, when the facts shall appear to him, is authorized to 
remit so much of the said tax against any such insolvent banks and 
trust companies organized under State law as shall be found to 
affect the claims of their depositors. 
(b) SEGREGATED ASSETS; EARNINGS.—Whenever any bank or trust 
company, a substantial portion of the business of which consists of 
receiving deposits and making loans and discounts, has been released 
or discharged from its liability to its depositors for any part of their 
claims against it, and such depositors have accepted, in lieu thereof, 
a lien upon subsequent earnings of such bank or trust company, or 
claims against assets segregated by such bank or trust company or 
against assets transferred from it to an individual or corporate trustee 
or agent, no tax shall be assessed or collected, or paid into the Treasury 
of the United States, on account of such bank or trust company, such 
individual or corporate trustee or such agent, which shall diminish 
the assets thereof which are available for the payment of such depos-
itor claims and which are necessary for the full payment thereof. 
The term "agent", as used in this subsection, shall be deemed to 
include a corporation acting as a liquidating agent. 
(c) REFUND; REASSESSMENT; STATUTES OP LIMITATION.— 
(1) Any such tax collected shall be deemed to be erroneously 
collected, and shall be refunded subject to all provisions and limita-
§ 7507(c)(1) 
898 
INTERNAL REVENUE CODE OF 1954 
tions of law, so far as applicable, relating to the refunding of taxes. 
(2) Any tax, the assessment, collection, or payment of which is 
barred under subsection (a), or any such tax which has been abated 
or remitted after May 28, 1938, shall be assessed or reassessed when-
ever it shall appear that payment of the tax will not diminish the 
assets as aforesaid. 
(3) Any tax, the assessment, collection, or payment of which is 
barred under subsection (b), or any such tax which has been 
refunded after May 28, 1938, shall be assessed or reassessed after 
full payment of such claims of depositors to the extent of the 
remaining assets segregated or transferred as described in sub-
section (b). 
(4) The running of the statute of limitations on the making of 
assessment and collection shall be suspended during, and for 90 
days beyond, the period for which, pursuant to this section, assess-
ment or collection may not be made, and a tax may be reassessed 
as provided in paragraphs (2) and (3) of this subsection and collected, 
during the time within which, had there been no abatement, col-
lection might have been made. 
(d) EXCEPTION OP EMPLOYMENT TAXES.—This section shall not 
apply to any tax imposed by chapter 21 or chapter 23. 
SEC. 7508. TIME FOR PERFORMING CERTAIN ACTS POSTPONED BY 
REASON OF WAR. 
(a) TIME T O B E DISREGARDED.—In the case of an individual serving 
in the Armed Forces of the United States, or serving in support of 
such Armed Forces, in an area designated by the President of the 
United States by Executive order as a "combat zone" for purposes 
of section 112, at any time during the period designated by the Presi-
dent by Executive order as the period of combatant activities in such 
zone for purposes of such section, or hospitalized outside the States 
of the Union and the District of Columbia as a result of injury 
received while serving in such an area during such time, the period 
of service in such area, plus the period of continuous hospitalization 
outside the States of the Union and the District of Columbia attrib-
utable to such injury, and the next 180 days thereafter, shall be dis-
regarded in determining, under the internal revenue laws, in respect 
of any tax liability (including any interest, penalty, additional amount, 
or addition to the tax) of such individual— 
(1) Whether any of the following acts was performed within the 
time prescribed therefor: 
(A) Filing any return of income, estate, or gift tax (except 
income tax withheld at source and income tax imposed by subtitle 
C or any law superseded thereby); 
(B) Payment of any income, estate, or gift tax (except income 
tax withheld at source and income tax imposed by subtitle C or 
any law superseded thereby) or any installment thereof or of any 
other liability to the United States in respect thereof; 
(C) Filing a petition with the Tax Court for redetermination 
of a deficiency, or for review of a decision rendered by the Tax 
Court; 
(D) Allowance of a credit or refund of any tax; 
(E) Filing a claim for credit or refund of any taxj 
§ 7507(c)(1) 
CH. 77—MISCELLANEOUS PROVISIONS 
899 
(F) Bringing suit upon any such claim for credit or refund; 
(G) Assessment of any tax; 
(H) Giving or making any notice or demand for the payment 
of any tax, or with respect to any liabihty to the United States 
in respect of any tax; 
(I) Collection, by the Secretary or his delegate, by levy or 
otherwise, of the amount of any liability in respect of any tax; 
(J) Bringing suit by the United States, or any officer on its 
behalf, in respect of any liability in respect of any tax; and 
(K) Any other act required or permitted under the internal 
revenue laws specified in regulations prescribed under this 
section by the Secretary or his delegate; 
(2) The amount of any credit or refund (including interest). 
(b) 
EXCEPTIONS.— 
(1) TAX IN JEOPAEDY; BANKRUPTCY AND RECEIVERSHIPS; AND 
TRANSFERRED ASSETS.—Notwithstanding the provisions of sub-
section (a), any action or proceeding authorized by section 6851 
(regardless of the taxable year for which the tax arose), chapter 
70, or 71, as well as any other action or proceeding authorized by 
law in connection therewith, may be taken, begun, or prosecuted. 
In any other case in which the Secretary or his delegate determines 
that collection of the amount of any assessment would be jeopardized 
by delay, the provisions of subsection (a) shall not operate to stay 
collection of such amount by levy or otherwise as authorized by law. 
There shall be excluded from any amount assessed or collected pur-
suant to this paragraph the amount of interest, penalty, additional 
amount, and addition to the tax, if any, in respect of the period 
disregarded under subsection (a). 
In any case to which this para-
graph relates, if the Secretary or his delegate is required to give any 
notice to or make any demand upon any person, such requirement 
shall be deemed to be satisfied if the notice or demand is prepared 
and signed, in any case in which the address of such person last 
known to the Secretary or his delegate is in an area for which United 
States post offices under instructions of the Postmaster General are 
not, by reason of the combatant activities, accepting mail for 
delivery at the time the notice or demand is signed. 
In such case 
the notice or demand shall be deemed to have been given or made 
upon the date it is signed. 
(2) ACTION TAKEN BEFORE ASCERTAINMENT OF RIGHT TO BENE-
FITS.—The assessment or collection of any internal revenue tax or 
of any liability to the United States in respect of any internal 
revenue tax, or any action or proceeding by or on behalf of the 
United States in connection therewith, may be made, taken, begun, 
or prosecuted in accordance with law, without regard to the pro-
visions of subsection (a), unless prior to such assessment, collection, 
action, or proceeding it is ascertained that the person concerned is 
eatitled to the benefits of subsection (a). 
SEC. 7509. EXPENDITURES INCURRED BY THE POST OFFICE DEPART-
MENT. 
The Postmaster General or his delegate shaU at least once a month 
transfer to the Treasury of the United States, together with the 
receipts required to be deposited under section 6803 (a), a statement of 
§7509 
900 
INTERNAL REVENUE CODE 
OF 1954 
the additional expenditures in the District of Columbia and elsewhere 
incurred by the Post Office Department in performing the duties, if 
any, imposed upon such Department with respect to chapter 21, relat-
ing to the tax under the Federal Insurance Contributions Act, and the 
Secretary or his delegate shall be authorized and directed to advance 
from time to time to the credit of the Post Office Department, from 
appropriations made for the collection of the taxes imposed by chapter 
21, such sums as may be required for such additional expenditures 
incurred by the Post Office Department. 
SEC. 7510. EXEMPTION FROM TAX OF DOMESTIC GOODS PURCHASED 
FOR THE UNITED STATES. 
The privilege existing by provision of law on December 1, 1873, or 
thereafter of purchasing supplies of goods imported from foreign 
countries for the use of the United States, duty free, shall be extended, 
under such regulations as the Secretary or his delegate may prescribe, 
to all articles of domestic production which are subject to tax by the 
provisions of this title. 
SEC. 7511. EXEMPTION OF CONSULAR OFFICERS AND EMPLOYEES 
OF FOREIGN STATES FROM PAYMENT OF INTERNAL 
REVENUE TAXES ON IMPORTED 
ARTICLES. 
(a) RULE OF EXEMPTION.—No internal revenue tax shall be 
imposed with respect to articles imported by a consular officer of a 
foreign state or by an employee of a consulate of a foreign state, 
whether such articles accompany the officer or employee to his post 
in the United States, its insular possessions, or the Panama Canal 
Zone, or are imported by him at any time during the exercise of his 
functions therein, if— 
(1) such officer or employee is a national of the state appointing 
him and not engaged in any profession, business, or trade within 
the territory specified in this subsection; 
(2) the articles are imported by the officer or employee for his 
personal or official use; and 
(3) the foreign state grants an equivalent exemption to corre-
sponding officers or employees of the Government of the United 
States stationed in such foreign state. 
(b) CERTIFICATE BY SECRETARY OF STATE.—The Secretary of 
State shall certify to the Secretary of the Treasury the names of the 
foreign states which grant an equivalent exemption to the consular 
officers or employees of the Government of the United States stationed 
in such foreign states. 
§ 7509 
CH. 78—DISCOVERY OF LIABILITY; ENFORCEMENT OF TITLE 
901 
CHAPTER 78—DISCOVERY OF LIABILITY AND 
ENFORCEMENT OF TITLE 
STJBCHAPTER A. Examination and inspection. 
SUBCHAPTER B. General powers and duties. 
SUBCHAPTER C. Supervision of operations of certain manufacturers. 
> 
SUBCHAPTER D. Possessions. 
Subchapter A—Examination and Inspection 
Sec. 7601. Canvass of districts for taxable persons and objects. 
Sec. 7602. Examination of books and witnesses. 
- 
Sec. 7603. Service of summons. 
' 
Sec. 7604. Enforcement of summons. 
Sec. 7605. Time and place of examination. 
Sec. 7606. Entry of premises for examination of taxable objects. 
Sec. 7607. Cross references. 
SEC. 7601. CANVASS OF DISTRICTS FOR TAXABLE PERSONS AND 
OBJECTS. 
(a) GENERAL EULE.—The Secretary or his delegate shall, to the 
extent he deems it practicable, cause ofl&cers or employees of the 
Treasury Department to proceed, from time to time, through each 
internal revenue district and inquire after and concerning all persons 
therein who may be liable to pay any internal revenue tax, and all 
persons owning or having the care and management of any objects 
with respect to which any tax is imposed. 
(b) PENALTIES.— 
For penalties applicable to forcible obstruction or hindrance of 
Treasury officers or employees in the performance of their duties, 
see section 7212. 
SEC. 7602. EXAMINATION OF BOOKS AND WITNESSES. 
For the purpose of ascertaining the correctness of any return, making 
a return where none has been made, determining the liability of any 
person for any internal revenue tax or the liability at law or in equity 
of any transferee or fiduciary of any person in respect of any internal 
revenue tax, or collecting any such liability, the Secretary or his dele-
gate is authorized— 
(1) To examine any books, papers, records, or other data which 
may be relevant or material to such inquiry; 
(2) To summon the person liable for tax or required to perform 
the act, or any officer or employee of such person, or any person 
having possession, custody, or care of books of account containing 
entries relating to the business of the person liable for tax or 
required to perform the act, or any other person the Secretary or 
his delegate may deem proper, to appear before the Secretary or his 
delegate at a time and place named in the summons and to pro-
duce such books, papers, records, or other data, and to give such 
testimony, under oath, as may be relevant or material to such 
inquiry; and 
§ 7602(2) 
902 
INTERNAL REVENUE CODE OF 1954 
i -
F 
: , 
(3) To take such testimony of the person concerned, under oath, 
as may be relevant or material to such inquiry. 
SEC. 7603. SERVICE OF' SUMMONS. 
A summons issued under section 7602 shall be served by the Secre-
tary or his delegate, by an attested copy delivered in hand to the 
person to whom it is directed, or left at his last and usual place of 
abode; and the certificate of service signed by the person serving the 
summons shall be evidence of the facts it states on the hearing of an 
application for the enforcement of the summons. 
When the sum-
mons requires the production of books, papers, records, or other data, 
it shall be sufficient if such books, papers, records, or other data are 
described with reasonable certainty. 
SEC. 7604. ENFORCEMENT OF SUMMONS. 
(a) JURISDICTION OF DISTRICT COURT.—If any person is summoned 
under the internal revenue laws to appear, to testify, or to produce 
books, papers, records, or other data, the United States district 
court for the district in which such person resides or is found shall 
have jurisdiction by appropriate process to compel such attendance, 
testimony, or production of books, papers, records, or other data. 
(b) ENFORCEMENT.—Whenever any person summoned under sec-
tion 7602 neglects or refuses to obey such summons, or to produce 
books, papers, records, or other data, or to give testimony, as required, 
the Secretary or his delegate may apply to the judge of the district 
court or to a United States commissioner for the district within 
which the person so summoned resides or is found for an attachment 
against him as for a contempt. 
It shall be the duty of the judge or 
commissioner to hear the application, and, if satisfactory proof is 
made, to issue an attachment, directed to some proper officer, for the 
arrest of such person, and upon his being brought before him to pro-
ceed to a hearing of the case; and upon such hearing the judge or the 
United States commissioner shall have power to make such order as 
he shall deem proper, not inconsistent with the law for the punish-
ment of contempts, to enforce obedience to the requirements of the 
summons and to punish such person for his default or disobedience. 
(c) CROSS REFERENCES.— 
(1) AUTHORITY TO ISSUE ORDERS, PROCESSES, AND JUDGMENTS.— 
For authority of district courts generally to enforce the provisions of 
this title, see section 7402. 
(2) PENALTIES.— 
For penalties applicable to violation of section 7602, see section 7210. 
SEC. 7605. TIME AND PLACE OF EXAMINATION. 
(a) TIME AND PLACE.—The time and place of examination pursu-
ant to the provisions of section 7602 shall be such time and place as 
may be fixed by the Secretary or his delegate and as are reasonable 
under the circumstances. 
In the case of a summons under authority 
of paragraph (2) of section 7602 the date fixed for appearance before 
the Secretary or his delegate shall not be less than 10 days from the 
date of the summons. 
(b) RESTRICTIONS ON EXAMINATION OF TAXPAYER.—No taxpayer 
shall be subjected to unnecessary examination or investigations, and 
only one inspection of a taxpayer's books of account shall be made for 
§ 7602(3) 
CH. 78—DISCOVERY OF LIABILITY; ENFORCEMENT OF TITLE 
903 
each taxable year unless the taxpayer requests otherwise or unless the 
Secretary or his delegate, after investigation, notifies the taxpayer in 
writing that an additional inspection is necessary. 
SEC. 7606. ENTRY OF PREMISES FOR EXAMINATION OF TAXABLE 
OBJECTS. 
(a) E N T R Y D U R I N G D A Y . — T h e Secretary or his delegate m a y enter, 
in the daytime, any building or place where any articles or objects 
subject to tax are made, produced, or kept, so far as it m a y be neces-
sary for the purpose of examining said articles or objects. 
(b) E N T R Y AT N I G H T . — W h e n such premises are open a t night, the 
Secretary or his delegate m a y enter them while so open, in the per-
formance of his official duties. 
(c) P E N A L T I E S . — 
^ 
For penalty for refusal to permit entry or examination, see section 
7342. 
SEC. 7607. CROSS REFERENCES. 
(a) I N S P E C T I O N O F B O O K S , P A P E R S , R E C O R D S , OR O T H E R D A T A . — 
For inspection of books, papers, records, or other data in the case of— 
(1) Wholesale dealers in oleomargarine, see section 4597. 
(2) Wholesale dealers in process or renovated butter or adulterated 
' " 
butter, see section 4815 (b). 
(3) Opium, opiates, and coca leaves, see sections 4702 (a), 4705, 
4721, and 4773. 
(4) Marihuana, see sections 4742, 4753 (b), and 4773. 
(5) Wagering, see section 4423. 
(b) S E A R C H W A R R A N T S . — 
For provisions relating to— 
(1) Searches and seizures see Rule 41 of the Federal Rules of 
Criminal Procedure. 
(2) Search warrants in connection with industrial alcohol, etc., see 
sections 5314 and 7302. 
i i i ,: 
§ 7607(b)(2) 
904 
INTERNAL REVENUE CODE OF 1954 
Subchapter B—General Powers and Duties 
Sec. 7621. Internal revenue districts. 
Sec. 7622. Authority to administer oaths and certify. 
Sec. 7623. Expenses of detection and punishment of frauds. 
SEC. 7621. INTERNAL REVENUE DISTRICTS. 
(a) ESTABLISHMENT AND ALTERATION.—^The President shall estab-
lish convenient internal revenue districts for the purpose of adminis-
tering the internal revenue laws. 
The President may from time to 
time alter such districts. 
(b) BOUNDARIES.—For the purpose mentioned in subsection (a), 
the President may subdivide any State, Territory, or the District of 
Columbia, or may unite two or more States or Territories into one 
district. 
SEC. 7622. AUTHORITY TO ADMINISTER OATHS AND CERTIFY. 
(a) INTERNAL REVENUE PERSONNEL.—Every officer or employee 
of the Treasury Department designated by the Secretary or his dele-
gate for that purpose is authorized to administer such oaths or affirma-
tions and to certify to such papers as may be necessary under the 
internal revenue laws or regulations made thereunder. 
(b) OTHERS.—Any oath or affirmation required or authorized under 
any internal revenue law or under any regulations made thereunder 
may be administered by any person authorized to administer oaths 
for general purposes by the law of the United States, or of any State, 
Territory, or possession of the United States, or of the District of 
Columbia, wherein such oath or affirmation is administered. 
This 
subsection shall not be construed as an exclusive enumeration of the 
persons who may administer such oaths or affirmations. 
SEC. 7623. EXPENSES OF DETECTION AND PUNISHMENT OF FRAUDS. 
The Secretary or his delegate, under regulations prescribed by the 
Secretary or his delegate, is authorized to pay such sums, not exceeding 
in the aggregate the sum appropriated therefor, as he may deem neces-
sary for detecting and bringing to trial and punishment persons guilty 
of violating the internal revenue laws, or conniving at the same, in 
cases where such expenses are not otherwise provided for by law. 
§7621 
CH. 78—DISCOVERY OF LIABILITY; ENFORCEMENT OF TITLE 
905 
Subchapter C—Supervision of Operations of Certain Manu-
facturers 
Sec. 7641, Supervision of operations of certain manufacturers. 
SEC. 7641. SUPERVISION OF OPERATIONS OF CERTAIN MANUFAC-
TURERS. 
Every manufacturer of filled cheese, oleomargarine, opium suitable 
for smoking purposes, process or renovated butter or adulterated 
butter, or white phosphorous matches shall conduct his business under 
such surveillance of officers or employees of the Treasury Department 
as the Secretary or his delegate may by regulations require. 
*OC|' 
§ 7641 
49012'—54 
60 
906 
INTERNAL REVENUE CODE OF 1954 
Subchapter D—Possessions 
Sec. 7651. Administration and collection of taxes in possessions. 
Sec. 7652. Shipments to the United States. 
Sec. 7653. Shipments from the United States. 
Sec. 7654. Payment to Guam and American Samoa of proceeds of 
tax on coconut and other vegetable oils. 
Sec. 7655. Cross references. 
SEC. 7651. ADMINISTRATION 
AND 
COLLECTION 
OF 
TAXES 
IN 
POSSESSIONS. 
Except as otherwise provided in this subchapter and in sections 
4705 (b), 4735, and 4762 (relating to taxes on narcotic drugs and 
marihuana), and except as otherwise provided in section 28 (a) of 
the Revised Organic Act of the Virgin Islands and section 30 of the 
Organic Act of Guam (relating to the covering of the proceeds of 
certain taxes into the treasuries of the Virgin Islands and Guam, 
respectively)— 
(1) APPLICABILITY OF ADMINISTRATIVE PROVISIONS.—All provi-
sions of the laws of the United States applicable to the assessment 
and collection of any tax imposed by this title or of any other 
liability arising under this title (including penalties) shall, in 
respect of such tax or liability, extend to and be applicable in any 
possession of the United States in the same manner and to the same 
extent as if such possession were a State, and as if the term "United 
States" when used in a geographical sense included such possession. 
(2) TAX IMPOSED IN POSSESSION.—In the case of any tax which 
is imposed by this title in any possession of the United States— 
(A) INTERNAL 
REVENUE 
COLLECTIONS.—Such tax shall be 
collected under the direction of the Secretary or his delegate, 
and shall be paid into the Treasury of the United States as internal 
revenue collections; and 
(B) APPLICABLE LAWS.—All provisions of the laws of the 
United States applicable to the administration, collection, and 
enforcement of such tax (including penalties) shall, in respect of 
such tax, extend to and be applicable in such possession of the 
United States in the same manner and to the same extent as if 
such possession were a State, and as if the term "United States" 
when used in a geographical sense included such possession. 
(3) OTHER LAW& RELATING TO POSSESSIONS.—This section shall 
apply notwithstanding any other provision of law relating to any 
possession of the United States. 
(4) CANAL ZONE.—For purposes of this section, the term "pos-
session of the United States" includes the Canal Zone. 
(5) VIRGIN ISLANDS.— 
(A) For purposes of this section, the reference in section 28 (a) 
of the Revised Organic Act of the Virgin Islands to "any tax 
specified in section 3811 of the Internal Revenue Code" shall be 
deemed to refer to any tax imposed by chapter 2 or by chapter 21. 
(B) For purposes of this title, section 28 (a) of the Revised 
§7651 
00—-frg-^Sir-t^i' 
CH. 78—DISCOVERY OF LIABILITY; ENFORCEMENT OF TITLE 
907 
Organic Act of the Virgin Islands shall be effective as if such 
section had been enacted subsequent to the enactment of this title. 
SEC. 7652. SHIPMENTS TO THE UNITED STATES. 
(a) PUERTO RICO.— 
(1) RATE OF TAX.—Except as provided in section 5318, articles 
of merchandise of Puerto Rican manufacture coming into the 
United States and withdrawn for consumption or sale shall be 
subject to a tax equal to the internal revenue tax imposed in the 
United States upon the like articles of merchandise of domestic 
manufacture. 
(2) PAYMENT OF TAX.—The Secretary or his delegate shall by 
regulations prescribe the mode and time for payment and collection 
of the tax described in paragraph (1), including any discretionary 
method described in section 6302 (b) and (c). Such regulations 
shall authorize the payment of such tax before shipment from 
Puerto Rico, and the provisions of section 7651 (2) (B) shall be 
applicable to the payment and collection of such tax in Puerto Rico. 
(3) DEPOSIT OF INTERNAL REVENUE COLLECTIONS.—All taxes 
collected under the internal revenue laws of the United States on 
articles produced in Puerto Rico and transported to the United 
States, or consumed in the island, shall be covered into the treasury 
of Puerto Rico. 
(b) VIRGIN ISLANDS.— 
(1) TAXES IMPOSED IN THE UNITED STATES.—Except as provided 
in section 5318, there shall be imposed in the United States, upon 
articles coming into the United States from the Virgin Islands, a 
tax equal to the internal revenue tax imposed in the United States 
upon like articles of domestic manufacture. 
(2) EXEMPTION FROM TAX IMPOSED IN THE VIRGIN ISLANDS.—Such 
articles shipped from such islands to the United States shall be 
exempt from the payment of any tax imposed by the internal 
revenue laws of such islands. 
(3) DISPOSITION 
OF INTERNAL 
REVENUE 
COLLECTIONS.—Be-
ginning with the fiscal year ending June 30, 1954, and annually 
thereafter, the Secretary or his delegate shall determine the amount 
of all taxes imposed by, and collected during the fiscal year under, 
the internal revenue laws of the United States on articles produced 
in the Virgin Islands and transported to the United States. 
The 
amount so determined less 1 percent and less the estimated amount 
of refunds or credits shall be subject to disposition as follows: 
(A) There shall be transferred and paid over to the govern-
ment of the Virgin Islands from the amounts so determined a sum 
equal to the total amount of the revenue collected by the govern-
ment of the Virgin Islands during the fiscal year, as certified by 
the Government Comptroller of the Virgin Islands. 
The moneys 
so transferred and paid over shall constitute a separate fund in 
the treasury of the Virgin Islands and may be expended as the 
legislature may determine: Provided, That the approval of the 
President or his designated representative shall be obtained 
before such moneys may be obligated or expended. 
(B) There shall also be transferred and paid over to the govern-
ment of the Virgin Islands during each of the fiscal years ending 
§ 7652(b)(3)(B) 
908 
INTERNAL REVENUE CODE OF 1954 
June 30, 1955, and June 30, 1956, the sum of $1,000,000 or the 
balance of the internal revenue collections available under this 
paragraph (3) after payments are made under subparagraph (A), 
whichever amount is greater. 
The moneys so transferred and 
paid over shall be deposited in the separate fund established by 
subparagraph (A), but shall be obligated or expended for emer-
gency purposes and essential public projects only, with the prior 
approval of the President or his designated representative. 
(C) Any amounts remaining shall be deposited in the Treasury 
of the United States as miscellaneous receipts. 
If at the end of any fiscal year the total of the Federal contribution 
made under subparagraph (A) at the beginning of that fiscal year 
has not been obligated or expended for an approved purpose, the 
balance shall continue available for expenditure during any succeed-
ing fiscal year, but only for approved emergency relief purposes and 
essential public projects as provided in subparagraph (B). 
The 
aggregate amount of moneys available for expenditure for emer-
gency relief purposes and essential public projects only, including 
payments under subparagraph (B), shall not exceed the sum of 
$5,000,000 at the end of any fiscal year. 
Any unobligated or un-
expended balance of the Federal contribution remaining at the end 
of a fiscal year which would cause the moneys available for emer-
gency relief purposes and essential public projects only to exceed 
the sum of $5,000,000 shall thereupon be transferred and paid over 
to the Treasury of the United States as miscellaneous receipts. 
SEC. 7653. SHIPMENTS FROM THE UNITED STATES. 
(a) TAX IMPOSED.— 
(1) PUERTO RICO.—All articles of merchandise of United States 
manufacture coming into Puerto Rico shall be entered at the port of 
entry upon payment of a tax equal in rate and amount to the 
internal revenue tax imposed in Puerto Rico upon the like articles 
of Puerto Rican manufacture. 
(2) VIRGIN ISLANDS.—There shall be imposed in the Virgin 
Islands upon articles imported from the United States a tax equal 
to the internal revenue tax imposed in such islands upon like 
articles there manufactured. 
(b) EXEMPTION FROM TAX IMPOSED IN THE UNITED 
STATES.— 
Articles, goods, wares, or merchandise going into Puerto Rico, the 
Virgin Islands, Guam, and American Samoa from the United States 
shall be exempted from the payment of any tax imposed by the internal 
revenue laws of the United States. 
(c) DRAWBACK OF TAX PAID IN THE UNITED STATES.—All pro-
visions of law for the allowance of drawback of internal revenue tax on 
articles exported from the United States are, so far as applicable, 
extended to like articles upon which an internal revenue tax has been 
paid when shipped from the United States to Puerto Rico, the Virgin 
Islands, Guam, or American Samoa. 
(d) CROSS REFERENCE.^— 
For the disposition of the proceeds of all taxes collected under the 
internal revenue laws of the United States on articles produced in Guam 
and transported into the United States, its Territories or possessions, or 
consumed in Guam, see the Act of August 1, 1950 (c. 512, 64 Stat. 
392, section 30; 48 U. S. C. 1421h). 
§ 7662(b)(3)(B) 
CH. 78—DISCOVERY OF LIABILITY) ENFORCEMENT OF TITLE 
909 
SEC. 7654. PAYMENT TO GUAM AND AMERICAN SAMOA OF PROCEEDS 
OF TAX ON COCONUT AND PALM OIL. 
All taxes collected under subchapter B of chapter 37 with respect to 
coconut oil wholly of the production of Guam or American Samoa, or 
produced from materials wholly of the growth or production of G u a m 
or American Samoa, shall be held as separate funds and paid to the 
treasury of Guam or American Samoa, respectively. 
No part of the 
money from such funds shall be used, directly or indirectly, to pay a 
subsidy to the producers or processors of copra, coconut oil, or allied 
products, except that this sentence shall not be construed as prohibit-
ing the use of such money, in accordance with regulations prescribed 
b y the Secretary or his delegate, for the acquisition or construction of 
facilities for the better curing of copra or for bona fide loans to copra 
producers of Guam or American Samoa. 
SEC. 7655. CROSS REFERENCES. 
(a) 
IMPOSITION OF T A X IN POSSESSIONS.— 
For provisions imposing tax in possessions, see— 
(1) Chapter 2, relating to self-employment tax; 
(2) Chapter 21, relating to the tax under the Federal Insurance 
Contributions Act; 
(3) Parts I and III of subchapter A of chapter 39, relating to taxes in 
respect of narcotic drugs; 
(4) Parts II and III of subchapter A of chapter 39, relating to taxes in 
respect of marihuana; 
(5) Chapter 51, relating to alcohol taxes; 
(6) Subchapter A of chapter 37, relating to tax on sugar. 
(b) 
O T H E R P R O V I S I O N S . — 
For other provisions relating to possessions of the United States, see— 
(1) Section 933, relating to income tax on residents of Puerto Rico; 
(2) Section 6418 (b), relating to exportation of sugar to Puerto Rico. 
§ 7655(b)(2) 
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CH. 79—DEFINITIONS 
911 
CHAPTER 79—DEFINITIONS 
Sec. 7701. Definitions. 
SEC. 7701. DEFINITIONS. 
(a) When used in this title, where not otherwise distinctly expressed 
or manifestly incompatible with the intent thereof— 
(1) PERSON.—The term "person" shall be construed to mean 
and include an individual, a trust, estate, partnership, association, 
company or corporation. 
(2) PARTNERSHIP 
AND 
PARTNER.—The 
term 
"partnership" 
includes 
a syndicate, 
group, pool, joint 
venture, or 
other 
unincorporated organization, through or by means of which any 
business, financial operation, or venture is carried on, and which 
is not, within the meaning of this title, a trust or estate or a cor-
poration; and the term "partner" includes a member in such a 
syndicate, group, pool, joint venture, or organization. 
(3) CORPORATION.—The term "corporation" includes associa-
tions, joint-stock companies, and insurance companies. 
(4) DOMESTIC.—The term "domestic" when applied to a cor-
poration or partnership means created or organized in the United 
States or imder the law of the United States or of any State or 
Territory. 
(5) FOREIGN.—The term "foreign" when applied to a corpora-
tion or partnership means a corporation or partnership which is not 
domestic. 
(6) FIDUCIARY.—The term "fiduciary" means a guardian, trustee, 
executor, administrator, receiver, conservator, or any person acting 
in any fiduciary capacity for any person. 
(7) STOCK.—The term "stock" includes shares in an association, 
joint-stock company, or insurance company. 
(8) SHAREHOLDER.—The term "shareholder" includes a member 
in an association, joint-stock company, or insurance company. 
(9) UNITED STATES.—The term "United States" when used in a 
geographical sense includes only the States, the Territories of Alaska 
and Hawaii, and the District of Columbia. 
(10) STATE.—The term "State" shall be construed to include 
the Territories and the District of Columbia, where such construc-
tion is necessary to carry out provisions of this title. 
(11) SECRETARY.—The term "Secretary" means the Secretary 
of the Treasury. 
(12) DELEGATE.—The term "Secretary or his delegate" means 
the Secretary of the Treasury, or any officer, employee, or agency 
of the Treasury Department duly authorized by the Secretary 
(directly, or indirectly by one or more redelegations of authority) 
to perform the function mentioned or described in the context, 
and the term "or his delegate" when used in connection with any 
other official of the United States shall be similarly construed. 
§7701(a)(12) 
912 
INTERNAL REVENUE CODE OF 1954 
(13) COMMISSIONER.—The term 
"Commissioner" means 
the 
Commissioner of Internal Revenue. 
(14) TAXPAYER.—The term "taxpayer" means any person sub-
ject to any internal revenue tax. 
(15) 
MILITARY OR NAVAL FORCES AND ARMED FORCES OF THE 
UNITED STATES.—The term "military or naval forces of the United 
States" and the term "Armed Forces of the United States" each 
includes all regular and reserve components of the uniformed serv-
ices which are subject to the jurisdiction of the Secretary of Defense, 
the Secretary of the Army, the Secretary of the Navy, or the Sec-
retary of the Air Force, and each term also includes the Coast 
Guard. 
The members of such forces include commissioned officers 
and personnel below the grade of commissioned officers in such 
forces. 
(16) WITHHOLDING 
AGENT.—The term "withholding 
agent" 
means any person required to deduct and withhold any tax under 
the provisions of section 1441, 1442, 1443, 1451, or 1461. 
(17) HUSBAND AND WIFE.—As used in sections 71, 152 (b) (4), 
215, and 682, if the husband and wife therein referred to are di-
vorced, wherever appropriate to the meaning of such sections, the 
term "wife" shall be read "former wife" and the term "husband" 
shall be read "former husband"; and, if the payments described 
in such sections are made by or on behalf of the wife or former 
wife to the husband or former husband instead of vice versa, 
wherever appropriate to the meaning of such sections, the term 
"husband" shall be read "wife" and the term "wife" shall be 
read "husband." 
(18) INTERNATIONAL ORGANIZATION.—The term "international 
organization" means a public international organization entitled to 
enjoy privileges, exemptions, and immunities as an international 
organization under the International Organizations Immunities Act 
(22 U. S. C. 288-288f). 
(19) DOMESTIC BUILDING AND LOAN ASSOCIATION.—The term 
"domestic building and loan association" means a domestic building 
and loan association, a domestic savings and loan association, and 
a Federal savings and loan association, substantially all the business 
of which is confined to making loans to members. 
(20) EMPLOYEE.—For the purpose of applying the provisions of 
sections 104, 105, and 106 with respect to accident and health in-
surance or accident and health plans, for the purpose of applying 
the provisions of section 101 (b) with respect to employees' death 
benefits, and for the purpose of applying the provisions of sub-
title A with respect to contributions to or under a stock bonus, 
pension, profit-sharing, or annuity plan, and with respect to distri-
butions under such a plan, or by a trust forming part of such a 
plan, the term "employee" shall include a full-time life insurance 
salesman who is considered an employee for the purpose of chapter 
21, or in the case of services performed before January 1, 1951, who 
would be considered an employee if his services were performed 
during 1951. 
(21) LEVY.—The term "levy" includes the power of distraint and 
seizure by any means. 
§7701 (a) (13) 
CH. 79—DEFINITIONS 
913 
(22) ATTORNEY GENERAL,—The term "Attorney General" means 
the Attorney General of the United States. 
(23) TAXABLE YEAR.—The term "taxable year" means the calen-
dar year, or the fiscal year ending during such calendar year, upon 
the basis of which the taxable income is computed under subtitle A. 
"Taxable year" means, in the case of a return made for a fractional 
part of a year under the provisions of subtitle A or under regulations 
prescribed by the Secretary or his delegate, the period for which 
such return is made. 
(24) FISCAL YEAR.—The term "fiscal year" means an accounting 
period of 12 months ending on the last day of any month other than 
December. 
(25) PAID OR INCURRED, PAID OR ACCRUED.—The terms "paid or 
incurred" and "paid or accrued" shall be construed according to 
the method of accounting upon the basis of which the taxable income 
is computed under subtitle A. 
(26) TRADE OR BUSINESS.—The term "trade or business" in-
cludes the performance of the functions of a public office. 
(27) TAX COURT.—The term "Tax Court" means the Tax Court 
of the United States. 
(28) OTHER TERMS.—Any term used in this subtitle with respect 
to the application of, or in connection with, the provisions of any 
other subtitle of this title shall have the same meaning as in such 
provisions. 
(29) INTERNAL REVENUE CODE.—The term "Internal Revenue 
Code of 1954" means this title, and the term "Internal Revenue 
Code of 1939" means the Internal Revenue Code enacted February 
10, 1939, as amended. 
(b) INCLUDES AND INCLUDING.—The terms "includes" and "in-
cluding" when used in a definition contained in this title shall not be 
deemed to exclude other things otherwise within the meaning of the 
term defined. 
(c) COMMONWEALTH OF PUERTO RICO.—Where not otherwise dis-
tinctly expressed or manifestly incompatible with the intent thereof, 
references in this title to possessions of the United States shall be 
treated as also referring to the Commonwealth of Puerto Rico. 
(d) CROSS REFERENCES,— 
(1) OTHER DEFINITIONS.— 
For other definitions, see the following sections of Title 1 of the United 
States Code: 
(1) Singular as including plural, section 1. 
(2) Plural as including singular, section 1. 
(3) Masculine as including feminine, section 1. 
(4) Officer, section 1. 
(5) Oath as including affirmation, section 1. 
(6) County as including parish, section 2. 
(7) Vessel as including all means of water transportation, section 3. 
(8) Vehicle as including all means of land transportation, section 4. 
(9) Company or association as including successors and assigns, 
section 5. 
(2) E F F E C T OF CROSS R E F E R E N C E S . — 
For effect of cross references in this title, see section 7806 (a). 
§ 7701(d)(2) 
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CH. 80—GENERAL RULES 
915 
CHAPTER 80—GENERAL RULES 
SUBCHAPTER A. Application of internal revenue laws. 
SUBCHAPTER B . Effective date and related provisions. 
Subchapter A—Application of Internal Revenue Laws 
Sec. 7801. Authority of Department of the Treasury. 
Sec. 7802. Commissioner of Internal Revenue. 
Sec. 7803. Other personnel. 
Sec. 7804. Effect of reorganization plans. 
Sec. 7805. Rules and regulations. 
Sec. 7806. Construction of title. 
Sec. 7807. Rules in effect upon enactment of this title. 
Sec. 7808. Depositaries for collections. 
Sec. 7809. Deposit of collections. 
SEC. 7801. AUTHORITY OF DEPARTMENT OF THE TREASURY. 
(a) POWERS AND DUTIES OF SECRETARY.—Except as otherwise 
expressly provided by law, the administration and enforcement of 
this title shall be performed by or under the supervision of the Secre-
tary of the Treasury. 
(b) GENERAL COUNSEL FOR THE DEPARTMENT.—There shall be 
in the Department of the Treasury the office of General Counsel 
for the Department of the Treasury. The General Counsel shall be 
appointed by the President, by and with the advice and consent of 
the Senate. The General Counsel shall be the chief law officer of the 
Department and shall perform such duties as may be prescribed by 
the Secretary. The Secretary may appoint and fix the duties of an 
Assistant General Counsel who shall serve as Chief Counsel of the 
Internal Revenue Service and may appoint and fix the duties of not 
to exceed five other Assistant General Counsels. All Assistant 
General Counsels shall be appointed without regard to the provisions 
of the civil service laws. 
The Secretary may also appoint and fix the 
duties of such other attorneys as he may deem necessary. 
(c) FUNCTIONS 
OF DEPARTMENT 
OF JUSTICE 
UNAFFECTED.— 
Nothing in this section shall be considered to affect the duties, powers, 
or functions imposed upon or vested in the Department of Justice, or 
any officer thereof, by law existing on May 10, 1934. 
SEC. 7802. COMMISSIONER OF INTERNAL REVENUE. 
There shall be in the Department of the Treasury a Commissioner 
of Internal Revenue, who shall be appointed by the President, by 
and with the advice and consent of the Senate. The Commissioner 
of Internal Revenue shall have such duties and powers as may be 
prescribed by the Secretary. 
SEC. 7803. OTHER PERSONNEL. 
(a) APPOINTMENT AND SUPERVISION.—The Secretary or his delegate 
is authorized to employ such number of persons as the Secretary or 
his delegate deems proper for the administration and enforcement 
of the internal revenue laws, and the Secretary or his delegate shall 
§ 7803(a) 
916 
INTERNAL REVENUE CODE 
OF 1954 
issue all necessary directions, instructions, orders, and rules applicable 
to such persons, 
(b) POSTS OF DUTY OF EMPLOYEES IN FIELD SERVICE OR TRAVEL-
ING.— 
(1) DESIGNATION OF POST OF DUTY.—The Secretary or his 
delegate shall determine and designate the posts of duty of all 
such persons engaged in field work or traveling on official business 
outside of the District of Columbia. 
(2) DETAIL OF PERSONNEL FROM FIELD SERVICE.—The Secretary 
or his delegate may order any such person engaged in field work 
to duty in the District of Columbia, for such periods as the Secre-
tary or his delegate may prescribe, and to any designated post of 
duty outside the District of Columbia upon the completion of such 
duty. 
(c) BONDS OF EMPLOYEES.—Whenever the Secretary or his delegate 
deems it proper, he may require any such officer or employee to 
furnish such bond, or he may purchase such blanket or schedule 
bonds, as the Secretary or his delegate deems appropriate. The 
premium of any such bond or bonds may, in the discretion of the 
Secretary or his delegate, be paid from the appropriation for expenses 
of the Internal Revenue Service. 
(d) DELINQUENT INTERNAL REVENUE OFFICERS AND EMPLOYEES.— 
If any ofiicer or employee of the Treasury Department acting in 
connection with the internal revenue laws fails to account for and 
pay over any amount of money or property collected or received by 
him in connection with the internal revenue laws, the Secretary or 
his delegate shall issue notice and demand to such ofiicer or employee 
for payment of the amount which he failed to account for and pay 
over, and, upon failure to pay the amount demanded within the time 
specified in such notice, the amount so demanded shall be deemed 
imposed upon such officer or employee and assessed upon the date 
of such notice and demand, and the provisions of chapter 64 and all 
other provisions of law relating to the collection of assessed taxes 
shall be applicable in respect of such amount. 
SEC. 7804. EFFECT OF REORGANIZATION PLANS. 
> 
(a) APPLICATION.—The provisions of Reorganization Plan Num-
bered 26 of 1950 and Reorganization Plan Numbered 1 of 1952 shall be 
applicable to all functions vested by this title, or by any act amending 
this title (except as otherwise expressly provided in such amending 
act), in any officer, employee, or agency, of the Department of the 
Treasury. 
(b) PRESERVATION OF EXISTING RIGHTS AND REMEDIES.—Nothing 
in Reorganization Plan Numbered 26 of 1950 or Reorganization Plan 
Numbered 1 of 1952 shall be considered to impair any right or remedy, 
including trial by jury, to recover any internal revenue tax alleged to 
have been erroneously or illegally assessed or collected, or any penalty 
claimed to have been collected without authority, or any sum alleged 
to have been excessive or in any manner wrongfully collected under the 
internal revenue laws. For the purpose of any action to recover any 
such tax, penalty, or sum, aU statutes, rules, and regulations referring 
to the collector of internal revenue, the principal officer for the internal 
revenue district, or the Secretary or his delegate, shall be deemed to 
refer to the officer whose act or acts referred to in the preceding 
§ 7803(a) 
CH. 8 0—GENERAL RULES 
917 
sentence gave rise to such action. 
The venue of any such action shall 
be the same as under existing law. 
SEC. 7805. RULES AND REGULATIONS. 
(a) AUTHORIZATION.—Except where such authority is expressly 
given by this title to any person other than an officer or employee of 
the Treasury Department, the Secretary or his delegate shall prescribe 
all needful rules and regulations for the enforcement of this title, in-
cluding all rules and regulations as may be necessary by reason of any 
alteration of law in relation to internal revenue. 
(b) RETROACTIVITY OF REGULATIONS OR RULINGS.—The Secretary 
or his delegate may prescribe the extent, if any, to which any ruling or 
regulation, relating to the internal revenue laws, shall be applied with-
out retroactive effect. 
(c) PREPARATION AND DISTRIBUTION OF REGULATIONS, FORMS, 
STAMPS, AND OTHER MATTERS.—The Secretary or his delegate shall 
prepare and distribute all the instructions, regulations, directions, 
forms, blanks, stamps, and other matters pertaining to the assessment 
and collection of internal revenue. 
SEC. 7806. CONSTRUCTION OF TITLE. 
(a) CROSS REFERENCES.—The cross references in this title to other 
portions of the title, or other provisions of law, where the word "see" 
is used, are made only for convenience, and shall be given no legal 
effect. 
(b) ARRANGEMENT AND CLASSIFICATION.—No inference, implica-
tion, or presumption of legislative construction shall be drawn or made 
by reason of the location or grouping of any particular section or pro-
vision or portion of this title, nor shall any table of contents, table of 
cross references, or similar outline, analysis, or descriptive matter 
relating to the contents of this title be given any legal effect. 
The 
preceding sentence also applies to the sidenotes and ancillary tables 
contained in the various prints of this Act before its enactment into 
law. 
SEC. 7807. RULES IN EFFECT UPON ENACTMENT OF THIS TITLE. 
(a) INTERIM PROVISION FOR ADMINISTRATION OF TITLE.—Until reg-
ulations are promulgated under any provision of this title which de-
pends for its application upon the promulgation of regulations (or 
which is to be applied in such manner as may be prescribed by regula-
tions) all instructions, rules or regulations which are in effect im-
mediately prior to the enactment of this title shall, to the extent such 
instructions, rules, or regulations could be prescribed as regulations 
under authority of such provision, be applied as if promulgated as 
regulations under such provision. 
(b) PROVISIONS OF T H I S TITLE CORRESPONDING TO PRIOR INTERNAL 
REVENUE LAWS.— 
(1) REFERENCE TO LAW APPLICABLE TO PRIOR PERIOD.—Any pro-
vision of this title which refers to the application of any portion of 
this title to a prior period (or which depends upon the application 
to a prior period of any portion of this title) shall, when appropriate 
and consistent with the purpose of such provision, be deemed to 
refer to (or depend upon the application of) the corresponding pro-
vision of the Internal Revenue Code of 1939 or of such other internal 
revenue laws as were applicable to the prior period. 
§ 7807(b)(1) 
918 
INTERNAL REVENUE CODE OF 1954 
(2) ELECTIONS OK OTHER ACTS.—If an election or other act 
under the provisions of the Internal Kevenue Code of 1939 would, 
if this title had not been enacted, be given effect for a period subse-
quent to the date of enactment of this title, and if corresponding 
provisions are contained in this title, such election or other act 
shall be given effect under the corresponding provisions of this title. 
SEC. 7868. DEPOSITARIES FOR COLLECTIONS. 
The Secretary or his delegate is authorized to designate one or 
more depositaries in each State for the deposit and safe-keeping of 
the money collected by virtue of the internal revenue laws; and the 
receipt of the proper officer of such depositary to the proper officer or 
employee of the Treasury Department for the money deposited by 
him shall be a sufficient voucher for such Treasury officer or employee 
in the settlement of his accounts. 
SEC. 7809. DEPOSIT OF COLLECTIONS. 
(a) GENERAL RULE.—Except as provided in subsection (b), sections 
4735, 4762, 7651, 7652, and 7654, the gross amount of all taxes and rev-
enues received under the provisions of this title, and collections of what-
ever nature received or collected by authority of any internal revenue 
law, shall be paid daily into the Treasury of the United States under 
instructions of the Secretary or his delegate as internal revenue col-
lections, by the officer or employee receiving or collecting the same, 
without any abatement or deduction on account of salary, com-
pensation, fees, costs, charges, expenses, or claims of any description. 
A certificate of such payment, stating the name of the depositor and 
the specific account on which the deposit was made, signed by the 
Treasurer of the United States, designated depositary, or proper 
officer of a deposit bank, shall be transmitted to the Secretary or his 
delegate. 
(b) DEPOSIT 
FUNDS.—In accordance with instructions of the 
Secretary or his delegate, there shall be deposited with the Treasurer 
of the United States in a deposit fund account— 
(1) SUMS OFFERED IN COMPROMISE.^—Sums offered in compromise 
under the provisions of section 7122; 
(2) SUMS OFFERED FOR PURCHASE OF REAL ESTATE.—Sums offered 
for the purchase of real estate under the provisions of section 7506; 
and 
(3) SURPLUS PROCEEDS IN SALES UNDER LEVY.—Surplus proceeds 
in any sale under levy, after making allowance for the amount of 
the tax, interest, penalties, and additions thereto, and for costs 
and charges of the levy and sale. 
Upon the acceptance of such offer in compromise or offer for the 
purchase of such real estate, the amount so accepted shall be with-
drawn from such deposit fund account and deposited in the Treasury 
of the United States as internal revenue collections. Upon the rejec-
tion of any such offer, the Secretary or his delegate shall refund to the 
maker of such offer the amount thereof. 
• ! ; 
I 
• J 
i 
§ 7807(b)(2) 
CH. 80—GENERAL RULES 
919 
Subchapter B—^Effective Date and Related Provisions 
Sec. 7851. Applicability of revenue laws. 
Sec. 7852. Other applicable rules. 
SEC. 7851. APPLICABILITY OF REVENUE LAWS. 
(a) GENERAL RULES.—Except as otherwise provided in any section 
of this title— 
(1) SUBTITLE 
A.— 
(A) Chapters 1, 2, 4, and 6 of this title shall apply only with 
respect to taxable years beginning after December 31, 1953, and 
ending after the date of enactment of this title, and with respect 
to such taxable years, chapters 1 (except sections 143 and 144) 
and 2, and section 3801, of the Internal Revenue Code of 1939 
are hereby repealed. 
(B) Chapters 3 and 5 of this title shall apply with respect to 
payments and transfers occurring after December 31, 1954, and 
as to such payments and transfers sections 143 and 144 and 
chapter 7 of the Internal Revenue Code of 1939 are hereby 
repealed. 
(C) Any provision of subtitle A of this title the applicability 
of which is stated in terms of a specific date (occurring after 
December 31, 1953), or in terms of taxable years ending after a 
specific date (occurring after December 31, 1953), shall apply to 
taxable years ending after such specific date. 
Each such provi-
sion shall, in the case of a taxable year subject to the Internal 
Revenue Code of 1939, be deemed to be included in the Internal 
Revenue Code of 1939, but shall be applicable only to taxable 
years ending after such specific date. 
The provisions of the 
Internal Revenue Code of 1939 superseded by provisions of 
subtitle A of this title the applicability of which is stated in 
terms of a specific date (occurring after December 31, 1953) shall 
be deemed to be included in subtitle A of this title, but shall be 
applicable only to the period prior to the taking effect of the 
corresponding provision of subtitle A. 
(D) Effective with respect to taxable years ending after 
March 31, 1954, and subject to tax under chapter 1 of the Internal 
Revenue Code of 1939— 
(i) Sections 13 (b) (3), 26 (b) (2) (C), 26 (h) (1) (C) (in-
cluding the comma and the word "and" immediately preceding 
such section), 26 (i) (3), 108 (k), 207 (a) (1) (C), 207 (a) (3) 
(C), and the last sentence of section 362 (b) (3) of such Code 
are hereby repealed; and 
(ii) Sections 13 (b) (2), 26 (b) (2) (B), 26 (h) (1) (B), 26 
(i) (2), 207 (a) (1) (B), 207 (a) (3) (B), 421 (a) (1) (B), and 
the second sentence of section 362 (b) (3) of such Code are 
hereby amended by striking out "and before April 1, 1954" 
(and any accompanying punctuation) wherever appearing 
therein. 
§7851(a)(l)(D)(ii) 
920 . 
INTERNAL REVENUE CODE OF 19 
54 
(2) SUBTITLE 
B . — 
(A) Chapter 11 of this title shall apply with respect to estates 
of decedents dying after the date of enactment of this title, and 
with respect to such estates chapter 3 of the Internal Revenue 
Code of 1939 is hereby repealed. 
(B) Chapter 12 of this title shall apply with respect to the 
calendar year 1955 and all calendar years thereafter, and with 
respect to such years chapter 4 of the Internal Revenue Code of 
1939 is hereby repealed. 
(3) SUBTITLE C—Subtitle C of this title shall apply only with 
respect to remuneration paid after December 31, 1954, except that 
chapter 22 of such subtitle shall apply only with respect to remunera-
tion paid after December 31, 1954, which is for services performed 
after such date. 
Chapter 9 of the Internal Revenue Code of 1939 
is hereby repealed with respect to remuneration paid after December 
31, 1954, except that subchapter B of such chapter (and subchapter 
E of such chapter to the extent it relates to subchapter B) shall 
remain in force and effect with respect to remuneration paid after 
December 31, 1954, for services performed on or before such date. 
(4) SUBTITLE D.—Subtitle D of this title shall take effect on 
January 1, 1955. Subtitles B aad C of the Internal Revenue 
Code of 1939 (except chapters 7, 9, 15, 26, and 28, subchapter B of 
chapter 25, and parts VII and VIII of subchapter A of chapter 27 
of such code) are hereby repealed effective January 1, 1955. Pro-
visions having the same effect as section 6416 (b) (2) (H), and so 
much of section 4082 (c) as refers to special motor fuels, shall be 
considered to be included in the Internal Revenue Code of 1939 
effective as of May 1, 1954. Section 2450 (a) of the Internal 
Revenue Code of 1939 (as amended by the Excise Tax Reduction 
Act of 1954) applies to the period beginning on April 1, 1954, and 
ending on December 31, 1954. 
(5) SUBTITLE E.—Subtitle E shall take effect on January 1, 
1955, except that the provisions in section 5411 permitting the 
use of a brewery under regulations prescribed by the Secretary or 
his delegate for the purpose of producing and bottling soft drinks, 
section 5554, and chapter 53 shall take effect on the day after the 
date of enactment of this title. 
Subchapter B of chapter 25, and 
part VIII of subchapter A of chapter 27, of the Internal Revenue 
Code of 1939 are hereby repealed effective on the day after the 
date of enactment of this title. 
Chapters 15 and 26, and part 
VII of subchapter A of chapter 27, of the Internal Revenue Code 
of 1939 are hereby repealed effective January 1, 1955. 
(6) SUBTITLE F . — 
(A) GENERAL RULE.—The provisions of subtitle F shall take 
effect on the day after the date of enactment of this title and shall 
be applicable with respect to any tax imposed by this title. The 
provisions of subtitle F shall apply with respect to any tax im-
posed by the Internal Revenue Code of 1939 only to the extent 
provided in subparagraphs (B) and (C) of this paragraph. 
(B) ASSESSMENT, COLLECTION, AND REFUNDS.—Notwithstand-
ing the provisions of subparagraph (A), and notwithstanding any 
X 
contrary provision of subchapter A of chapter 63 (relating to 
assessment), chapter 64 (relating to collection), or chapter 65 
§ 7851 (a) (2).. 
; I 
_ 
CH. 80 
GENERAL RULES 
921 
(relating to abatements, credits, and refunds) of this title, the 
provisions of part II of subchapter A of chapter 28 and chapters 
35, 36, and 37 (except section 3777) of subtitle D of the Internal 
Revenue Code of 1939 shall remain in effect until January 1, 1955, 
and shall also be applicable to the taxes imposed by this title. 
On 
and after January 1, 1955, the provisions of subchapter A of 
chapter 63, chapter 64, and chapter 65 (except section 6405) of 
this title shall be applicable to all internal revenue taxes (whether 
imposed by this title or by the Internal Revenue Code of 1939), 
notwithstanding any contrary provision of part II of subchapter 
A of chapter 28, or of chapter 35, 36, or 37, of the Internal Revenue 
Code of 1939. 
The provisions of section 6405 (relating to reports 
of refunds and credits) shall be applicable with respect to refunds 
or credits allowed after the date of enactment of this title, and 
section 3777 of the Internal Revenue Code of 1939 is hereby 
repealed with respect to such refunds and credits. 
(C) TAXES IMPOSED UNDER THE 1939 CODE.—After the date of 
enactment of this title, the following provisions of subtitle F shall 
apply to the taxes imposed by the Internal Revenue Code of 1939, 
notwithstanding any contrary provisions of such code: 
(i) Chapter 73, relating to bonds. 
(ii) Chapter 74, relating to closing agreements and com-
promises. 
(iii) Chapter 75, relating to crimes and other offenses, but 
only insofar as it relates to offenses committed after the date 
of enactment of this title, and in the case of such offenses, 
section 6531, relating to periods of limitation on criminal 
prosecution, shall be applicable. 
The penalties (other than 
penalties which may be assessed) provided by the Internal 
Revenue Code of 1939 shall not apply to offenses, committed 
after the date of enactment of this title, to which chapter 75 
of this title is applicable. 
(iv) Chapter 76, relating to judicial proceedings. 
(v) Chapter 77, relating to miscellaneous provisions, except 
that section 7502 shall apply only if the mailing occurs after 
the date of enactment of this title, and section 7503 shall 
apply only if the last date referred to therein occurs after the 
date of enactment of this title. 
(vi) Chapter 78, relating to discovery of liability and enforce-
ment of title. 
(vii) Chapter 79, relating to definitions. 
(viii) Chapter 80, relating to application of internal revenue 
laws, effective date, and related provisions. 
(D) CHAPTER 28 AND SUBTITLE D OF 1939 CODE.—Except as 
otherwise provided in subparagraphs (B) and (C), the provisions 
of chapter 28 and of subtitle D of the Internal Revenue Code of 
1939 shall remain in effect with respect to taxes imposed by the 
Internal Revenue Code of 1939. 
(7) OTHER PROVISIONS.—If the effective date of any provision of 
the Internal Revenue Code of 1954 is not otherwise provided in 
this section or in any other section of this title, such provision shall 
take effect on the day after the date of enactment of this title. 
If 
the repeal of any provision of the Internal Revenue Code of 1939 
§ 7851(a)(7) 
49012°—54——61 
922 
INTERNAL REVENUE CODE OF 1954 
. 
is not otherwise provided by this section or by any other section of 
this title, such provision is hereby repealed effective on the day 
after the date of enactment of this title. 
(b) EFFECT OF REPEAL OF INTERNAL REVENUE CODE OF 1939.— 
(1) EXISTING RIGHTS AND LIABILITIES.—The repeal of any pro-
vision of the Internal Revenue Code of 1939 shall not affect any 
act done or any right accruing or accrued, or any suit or proceeding 
had or commenced in any civil cause, before such repeal; but all 
rights and liabihties under such code shall continue, and may be 
enforced in the same manner, as if such repeal had not been made. 
(2) EXISTING OFFICES.—The repeal of any provision of the 
Internal Revenue Code of 1939 shall not abolish, terminate, or 
otherwise change— 
(A) any internal revenue district, 
(B) any office, position, board, or committee, or 
(C) the appointment or employment of any officer or employee, 
existing immediately preceding the enactment of this title, the 
continuance of which is not manifestly inconsistent with any pro-
vision of this title, but the same shall continue unless and until 
changed by lawful authority, 
(3) EXISTING DELEGATIONS OF AUTHORITY.—Any delegation of 
authority made pursuant to the provisions of Reorganization Plan 
Numbered 26 of 1950 or Reorganization Plan Numbered 1 of 1952, 
including any redelegation of authority made pursuant to any such 
delegation of authority, and in effect under the Internal Revenue 
Code of 1939 immediately preceding the enactment of this title 
shall, notwithstanding the repeal of such code, remain in effect 
for purposes of this title, unless distinctly inconsistent or manifestly 
incompatible with the provisions of this title. 
The preceding 
sentence shall not be construed as limiting in any manner the 
power to amend, modify, or revoke any such delegation or redele-
gation of authority. 
(c) 
CRIMES AND FORFEITURES.—AU offenses committed, 
and 
all penalties or forfeitures incurred, under any provision of law 
herebjr repealed, may be prosecuted and punished in the same manner 
and with the same effect as if this title had not been enacted. 
(d) PERIODS OF LIMITATION.—All periods of limitation, whether 
applicable to civil causes and proceedings, or to the prosecution of 
offenses, or for the recovery of penalties or forfeitures, hereby repealed 
shall not be affected thereby, but all suits, proceedings, or prosecu-
tions, whether civil or criminal, for causes arising, or acts done or 
committed, prior to said repeal, may be commenced and prosecuted 
within the same time as if this title had not been enacted. 
(e) REFERENCE TO OTHER PROVISIONS.—For the purpose of apply-
ing the Internal Revenue Code of 1939 or the Internal Revenue Code 
of 1954 to any period, any reference in either such code to another 
provision of the Internal Revenue Code of 1939 or the Internal 
Revenue Code of 1954 which is not then applicable to such period 
shall be deemed a reference to the corresponding provision of the 
other code which is then applicable to such period. 
SEC. 7852. OTHER APPLICABLE RULES. 
(a) SEPARABILITY CLAUSE,—If any provision of this title, or the 
application thereof to any person or circumstances, is held invalid, 
§ 7851(a)(7) 
CH. 80—GENERAL RULES 
923 
the remainder of the title, and the appHcation of such provision to 
other persons or circumstances, shall not be affected thereby. 
(b) 
REFERENCE IN OTHER LAWS TO INTERNAL REVENUE CODE OF 
1939.—Any reference in any other law of the United States or in any 
Executive order to any provision of the Internal Revenue Code of 
1939 shall, where not otherwise distinctly expressed or manifestly 
incompatible with the intent thereof, be deemed also to refer to the 
corresponding provision of this title. 
(c) ITEMS NOT To B E TWICE INCLUDED IN INCOME OR DEDUCTED 
THEREFROM.—Except as otherwise distinctly expressed or manifestly 
intended, the same item (whether of income, deduction, credit, or 
otherwise) shall not be taken into account both in computing a tax 
under subtitle A of this title and a tax under chapter 1 or 2 of the 
Internal Revenue Code of 1939. 
(d) TREATY OBLIGATIONS.—No provision of this title shall apply in 
any case where its application would be contrary to any treaty obliga-
tion of the United States in effect on the date of enactment of this 
title. 
§ 7852(d) 
CH. 91—JOINT COMMITTEE 
925 
Subtitle G—The Joint Gommittee on 
Internal Revenue Taxation 
CHAPTER 91. Organization and membership 
of the Joint 
Com-
mittee. 
CHAPTER 92. Powers and duties of the Joint Committee. 
CHAPTER 91—ORGANIZATION AND MEMBERSHIP 
OF THE JOINT COMMITTEE 
Sec. 8001. Authorization. 
Sec. 8002. Membership. 
Sec. 8003. Election of chairman and vice chairman. 
Sec. 8004. Appointment and compensation of staff. 
Sec. 8005. Payment of expenses. 
SEC. 8001. AUTHORIZATION. 
There shall be a joint congressional committee known as the Joint 
Committee on Internal Revenue Taxation (hereinafter in this subtitle 
referred to as the "Joint Committee"). 
SEC. 8002. MEMBERSHIP. 
(a) NUMBER AND SELECTION.—The Joint Committee shall be 
composed of 10 members as follows: 
(1) FROM 
COMMITTEE ON FINANCE.—Five members who are 
members of the Committee on Finance of the Senate, three from 
the majority and two from the minority party, to be chosen by 
such Committee; and 
(2) FROM 
COMMITTEE ON WAYS AND MEANS.—Five members 
who are members of the Committee on Ways and Means of the 
House of Representatives, three from the majority and two from 
the minority party, to be chosen by such Committee. 
(b) TENURE OF OFFICE.— 
(1) GENERAL LIMITATION.—No person shall continue to serve as 
a member of the Joint Committee after he has ceased to be a mem-
ber of the Committee by which he was chosen, except that— 
(2) EXCEPTION.—The members chosen by the Committee on 
Ways and Means who have been reelected to the House of Repre-
sentatives may continue to serve as members of the Joint Committee 
notwithstanding the expiration of the Congress. 
(c) VACANCIES.—A vacancy in the Joint Committee— 
(1) EFFECT.—Shall not affect the power of the remaining mem-
bers to execute the functions of the Joint Committee; and 
(2) MANNER OF FILLING.—Shall be filled in the same manner as 
the original selection, except that— 
(A) ADJOURNMENT OR RECESS OF CONGRESS.—In case of a 
vacancy during an adjournment or recess of Congress for a period 
of more than 2 weeks, the members of the Joint Committee 
who are members of the Committee entitled to fill such vacancy 
§ 8002(c)(2)(A) 
926 
INTERNAL REVENUE CODE OF 1954 
may designate a member of such Committee to serve until his 
successor is chosen by such Committee; and 
(B) EXPIRATION OF CONGRESS.—In the case of a vacancy after 
the expiration of a Congress which would be filled by the Com-
mittee on Ways and Means, the members of such Committee who 
are continuing to serve as members of the Joint Committee may 
designate a person who, immediately prior to such expiration, 
was a member of such Committee and who is re-elected to the 
House of Representatives, to serve until his successor is chosen 
by such Committee, 
(d) ALLOWANCES.—The members shall serve without compensation 
in addition to that received for their services as members of Con-
gress; but they shall be reimbursed for travel, subsistence, and other 
necessary expenses incurred by them in the performance of the duties 
vested in the Joint Committee, other than expenses in connection with 
meetings of the Joint Committee held in the District of Columbia 
during such times as the Congress is in session. 
SEC. 8003. ELECTION OF CHAIRMAN AND VICE CHAIRMAN. 
The Joint Committee shall elect a chairman and vice chairman 
from among its members. 
SEC. 8004. APPOINTMENT AND COMPENSATION OF STAFF. 
Except as otherwise provided by law, the Joint Committee shall 
have power to appoint and fix the compensation of a clerk and such 
experts and clerical, stenographic, and other assistants as it deems 
advisable. 
SEC. 8005. PAYMENT OF EXPENSES. 
The expenses of the Joint Committee shall be paid one-half from 
the contingent fund of the Senate and one-half from the contingent 
fund of the House of Representatives, upon vouchers signed by the 
chairman or the vice chairman. 
§ 8002(c)(2)(A) 
CH. 92—JOINT COMMITTEE 
927 
CHAPTER 92—POWERS AND DUTIES OF THE JOINT 
COMMITTEE 
Sec. 8021. Powers. 
Sec. 8022. Duties. 
Sec. 8023. Additional powers to obtain data. 
SEC. 8021. POWERS. 
(a) To 
OBTAIN DATA AND INSPECT INCOME 
RETURNS.— 
For powers of the Joint Committee to obtain and inspect income 
returns, see section 6103 (d). 
(b) R E L A T I N G TO H E A R I N G S AND S E S S I O N S . — T h e Joint Committee, 
or any subcommittee thereof, is authorized— 
(1) T o HOLD.—To hold hearings and to sit and act a t such places 
and times; 
(2) T o REQUIRE ATTENDANCE OF WITNESSES AND PRODUCTION 
OF BOOKS.—To require b y subpoena (to be issued under the signa-
ture of the chairman or vice chairman) or otherwise the attendance 
of such witnesses and the production of such books, papers, and 
documents; 
(3) T o ADMINISTER OATHS.—To administer such oaths; and 
(4) T o TAKE TESTIMONY.—To take such testimony; 
as it deems advisable. 
(c) T o P R O C U R E P R I N T I N G AND B I N D I N G . — T h e Joint Committee, 
or any subcommittee thereof, is authorized to have such printing 
and binding done as it deems advisable. 
(d) T o M A K E 
E X P E N D I T U R E S . — 
(1) G E N E R A L A U T H O R I T Y . — T h e Joint Committee, or any sub-
committee thereof, is authorized to make such expenditures as it 
deems advisable. 
(2) L I M I T A T I O N . — T h e cost of stenographic services in reporting 
such hearings as the Joint Committee m a y hold shall n o t be in 
excess of 25 cents per 100 words. 
SEC. 8022. DUTIES. 
I t shall be the duty of the Joint Committee— 
(1) 
I N V E S T I G A T I O N . — 
(A) O P E R A T I O N AND EFFECTS OF L A W . — T o investigate 
the 
operation and effects of the Federal system of internal revenue 
taxes; 
(B) ADMINISTRATION.—To investigate the administration of 
such taxes by the Internal Revenue Service or any executive 
department, establishment, or agency charged with their adminis-
tration; and 
(C) O T H E R INVESTIGATIONS.—To make such other 
investi-
gations in respect of such system of taxes as the Joint Committee 
m a y deem necessary. 
§ 8022(1) (C) 
928 
INTERNAL REVENUE CODE OP 1954 
(2) SIMPLIFICATION OF LAW.— 
(A) INVESTIGATION OF METHODS.—To investigate measures 
and methods for the simplification of such taxes, particularly the 
income tax; and 
(B) PUBLICATION OF PROPOSALS.—To publish, from time to 
time, for public examination and analysis, proposed measures and 
methods for the simplification of such taxes. 
(3) KEPORTS.—To report, from time to time, to the Committee 
on Finance and the Committee on Ways and Means, and, in its 
discretion, to the Senate or the House of Kepresentatives, or both, 
the results of its investigations, together with such recommendations 
as it may deem advisable. 
. 
(4) CROSS REFERENCE.— 
-
For duties of the Joint Committee relating to refunds of income and 
estate taxes, see section 6405. 
SEC. 8023. ADDITIONAL POWERS TO OBTAIN DATA. 
(a) SECURING OF DATA.—The Joint Committee or the Chief of 
Staff of the Joint Committee, upon approval of the Chairman or 
Vice Chairman, is authorized to secure directly from the Internal 
Kevenue Service (including the Assistant General Counsel of the 
Treasury Department serving as the Chief Counsel of the Internal 
Revenue Service), or directly from any executive department, board, 
bureau, agency, independent establishment, or instrumentality of the 
Government, information, suggestions, rulings, data, estimates, and 
statistics, for the purpose of making investigations, reports, and 
studies relating to internal revenue taxation. 
(b) FURNISHING OF DATA.—The Internal Revenue Service (includ-
ing the Assistant General Counsel of the Treasury Department serv-
ing as the Chief Counsel of the Internal Revenue Service), executive 
departments, boards, bureaus, agencies, independent establishments, 
and instrumentalities are authorized and directed to furnish such 
information, suggestions, rulings, data, estimates, and statistics directly 
to the Joint Committee or to the Chief of Staff of the Joint Committee, 
upon request made pursuant to this section. 
(c) Subsections (a) and (b) shall be applied in accordance with 
their provisions without regard to Reorganization Plan Numbered 
26 of 1950 or to any other reorganization plan becoming effective on, 
before, or after February 28, 1951. 
,'fM. 
- 
t.i'u I 
• i ! - » i ^ « 
l>'l . < ' 
8022(2) 
MISCELLANEOUS TITLE 
929 
MISCELLANEOUS TITLE 
SEC. 201. (a) Section 3748 (a) of the Internal Revenue Code of 1939 
(relating to periods of limitations applicable to criminal prosecutions) 
is amended by inserting after ''within three years next after the com-
mission of the offense," the following: "except that the period of 
limitation shall be five years for offenses enumerated in section 4047 (e) 
(relating to unlawful acts of revenue officers or agents) and". 
(b) The amendment made by this section shall be effective with 
respect to offenses committed on or before the date of enactment of 
this Act, if on such date prosecution therefor is not barred by pro-
visions of law in effect before such date. 
Approved August 16, 1954, 9:45 a. m., E. D. T. 
:j<v,._,jKi'-v.-M 
APPENDIX 
The following tables have been prepared as aids in comparing pro-
visions of the Internal Revenue Code of 1954 with provisions of the 
Internal Revenue Code of 1939. 
No inference, implication, or pre-
sumption of legislative construction or intent shall be drawn or made 
by reason of such tables. 
T A B L E 
I 
1939 Code 
section number 
1 
2 
3 
4 
11 
12(a) 
12(b)(1),(2). 
12(b)(3)..... 
12(c) 
12(d) 
12(e) 
12(f) 
12(g) 
13(a) 
13(b) 
13(c)-(f).... 
14 
15(a), (b).... 
15(c) 
21 
22(a) 
22(b)(1)..... 
22(b)(2)(A). 
22(b)(2)(B). 
22(b)(2)(C). 
22(b)(3)..... 
22(b)(4) 
22(b)(5)_._-. 
22(b)(6)_.... 
22(b)(7)..... 
22(b)(8)..... 
22(b)(9)..... 
22(b)(10).... 
22(b)(ll).... 
22(b)(12).... 
22(b)(13).... 
22(b)(14).__. 
22(b)(15).... 
22(b)(16).... 
22(b)(17)_._. 
22(c) 
22(d) (l)-(5). 
22(d)(6) 
22(e) 
22(f) 
1954 Code 
section number 
7806(a). 
11. 
11. 
1551. 
- -- (• 
63. 
61. 
101. 
- '• 
72. 
72, 403. 
72. 
- - • - -
102. 
103. 
104. 
107. 
894. 
115,526,892,893,911, 
912, 933, 943. 
108. 
108. 
109. 
111. 
112. 
113. 
621. 
114. 
121. 
471. 
472. 
1321, 6155(a). 
301(a). 
1001. 
1939 Code 
section number 
22(g) 
22(li) 
22(i) 
22(i) 
22 (k) 
22(1) 
22(m) 
22(n) 
22(o) 
23 
23lk)(lHA) 
23(a)(1)(B) 
23(a)(1)(C) 
23(a)(2)... 
23(b) 
23(c)(1)... 
23(c)(2)... 
23(c)(3)... 
23(d) 
23(e) 
23(f) 
23(g) 
23(h) 
23(i) 
23(j) 
23(k)(l)..., 
23(k)(2).._ 
23(k)(3)._. 
23(k)(4)_.. 
23(k)(5)-.. 
23(k)(6)__-, 
23(1) 
., 
23(m) 
23(n) 
23(o) 
23(p) 
23(q) 
23(r) 
23(s) 
23(t) 
23(u) 
23(v) 
23(w) 
23(x) 
23(y) 
1954 Code 
section number 
861, 862, 863, 864. 
Chapter 1,Subchapter 
G, Part III. 
76. 
71. 
691. 
73, 6201(c). 
62. 
75. 
161,211. 
162. 
162. 
263. 
212 
163^ 265. 
164. 
164. 
164. 
165. 
165. 
165. 
165. 
165. 
1091. 
166, 593. 
165(g)(1), 166(e), 582. 
165(g)(2). 
166. 
166. 
271, 166. 
167. 
611. 
167. 
170. 
404. 
170. 
591. 
172. 
168, 169. 
215. 
171. 
691. 
213. 
931 
932 
INTERNAL REVENUE CODE OF 1954 
TABLE I—Continued 
1939 Code 
section number 
23(z) 
23(aa)(l) 
23(aa)(2) 
23(aa)(3) 
23(aa)(4) 
23(aa)(5) 
23(aa)(6) 
23(aa)(7) 
23(bb) 
23(cc) 
23(dd) 
23(ee) 
23(ff) 
24(a) 
24(a)(1) 
24(a) 
(2),(3)-_-
24(a)(4) 
24(a)(5) 
24(a)(6) 
24(a)(7)_ 
24(b) 
24(c) 
24(d) 
24(e) 
24(f) 
25(a) 
25(b)(1) 
25(b)(2) 
25(b)(3) 
26 
26(a) 
26(b)(1) 
26(b)(2) 
26(b)(3) 
26(b) 
26(c) 
26(d) 
26(e) 
26(f) 
26(g) 
26(h) 
26(i) 
..__ 
27(a) 
27(b) 
27(c)-(i) 
28 
31 
32 
33 
34 
35 
41 
42(a) 
42(b)-(d)__._ 
43 
44 
45 
46 
47 
48 
51 
-
1954 Code 
section number 
216. 
141. 
36. 
144. 
4, 142. 
142. 
143. 
144. 
173. 
616. 
592. 
1202. 
615. 
261. 
262. 
263. 
264. 
265. 
264. 
266. 
267. 
267. 
273. 
1451. 
268. 
35. 
151. 
153. 
152. 
241. 
242. 
243. 
244. 
245. 
246. 
545, 556. 
535, 
545, 601. 
561, 
562, 
564. 
565. 
247. 
922. 
561. 
535, 562. 
562, 564. 
565. 
33. 
32. 
6401. 
31. 
441, 446. 
451. 
454. 
461. 
453, 7101. 
482. 
442. 
443, 
6011(a). 
441, 7701. 
6001, 
6011(a). 
1939 Code 
section number 
51(a).__. 
51(b)__-. 
51(c)._-. 
51(d).-. 
51(e) 
__.. 
51(f).___. 
51(g)--. 
52 
53 
54(a)-(b) 
54(c)-(e). 
54(f)..__. 
55 
56(a)ril' 
56(b)__-. 
56(c) 
56(d)-(f). 
56(g).._. 
56(h).... 
56(i) 
56(j)..... 
57 
58 
59(a)-(c)_.. 
59(d) 
60 
61 
62 
63 
64 
101(1)-(11), 
(13)-(19) 
101(12) 
101 
102(a) 
102(b), (c). 
102(d) 
102(e) 
102(f) 
103 
104(a) 
104(b) 
105 
106. 
107(a) 
107(b) 
107(c) 
107(d) 
1954 Code 
section number 
6001, 
6012(a), 
6065(b). 
6013(a), 6012(b)(1), 
6014(b). 
6012(b). 
6065(a). 
6014(a) 
and (b), 
6151(a), (b), 
6155 (a). 
6012(b), 6013(b), 
6653(a), 
6659. 
6012(a), (b),6062. 
6072, 
6081, 
6091. 
6001. 
6033(a), 
6065(b). 
6103, 
7213(a). 
6151(a). 
6152, 
6601(c)(2). 
6161(a), 
6162(a), 
6165,7101. 
6313. 
6151(b). 
6012(b), 
6015, 
6064, 
6065, 
6073(a), 
(c), 
6081(a), 
6091(b), 6103, 
6161(a). 
6153. 
6201(b), 
6315i 
6601(g). 
6015(g), 
6073(b), 
(d), 
(e); 
6091(b), 
6153(b), 
(d), (e). 
7805. 
6108. 
7701. 
501. 
521, 522. 
502. 
531, 532. 
533. 
535. 
541. 
536. 
891. 
581. . 
11. 
632. 
1347. 
1301. 
1302. 
1304(a). 
1303. 
APPENDIX—TABLE I 
TABLE I—Continued 
933 
1939 Code 
section number 
07(e) 
08 
09 
0 
1 
2(a) 
2(b)(l)_.... 
2(b)(2)_.... 
2(b)(3)._... 
2(b)(4)..... 
2(b)(5)___.. 
2(b)(6)__-.. 
2(b)(6)(D). 
2(b)(7)__... 
2(b)(8)__-.. 
2(b)(9)..... 
2(b)(10)-.. 
2(b)(ll).._. 
2(c) 
2(d) 
2(e) 
2(f) 
2 ( g ) - - . -
2 ( h ) . . . . 
2(i) 
2(j) 
2(k)__.. 
2(1) 
2(m).._. 
2(n)._-_ 
3 ( a ) . . - _ 
3(a)(1).. 
3(a)(2)-. 
3(a)(3).. 
3(a)(4).. 
3(a)(6)-. 
3(a)(6)-. 
3(a)(7).. 
3(a)(8).. 
3(a)(9).. 
3(a) UO). 
3(a) (11). 
3(a)(12). 
3(a)(13). 
3(a)(14). 
3(a) (15). 
3(a)(16). 
3(a)(17). 
3(a)(18). 
3(a)(19). 
3 (a) (20). 
3(a)(21). 
3(a)(22). 
3(a)(23). 
3(b)_-__ 
3(b)(1).. 
3(b)(2).. 
3(b)(3)_. 
3(b)(4).. 
3(c) 
3 ( d ) . . . . 
1954 Code 
section number 
1304(b). 
21. 
921. 
694. 
1001. 
1
-
0
0
2
. 
1031. 
1036. 
364, 355. 
361. 
351. 
332. 
7101. 
333. 
1081. 
373. 
371. 
355 
35li 
356, 
371, 1031. 
361, 371. 
351, 366, 361, 371, 
1031. 
1033. 
368. 
368. 
367. 
357, 371. 
371. 
1071. 
1034. 
1012. 
1013. 
1015. 
; 
1015. 
1015. 
1014. 
358, 1031. 
362. 
362. 
1033. 
1091. 
1051. 
1052. 
723, 732. 
1053. 
334. 
1062. 
1082. 
334. 
307. 
373. 
373. 
372. 
358. 
1011. 
1016. 
1016. 
1017. 
1018. 
1019. 
1020. 
1939 Code 
section number 
3 ( e ) . . . 
4 ( a ) . . _ 
4(b)(1). 
4(b)(2). 
4(b)(3). 
4(b)(4). 
6 ( a ) . . . 
5 ( b ) - . . 
5 ( c ) . . -
5(d)_._ 
5 ( e ) . . . 
5(f)__.. 
5(g)(1)-
5(g)(2). 
5(g)(3). 
5(h).._ 
6(i)__._ 
5 (]•).-.. 
5(k).._ 
6(1)__.. 
5 ( m ) . . . 
6(a) _ -
6(b).__ 
6 ( c ) . . _ 
6(d)_.-
6 ( e ) . . . 
6(f)_... 
6 ( g ) . -
6(h).__ 
6 ( i ) . . . . 
6 ( j ) - . . 
6(k).._ 
6(I)_.._ 
7(a).-_ 
7(b).._ 
7 ( c ) . . . 
7 ( d ) . . . 
7(e)(1). 
7(e)(2). 
7 ( f ) . . . . 
7(g)(1)-
7(g)(2). 
7(g)(3). 
7 ( h ) . . . 
7(i)_... 
7 ( j ) . . - . 
7 ( k ) - - . 
7(1)..._ 
7(m)-_ 
7(n) — 
7(o)_-. 
7 ( p ) . . . 
9(a), (b)_ 
9 (c), (d). 
9(e) 
9(f) 
20 
21 
22 
23 
24 
1954 Code 
section number 
1022. 
167(f). 
612. 
613(b)(3). 
613(b)(4). 
301, 316. 
301, 316. 
302, 
312, 331, 342. 
301. 
301. 
305. 
302. 
304. 
303. 
312 
302,' 346. 
301. 
312. 
312. 
911. 
892. 
-
116. 
~ 
116. 
943. 
626. 
893. 
121(a)(17). 
912. 
912. 
933. 
1221, 1222. 
1202. 
1201. 
1211. 
1212. -
1232. 
1233. 
1234. 
1238. 
1223. 
582. 
1231. 
631. 
1233. 
341. 
1236. 
1239. 
1240. 
1091. 
861. 
862. 
861, 862, 863. 
864. 
170. 
583. 
172. 
77. 
934 
INTERNAL REVENUE CODE OF 1954 
TABLE I—Continued 
1939 Code 
section number 
124A 
124B 
125 
126 
127(a), (b) 
127(c) 
(1)_. 
127(c) 
(2) 
_. 
127(c)(3)-. 
127(c)(4).. 
127(c)(5)-. 
127(d) 
127(e) 
127(f) 
128 
129 
130 
130A 
131(a) 
131(b) 
131(c) 
131(d) 
131(e) 
131(f) 
131(g)- — 
131(h) 
131 
(
i
) 
141-
142. 
143(a) 
143(b) 
143(c) 
143(d) 
143(e) 
143(f) 
143(g). 
... 
143(h) 
144-
145 
146 
147-
148 
149 
150 
151-
153(a) 
153(b) 
1954 Code 
section number 
168. 
169. 
171. 
691. 
1331. 
1332. 
1333. 
1334. 
1335. 
1336. 
1337. 
1337. 
1346. 
269. 
270. 
421. 
901. 
904. 
905, 
6155(a), 
7101. 
905. 
905. 
902. 
901(c). 
903. 
905. 
1501, 1502, 
6071, 
6081 (a), 
6091(b)(2), 
6503(a)(2). 
6012(a), (b), 
6065(a). 
1451. 
1441. 
1461, 
6011(a), 
6072(a), 
6091(b), 
6151(a). 
1462. 
1463. 
1464, 6414. 
1461. 
1443, 6151. 
1442, 
6151(a). 
7201, 
7202, 
7203, 
7343. 
443, 
6155(a), 
6601(a), 
6658, 
6851, 
7101. 
6041(b), 
(c); 6071, 
6081(a), 
6091(a). 
6042, 
6043, 
6044, 
6065(a), 6071, 
6081(a), 
6091(a). 
6045, 
6065(a), 6071, 
6081 
(a), 
6091 (a). 
6071, 6081(a), 
6091(a), 
7001(a). 
7231. 
6033(b), 6071, 
6081(a), 
6091(a). 
6034, 
6071, 
6081(b), 
6091(a). 
1939 Code 
section number 
153(c) 
153(d) 
154..1 
161 
162(a) 
162(b) 
162(c) 
162(d) 
162(e) 
162(f) 
162(g) 
163(a)(1) 
163(a)(2) 
163(b) 
163(c) 
164 
165(a) 
165(b) 
-
165(c) 
165(d) 
166 
167 
168... 
169(a)-(c) 
169(d) 
(l)-(3)-
169(d)(4) 
169(e) 
169(f) 
169(g) 
170 
171 
172 
181 
182 
183(a)',"(b)---
183(c) 
183(d) 
184 
186 
187 
188 
189 
190 
191 
201(a)(1) 
201(a)(2), (3)_. 
201(b) 
201(c)(1) 
201(c)(2) 
201(c)(3) 
201(c)(4) 
201(c)(5) 
201(c)(6) 
201(c)(7) 
201(d) 
201(e) 
201(f) 
201(g) 
202(a) 
202(b) 
202(c) 
203 
1954 Code 
section number 
6104. 
7201, 7203. 
692. 
641. 
642(c). 
651, 
652, 
661, 662. 
661. 
643, 663. 
642. 
642. 
681. 
642. 
642. 
642. 
642(a), (1). 
652, 662. 
401, 501(a). 
402. 
402. 
402. 
676. 
^ 
: 
677. 
642. 
584, 6065. 
584. 
584. 
584. 
6032, 6065(a). 
584. 
642, 584. 
682. 
642. 
701. 
702. 
702. 703. 
702. 
703(a). 
702. 
702. 
6031, 6063, 6065(a). 
706. 
702, 703. 
704. 
802. 
807. 
801. 
803(a). 
803(b). 
803(c). 
803(d). 
803(e). 
803(f). 
803(g). 
803(h). 
803(i). 
803 
(i). 
804(a). 
806. 
APPENDIX—TABLE I 
TABLE I—Continued 
935 
1939 Code 
section number 
203A 
204(a)(1) 
204(a)(2) 
204(a)(3) 
204(b)(1) 
204(b)(2) 
204(b)(3) 
204(b)(4) 
204(b)(5) 
204(b)(6) 
204(b)(7) 
204(c) 
204(d) 
204(e) 
204(f) 
205 
206 
207(a)(1), (2)_ 
207(a)(3) 
207(a)(4) 
207(a)(5) 
207(a)(6) 
207(b)(1) 
207(b)(2) 
207(b)(3) 
207(b)(4) 
207(b)(4)(A)-
(F). 
207(c) 
207(d) 
207(e) 
207(f) 
207(g) 
208 
211 
212 
213(a)"-(cy.IIi; 
213(d) 
214 
215 
216 
217 
218(a). 
219.__ 
220_._ 
221___ 
231(a). 
231(b). 
231(c). 
231(d). 
232(a). 
232(b). 
233-_. 
234.._. 
235(a). 
235(b). 
236(a). 
236(b). 
237 
238___. 
1954 Code 
section number 
805. 
831(a). 
831(b), 832. 
831(b). 
832(b)(1). 
832(a). 
832(b)(2). 
832(b)(3). 
832(b)(4), 
832(b)(5). 
832(b)(6). 
832(c). 
832(d). 
832(e). 
832(c) (12). 
841. 
842. 
821(a). 
821(b). 
821(e). 
822(e). 
821(d). 
822(a), (b). 
823(1). 
823(2). 
822(a). 
822(c). 
822(d)(1). 
822(d)(2). 
822(e). 
822(d)(3). 
871. 
872. 
873. 
142(b)(1). 
873. 
874, 6011(a),6065 (b). 
874. 
6011(a), 6012(a), 
6072(c). 
6151(a). 
875. 
876. 
877. 
881. 
882(a). 
882(b). 
883. 
882. 
882. 
882, 6065(a). 
882. 
882, 6011(a), 6012(a), 
6072(c). 
6012(a). 
6151(a). 
884(1). 
884(3). 
884(4). 
1939 Code 
section number 
251... 
252... 
261... 
262... 
263... 
265... 
271... 
272(a). 
275. 
276. 
277. 
29K 
292. 
293. 
294-
295 
296 
297 
298 
299 
311 
312 
313 
321 
322(a)"(T)"-(3): 
322(a)(4) 
322(b)(1) 
322(b)(2) 
322(b)(3) 
322(b)(4) 
322(b)(5). 
322(b)(6). 
322(c) 
___ 
322(d).__ 
322(e).._ 
322(f). 
322(g). 
331._. 
332__. 
333... 
334__. 
335... 
1964 Code 
section number 
272(b) 
272(c) 
272(d) 
272(e) 
272(f) 
272(g) 
272(h) 
272(i) 
272(j) 
272(k) 
273(a)-(i),(k).. 
273(j). 
274... 
931, 
6011(a). 
932. 
11. 
941. 
942. 
943. 
6211, 6653(c)(1). 
6212(a), 
(b)(2); 
6213(a). 
6155(a), 
6215(a). 
6155(a), 
6213(c). 
6213(d). 
6214(a). 
6212(c), 6213(b)(1). 
6214(b). 
6214(c). 
6152(c), 6601(c)(2). 
6161(b), 
6165, 
7101. 
6212(b). 
6155, 
6861, 
6863(a), 
(b), 7101. 
6404(b). 
6036, 
6155(a), 
6161(c), 
6503(b), 
6871, 
6872, 6873. 
6501. 
6501(c), 
6502(a). 
6503(a). 
6651(a), 6659. 
6156(a), 6601. 
6653(a), 
6659. 
6601, 
6651(c), 
6654(a). 
6601. 
6601. 
6601. 
6601. 
6658. 
6901. 
6903. 
6403. 
6401, 6402. 
31. 
6511. 
6511. 
6511. 
6151(c), 
6513(a), 
6611(^d). 
6511(d). 
6511(d). 
6512(a). 
6512(b). 
6151(c), 
6513(b), 
6611(d). 
6511(d). 
552. 
553. 
554. 
555, 
556. 
936 
INTERNAL REVENUE CODE OF 
1954 
TABLE I—Continued 
1939 Code 
section number 
1954 Code 
section number 
1939 Code 
section number 
1954 Code 
section number 
336Ca), 
(
b
)
i 
(c) 
336(d) 
337._ 
— 
338 
339... 
340 
361 
362 
371.__ 
-
372 
373 
391 
392.. 
393 
394(a)-(c).._-
394(d) 
394(e), ( 0 — -
395 
396 
400 
401 
402_._ 
403 
404 
421(a), 
(b).... 
421(c), 
(d)..-_ 
422(a)-. 
422(b) 
423 
-
424... 
480 
481 
482 
500 
501 
502 
603 
504(a), 
(b).... 
504(c) 
504(d) 
504(e) 
605(a)-(c) 
505(d) 
505(e) 
506(a)-(h)._.. 
506(i) 
506(3) 
507(a) 
507(b) 
508 
509 
510 
511 
650 
651 
722(g) 
800 
801 
802 
810 
556. 
557. 
551. 
6035(a). 
6035(b). 
7201, 
7203. 
851. 
852, 
855. 
1081. 
1082. 
1083. 
312. 
3. 
4. 
4. 
36. 
4. 
501, 
511. 
512. 
512. 
513. 
514. 
515. 
1401. 
1402. 
1403, 6017. 
641. 
542. 
543. 
544. 
545. 
562, 
563. 
545. 
545. 
546. 
547. 
543. 
531. 
Chapter 1, 
Subchapter 
G, 
Part 
III. 
6103, 
7213(a). 
1471. 
1471. 
6105. 
2001, 2101. 
2001(a), 
2011(a), 
2011(b). 
821(c)... 
821(d)... 
821(e).-. 
822(a)(1). 
822(a)(2). 
822(b). 
823.... 
824.... 
825.... 
826(a). 
826(b). 
826(c). 
826(d). 
827(a). 
827(b). 
827(c). 
828-._. 
840..-_. 
841._.. 
850_._. 
851.... 
860.... 
861_._ 
862_._. 
8 6 3 — 
864(a). 
864(b). 
864(c). 
2031(a). 
2033. 
2034. 
2036, 
2036, 
2037. 
2038(a)(1). 
2038(a)(2). 
2038(b). 
2040. 
2041. 
2042. 
2044. 
2043(a). 
2032. 
2031(b). 
2035. 
2051. 
2043(b), 
2053, 
2054. 
2055. 
2056. 
2012. 
2011. 
2014. 
6036, 
6091(a). 
6018, 
6065(a). 
6071, 
6075(a), 
6081(a), 
6091(b). 
6001. 
6151(a). 
6161(a)(2), 
6165, 
6503(d), 7101. 
2002. 
6314(b). 
2204. 
7404. 
2205. 
2206. 
2207. 
6324(a)(1), 
6325(a)(1). 
6324(a)(2). 
6324(a)(3). 
2202. 
2101. 
2102, 
2103, 2106. 
2104 
2105. 
6018, 
6065(a). 
6071, 
6075(a), 
6081(a). 
6091(b). 
APPENDIX 
TABLE I 
TABiiE I—Continued 
937 
1939 Code 
section number 
1954 Code 
section number 
1939 Code 
section number 
1954 Code 
section number 
865_... 
870..-.. 
871(a). 
871(b). 
871(c). 
871(d). 
871(e). 
871(f)_ 
871(g). 
871(h). 
871(i)-
872(a). 
872(b). 
872(c). 
872(d). 
872(e). 
872(f). 
872(g)... 
872(h)... 
872(i).__. 
872(j)_... 
873 
874(a)._. 
874(b)(1). 
874(b)(2). 
874(b)(3). 
875. 
876. 
890. 
891. 
892.... 
893.... 
894(a). 
894(b). 
900(a). 
900(b). 
900(c). 
900(d). 
900(e). 
901(a). 
901(b). 
901(c). 
901(d). 
910..., 
911_... 
912.... 
913.._. 
920.... 
921.... 
925.-.. 
926.... 
927__-. 
930(a). 
930(b). 
930(c). 
930(d). 
6211(a), 
6653(c)(1). 
6212(a), 
6213(a). 
6155(a), 
6215(a). 
6155(a), 
6213(c). 
6213(d). 
6214(a). 
6212(c), 
6213(b). 
6214(c). 
6161(b)(2), 
6165, 
6503(d), 7101. 
6653(b), 
6659(a). 
6155(a), 
6861(a). 
6861(b). 
6861(c). 
6861(d). 
6861(e). 
6863(a), (b)(2); 
7101. 
6155(a), 
6863(b)(1). 
6863(a), 
(b)(2). 
6155(a), 
6861(f). 
6861(g). 
6404(b). 
6501(a). 
6501(c)(l),6501(c)(3). 
6502(a). 
2016, 
6071, 6081, 
6091, 6155. 
6503(a)(1). 
6601(a), 
6601(b), 
6601(f)(1). 
6155(a), 
6601(a), 
6601(d), 
6601(f)(1). 
6601(a), 
6601(c)(3). 
6601 
(a),(c), (f). 
6651(a), 
6653(a). 
7201,7202,7203,7207, 
7269, 7343. 
6901(a), (b). 
6901(c). 
6901(f). 
6904, 
7421(b). 
6901(h). 
6903(a). 
6903(a). 
6903(b). 
6212(b). 
6511. 
6512(a). 
6512(b). 
6601(a), (b), 
6163(a). 
6163(a), 7101. 
2015. 
2203. 
931 
935 
936(a)..-. 
936(b)-.-. 
936(c)-._. 
937 
938 
939 
1000 
(a). 
_
. 
1000(b)._. 
1000(c).-. 
1000(d)--. 
1000(e)-.. 
1000(f)-.. 
1000(g)--, 
1001(a)-., 
1001(b)-. 
1001(c)-., 
1002 
1003 
1004(a)(1) 
1004(a)(2) 
1004(a)(3) 
1004(b).. 
1004(c).., 
1005 
1006 
(a). 
_ 
1006(b).. 
1007 
1008(a).. 
1008(b).. 
1008(c)-. 
1008(d)-. 
1008(e).. 
1009 
1010 
1011 
1012(a).. 
1012(b).. 
1012(c)... 
1012(d).. 
1012(e).., 
1012(f).._ 
1012(g)_. 
1012(h).. 
1012(i)..., 
1012(j)... 
1013(a).. 
1013(b)__ 
1013(c) 
... 
1013(d)_. 
1013(e). 
_. 
1013(f)... 
1013(g).., 
1013(h)... 
1013(i).... 
1013(j)... 
1014 
1015(a) 
_., 
2001, 
2101, 
2052. 
2012. 
2014. 
6018(a), 7203. 
6103. 
2201. 
2501. 
2511(a). 
2514. 
2513. 
2502(a). 
2502(c). 
2512(b). 
2503. 
2521. 
2522. 
2523. 
2522. 
2524. 
2512(a). 
6019(a), 
6065(a). 
6075(b). 
6091(b)(1). 
6001. 
2502(d), 
6151(a). 
6161(a)(1). 
6313. 
6314(a). 
6324(b), 
6325(a)(1). 
6211(a), 
6653(c)(1). 
6212(a), 
6213(a). 
6155(a), 
6215(a). 
6155(a), 
6213(c). 
6213(d). 
6214(a). 
6212(c), 
6213(b). 
6214(b). 
6214(c). 
6161(b)(1), 
6165, 
7101. 
6212(b). 
6155(a), 
6861(a). 
6861(b). 
6861(c). 
6861(d). 
6861(e). 
6863(a), 6863(b)(2), 
7101. 
6155(a), 
6863(b)(1). 
6863 
(a), 
(b)(2). 
6156(a), 
6861(f). 
6861(g). 
6404(b). 
6871. 
49012°—54 
62 
938 
INTERNAL REVENUE CODE OF 1954 
TABLE I—Continued 
1939 Code 
section number 
1015(b). 
1016. 
1017. 
1018-
1019-
1020-
1021-
1022-
1023. 
1024(a) 
1024(b) 
1025(a) 
1025(b) 
1025(c) 
1025(d) 
1025(e) 
1025(f) 
1025(g)-._-
1026(a) 
1026(b) 
1026(c) 
1027(a) 
1027(b) 
1027(c) 
1027(d) 
1028 
1029 
1030(a) 
1030(b) 
1031 
1100 
1101 
1102(a)-(g). 
1103(a)-(d). 
1104 
1105 
1106 
1110 
nil 
1112 
1113 
1114 
1114(b) 
1115(a) 
1115(b) 
1116 
1117(a)-(f)-
1117(g)---
1117(h) 
1118 
1119 
1120 
1121 
1130 
1131 
1132 
1133 
1140 
1141 
1954 Code 
section number 
6155(a), 6161(c), 
6503(b), 
6873(a). 
6501, 
6502(a). 
6503(a)(1). 
6653, 
6659(b). 
6601(a),(f)(1). 
6155(a), 
6601(a), 
(d),(f)(1). 
6601 
(a), 
(c)(3). 
6601(a), 6601(c)(1), 
6601(f)(1). 
7201, 
7203. 
7201. 
6901 
(a), 
(b). 
6901(c). 
6901(e). 
6901(f). 
6904, 
7421(b). 
6901(h). 
6901(g). 
6903(a). 
6903. 
6903(b). 
6402(a). 
6511(a),(b). 
6512(a). 
6512(b) 
7805(a). 
2502(b). 
2511(b). 
6103. 
7441. 
7442. 
7443(a)-(g). 
7444(a)-(d). 
7445. 
7446. 
7447. 
7451. 
7453. 
7454(a). 
7455. 
7456(a). 
7456(c). 
7457(a). 
7457(b). 
7458. 
7459(a)-(f). 
6155(a), 
6659, 
6673. 
7460. 
6902. 
7461. 
' 
7462. 
7471. 
7472. 
7473. 
7474 
7481. 
7482. 
1939 Code 
section number 
1142. 
1143. 
1144-
1145-
1146-
1250. 
1251-
1252-
1253-
1400 
1401(a), (b). 
1401(c) 
1401(d)(1)--
1401(d)(2)-
1401(d)(3)-
1401(d) 
(4)-
1402 
1403 
1410 
1411 
1412 
1420(a) 
1420(b) 
1420(c) 
1420(d) 
1420(e) 
1421 
1422 
1423(a) 
1423(b) 
1423(c) 
1424 
1425(a) 
1425(b) 
1426(a)-(e)-
1426(f) 
1426(g)-(l)-
1427 
1428 
1429 
1430 
1431 
1432 
1500 
1501(a), (b). 
1501(c) 
1502. 
1503-
1510. 
1511. 
1512. 
1520. 
1521. 
1522..-. 
1530(a). 
1530(b). 
1954 Code 
section number 
7483. 
7484. 
7101, 
7485(a). 
7486. 
1491. 
1492. 
1493. 
1494, 
6071, 
6081(a), 
6091(a), 
6151(a). 
3101. 
3102(a), (b). 
6205(a), 6413(a)(1). 
6413(c)(1). 
6413(c)(2). 
3502. 
6051(a). 
3111. 
6205(a), 
6413(a). 
3112. 
3501. 
6601(a),(f)(1). 
6011(a), 6071, 
6081(a), 
6091(a), 
6302(b). 
6313. 
3122. 
6205(b), 
6413(b). 
3503. 
6802(1). 
6803(a)(1). 
6803(a) (2). 
7509. 
7209. 
7208(1). 
3121(a)-(e). 
7701(a)(1). 
3121(f)-(k). 
3123. 
3124. 
7805(a), (c). 
3125. 
3201. 
3202(a), (b). 
6205(a)(1), 
6413(a)(1). 
6205(b), 
6413(b). 
3502(a). 
3211. 
3212. 
3502. 
3221. 
6205(a)(1), 
6413(a)(1). 
6205(b), 
6413(b). 
3501. 
6011(a), 
6071, 
6081(a), 
6091(a), 
6151(a). 
4M-
APPENDIX 
TABLE I 
TABI.E I—Continued 
939 
1939 
Code 
section 
number 
1530(c) 
1530(d) 
1531 
--
1532(a)-(e) 
1532(f) 
1532(g), (h)__. 
1532(i) 
1534 -_ -_ -
1535 
-
1536 
-
1537 -- ---
1538 
1600 
1601(a), (b), 
(c). 
1601(d) 
1602 
1603 -
1604(a) 
1604(b) 
1604(c) 
1605(a) 
1605(b) 
1605(c) 
1605(d) 
1605(e) 
1606 
--- _-
1607(a)-(j) 
1607(k) 
1607 
a)-(o) 
1608 
-
1609 
1610 
_-- - -
1611 
1621 
1622(a), 
(b)__. 
1622(c) 
(1)(A)._ 
1622(c)(1)(B), 
(2)-(5). 
1622(d) 
1622(e) 
1622(f)(1) 
1622(f)(2) 
1622(g)-(k)..__ 
1623 
1624 
1625(c) 
1626(a) 
1626(b) 
1626(d) 
1627 
1631 
1632 
1633(a), 
(b)._. 
1633(c) 
1634(a) 
1634(b) 
1635(a) 
1635(b) 
1954 
Code 
section 
number 
6601(a), (f)(1). 
6313. 
3503. 
3231 
(a)-(e). 
7701(a)(9). 
3231(f), (g). 
7701(a)(1). 
3232. 
7805(a), (c). 
3233. 
3301. 
3302. 
6413(d). 
3303. 
3304. 
6011(a), 6065, 
6071, 
6091 
(b)(1) 
and 
(2). 
6081(a). 
6106. 
3501. 
6601(a), (f)(1). 
6152(a)(3), (
b
)
i 
6155(a), 
6601(c)(2). 
6161(a)(1). 
6313. 
3305 
3306 
(a)-(j). 
7701(a)(1). 
3306(k)-(n). 
3307. 
7805(a). (c). 
3308. 
3401. 
3402(a), (b). 
3402(c). 
3402(d). 
3502(b). 
6414. 
6401, 
6402. 
3402(e)-(i). 
3403. 
3404, 
6011(a). 
6081(a). 
7204. 
6674. 
7205. 
6651(a). 
3504. 
6061(a)-(d). 
6081(a). 
7204. 
6659, 
6674. 
6501(a). 
6601(c)(1), (3). 
1939 Code 
section number 
1635(c) 
1635(d) 
1635(e) 
1635(f) 
1635(g) 
1636(a)(1) — 
1636(a) 
(2) 
___ 
1636(b) 
1636(c) 
1636(d) 
1636(e) 
1650 
1651 
1652 
1653 
1654 
1655 
1656(a) 
(b)(c) 
1657 
1658 
1659 
1700 
1701 
1702 
1703 
1704 
1710 
1711 
1712 
l7l5Ca) 
1715(b), 
(c). 
1715(d) 
1716(a) 
1716(b) 
1716(c) 
1717 
1718(a) 
1718(b) 
1718(c) 
1718(d) 
1719 
1720 
1721 
1722 
1723 
1800 
1801 
1802 
1804 
1805 
1807 
1808 
1809 
1954 Code 
section number 
6501(c)(2). 
6502(a). 
6501(b)(2). 
6511(a), (b)(1). 
6511(b)(2). 
6513(c). 
4001,4011,4021,4471. 
4031. 
5063(a) 
(b)(c). 
4231, 
4232, 
6011(a). 
4233. 
4234. 
4234. 
4232. 
4241. 
4243. 
4242. 
4291. 
6151(a). 
6415(b),(c),(d),6416(a). 
6011(a), 6065(a). 
6071, 
6081(a). 
6091(b)(1), (2). 
6601 
(a), (f)(1). 
7201, 7203. 
7201, 
7202. 
6659, 
6671(a), 
6672. 
6671(b), 7343. 
6302(b). 
6001. 
4301, 
4311, 
4321. 
4311, 4312, 4313, 
4314, 4315, 4381, 
4301, 
4302, 
4304, 
4321, 4322, 4323, 
4341, 4342, 4343, 
4344, 4351, 4352, 
4353, 4381. 
4371, 
4372, 4373. 
4891, 
4892, 
4894, 
4895, 4896, 
7701(a)(1). 
4451. 
4303, 
4373, 
4382. 
4383, 
4454, 4893, 
6201(a)(2), 
6801(a), (b). 
940 
INTERNAL REVENUE CODE OF 1954 
TABLE I—Continued 
1939 Code 
section number 
1815 
1816 
1817(a) 
_., 
1817(b). 
_
. 
1817(c)... 
1818(a)... 
1818(b)... 
1819 
1820 
1821(a)(1) 
1821(a)(2) 
1821(a)(3) 
1821(a)(4) 
1821(b)(3) 
1821(b)(4) 
1822 
1823 
1823(a)... 
1823(b)... 
1823(c).-. 
1830 
1831 
1832 
1835 
1836 
1837 
1838 
1850 
1851 
1852(a).-. 
1852(b)._. 
1853(a).-. 
1853(b).-. 
1853(e)... 
1854 
1855 
1856 
1857 
1858 
1859 
1900 
1901 
1902 
1902(a)(1) 
1902(a)(2) 
1902(a)(3) 
1902(b) 
_-. 
1903 
1904 
1905 
1906 
1907 
1920 
1920(b)... 
1920(c).-. 
1921 
1922 
1923 
1924 
1954 Code 
section number 
6804. 
6802(1). 
6802(2). 
6802(3), 
6803(b)(1), 7101. 
6803(b)(2). 
7271(2), (3). 
7201, 
7203. 
7201, 
7202. 
6653(e), 
6659, 
6671(a), 
6672. 
6671(b), 
7343. 
4374, 7270. 
7201. 
7208(3), 
7271(1). 
7303(1). 
7208(2). 
7208(3). 
7208(4). 
4453. 
4452, 
4455, 
7272. 
4456. 
6001. 
4286. 
4291. 
6011(a), 
6065 (a), 
6071. 
6091(b)(1), (2). 
6151(a). 
6151(a). 
6601(a), 
(f)(1). 
6415(a), 
(b), (d). 
4287. 
4881 
4883. 
4884. 
6011(a), 
6065(a), 
6071. 
6091(b)(1), (2). 
6151(a). 
6151(a). 
4885. 
4882. 
4883. 
• - ,
-
4851, 4871. 
6804. 
4861. 
4863. 
4864. 
4865. 
1939 Code 
section number' 
1925 
1926 
1927 
1928 
1929(a).-. 
1929(b). 
_. 
1929(c)-_. 
1930 
1931 
1932 
1933 
1934 
1935 
2000(a)-.. 
2000(b)... 
2000(c)(1) 
2000(c)(2) 
2000(d)... 
2000(g)(1) 
2000(g)(2) 
2000(g)(3) 
2001(a)-.. 
2002(b).-. 
2002(c)--. 
2010 
2012 
2013 
2014 
2017 
2018 
2019 
2030 
2032 
2033 
2036 
2037 
2038 
2039(a)--. 
2039(b)_-. 
2040 
2050 
2052 
2053 
2054 
2056 
2058 
2059 
2060 
2100(a)--. 
2100(b)-_. 
2100(c)(1) 
2100(c)(2) 
2100(d)_-. 
2100(e)--. 
2101 
2102 
2103(a)(1) 
2103(e)-.. 
2104(a)-. 
2110(a)... 
2110(b)--
2111(a)(1) 
1954 Code 
section number 
4853, 
7492. 
4854. 
4862. 
4872, 6001. 
7233(1), (2). 
7263(b). 
7263(a). 
4874, 
7493. 
4852, 7701(a)(1). 
4873. 
4876. 
4875. 
5701(a). 
5701(a). 
5701(b). 
5701(c). 
5701(d), (e). 
5707(a). 
5707(b). 
5707(c). 
5703(a). 
5703(d). 
5703(a). 
5702(b). 
5712. 
5711(a), (b). 
5713(a), (b). 
5721. 
5741. 
5722. 
5702(e). 
5712. 
5711(a), (b). 
5721. 
5741. 
5722. 
5711 
(a), (b). 
5722, 5741. 
5704(c). 
5702(1). 
5712. 
5711(a), (b). 
5713(a), (b). 
5741. 
5732. 
5731. 
5731. 
5723(a). 
5723(a). 
5723(d). 
5723(a). 
5723(b), (c). 
5723(a). 
5704(c). 
5723(a). 
5723(a). 
5752. 
5751(a). 
5702(c). 
5702(d). 
5723(a). 
APPENDIX—TABLE I 
TABLE I—Continued 
941 
1939 Code 
section number 
2111(a)(2). 
2111(a)(3). 
2111(b)... 
2111 
(c)_.. 
2111(d)-__ 
2111(e)(1). 
2111(e)(2). 
2111(f)__.. 
2112(a)(1). 
2112(e) 
_._ 
2113 
2130 
(a). 
_ 
_ 
2130(b). 
2130(c)__. 
2130(d)... 
2135(a)(1). 
2135(a)(2). 
2135(a)(3). 
2136(a)... 
2137 
2151 
2155 
(a) 
_.. 
2155(b). 
2156(a). 
2156(b)___ 
2156(c)... 
2160(a)... 
2160(b)... 
2160(c)... 
2160(d)._. 
2160(e)_-. 
2160(g)(1). 
2160(g)(2). 
2160(g)(3). 
2160(h)... 
2160(1)..-. 
1954 Code 
section number 
2161(a) 
2161(b) 
2161(c) 
2161(e) 
2161(f) 
2161(g) 
2161(h) 
2161(i)(l)..-
2161(i)(l).-. 
2161(l)(l)--_ 
2161(m)(l) 
2161 (m) (2) __ 
2162(a)(2)-.. 
2162(a)(3)... 
2162(a)(4)... 
2162(a)(5)... 
2162(b)(1)-. 
2170(a)(2). 
2170(a)(4). 
2170(b)---
1939 Code 
section number 
5723(a). 
5723(d). 
5723(a). 
5723(b), (c). 
5723(a). 
5723(a). 
5723(d). 
5704(a), 5723(d). 
6723(a). 
5752. 
5751 
(a) 
5723(a)I 
5762(a) 
(4)i 
5762(a)(6). 
5723(a), 
5762(a)(4), 
5762(a)(6). 
6723(a), 
5762. 
6704(d). 
5704(b). 
5704(c). 
5704(b). 
5706. 
5705(a). 
5762(a)(5). 
5762(a)(4), 
5762(a)(5). 
5763(a). 
5762(a)(2), 
5762(a)(3). 
5762(a)(3). 
6761(b). 
5762(a)(4), 
5762(a)(5). 
5762(a)(5). 
5762(a)(5). 
5762(a)(6). 
6762(a)(8). 
5762(a)(9). 
5762(a)(6). 
5763(a). 
6762(a)(9), 
5762(a) 
(10). 
5762(a)(1). 
5763(c). 
6762(a)(1). 
6762(a)(2). 
6762(a)(2). 
5762(a)(2). 
6763(b). 
6763(b). 
6763(b). 
6763(b). 
5761(a). 
6763(b). 
5762(a)(1). 
5762(a)(2). 
5762(a)(2). 
5762(a)(2). 
6762(a)(4), 
5762(a) 
(6). 
6751(a), 
5762(a)(6). 
5762(a)(6). 
5762(a)(5), 
5763(a). 
2171(a) 
_-_ 
2171(b)(1). 
2171(b)(2)-
2172(a)-_-, 
2172(b)---, 
2172(c) 
2172(d) 
_ 
— 
2172(e) 
2172(f) 
2173(a)---
2174 
2175 
2176(a)(2). 
2176(a)(3)-
2180(a) 
___ 
2180(b) 
-__ 
2180(d)-__ 
2180(e) 
___ 
2180(f)—_ 
2180(g)(1). 
2180(h) 
--_ 
2180(i)(l)-
2180(k)(l). 
2180(1) 
(1). 
2180(1) 
(2). 
2190 
2194 
2197 
(b)_-. 
2198 
2300 
2302 
2 3 0 3 — . 
2 3 0 4 — . 
2 3 0 5 — . 
2 3 0 6 — . 
2 3 0 7 — . 
2308(a)-
2308(b). 
2308(c)-
2308(d). 
2308(e). 
2308(f)-
2308(g). 
2308(h). 
2308(1). 
2308 
(j)-
2 3 0 9 — . 
2 3 1 0 — . 
2311 — 
2 3 1 2 — 
2313---
2 3 1 4 — 
2 3 2 0 — 
2321 — 
2 3 2 2 — 
2 3 2 3 — . 
2324—. 
2 3 2 5 — . 
2326(a). 
2326(b). 
1954 Code 
section number 
5763 
(a;. 
5762(a)(4). 
6762(a)(4), (a)(6). 
6762(a)(8). 
6762(a)(6). 
5762(a)(9). 
6762(a)(6). 
5762(a)(9). 
5762(a)(9). 
5762(a)(5). 
5762(a)(5). 
5763(a). 
5762(a) 
(10). 
6762(a)(8). 
5762(a)(1). 
5763(c). 
6762(a)(2). 
5762(a)(2). 
5762(a)(2). 
5763(b). 
5763(b). 
6763(b). 
5763(b). 
5761(a). 
5763(b). 
6753. 
5703(a), 5722, 
6741. 
5704(b). 
5705(a). 
4692, 
4593. 
4694, 
4596, 6001, 
7101, 
7641. 
4595, 
4597, 
6001. 
4695. 
4813. 
4591,4812. 
4593, 4816. 
7234(a). 
7266(a)(1). 
7234(b). 
7234(d)(4). 
7265(b). 
7234(d)(2). 
7234(c). 
7234(d). 
7265(c). 
7303(2) 
(3) 
(5). 
4591, 
4818. 
4826. 
4811,4813. 
4814, 
4826, 
6001, 
7101, 7641. 
4816, 
4826. 
4815, 6001. 
4817. 
7235(a), 7265(a). 
7235(b). 
942 
INTERNAL REVENUE CODE OF 1954 
TABLE I—Continued 
1939 
Code 
section 
number 
2326(c)-_ 
2327 
__ 
2350 
2351 
-
2352 
2353 
2354 
2355 
-
2356 
2357 
2358 
2359 
2360 
2361 
2362 
2400 
2401 
2402 
2403(a) 
2403(b) 
2403(c) 
2404 
2405 
2406 
2407 
2408 
2409 
2410 
2411 
2412 
2413 
-
2450 
2451(a) 
2451(b) 
2452(a) 
2452(b)._ 
2453- _ 
2454 
2465 
2456 
2470 
2471 
2472 
2473 
2474 
2475 
2477 
2478 
1954 
Code 
section 
number 
7235(c). 
4812, 4813, 
4816, 
4818, 
7235(e), 
7265(b), (c). 
4846. 
4831, 
4832, 
6201(a)(2)(A). 
4833, 
4846, 
6001, 
7101, 7641. 
4834, 
4846. 
4834, 
4846. 
4832. 
4831, 
4832. 
7236, 7266(b)-(f), 
7303(2), (4), (5). 
4835. 
4832. 
4001, 
4003. 
4011, 4012. 
4021, 
4022. 
6011(a), 
6065(a), 
6071, 
6081(a), 
6091(b)(1), (2). 
6151(a), 
6601(a), 
(f)(1). 
4051. 
4052. 
4053. 
4055, 4056. 
6416(a), (b). 
7261. 
4002, 
4003, 4012, 
4013. 
4054. 
4041. 
6011(a), 6071, 
6081(a), 
6091(b)(1), (2), 
6151(a). 
6151 
(
a
"
)
, 
6601(a), 
(f)(1). 
6416(b)(2)(D). 
6416(a). 
4055, 6416(b)(2)(A). 
4222. 
4511, 4513. 
6011(a), 
6065(a), 
6071, 
6081(a), 
6091(b)(1), (2). 
6151(a). 
6417(a). 
4513, 
6417(b), 7101. 
6601(a). 
(f)(1). 
4512. 
1939 
Code 
section 
number 
2479 
2480 
2481 
2482 
2483 
2490 
2491 
2492 
2493 
2494 
2550 
.. 
. 
2560(c) 
2561 
... 
2552 
2553 
... 
_. 
2554 
. . ... 
2555 
2555(a) 
2555(b) 
2555(c) 
2555(c)(1) 
2556 
2557(a) 
2557(b)(1) 
2567(b)(2) 
2557(b)(3) 
2567(b)(4) 
2557(b)(8) 
2568 
2669 
2560 
2561-. _. 
... 
2562 
2563__ 
_ 
2664 
.. 
___ 
2565 
2567_. 
2568 
- 
. . 
2569 
2669(b) 
2669(d) 
2569(d)(4) 
2570 
2571 
2590 
2591 
2592.._ 
2593 
_ - _ 
2694(a) 
2695 
_ 
2596 
2597 
2598 
2599 
_ 
2600_. 
2601 
2602 
2603 
2604 
2606. 
_ _ 
2660 
1954 
Code 
section 
number 
7809(a). 
7664. 
4661, 
4671, 4581. 
4661, 
4662, 4571, 
4572, 
4581, 
4582. 
4582, 
4602. 
4601. 
4701, 4771. 
6302(b). 
4702. 
4703, 
4771. 
4704, 
4723. 
4705. 
4732, 
6001. 
6065(a). 
6071. 
6065(a), 
6071. 
6081(a), 
6091(a). 
4773. 
7237(b). 
7237(a). 
7201, 
7203. 
7201, 
7202. 
6671(a), 
6672. 
6671(b), 
7343. 
4706, 
4733, 
7301(a). 
4734. 
4736. 
4774. 
4735. 
4711, 4712. 
4712. 
4713. 
7101. 
6001. 
7641. 
7238 
4714^ 
7301(a). 
4741, 4771. 
4742. 
4743, 
4771. 
4744. 
6001. 
4773. 
7237(a). 
7491. 
4745, 
7301(a). 
4756. 
4774. 
4762. 
4802. 
APPENDIX 
TABLE I 
TABLIE I—Continued 
943 
1939 Code 
section number 
1954 Code 
section number 
2651 
2651(c)(2). 
2652 
(a) 
_.. 
2653 
2653(b)._. 
2653(d) 
__. 
2654 
2655 
2656 
2656 
(a). 
_. 
2656(b)... 
2656(c). 
_. 
2656(d)... 
2656(f).... 
2656(g)... 
2656(h)._. 
2656(i).... 
2656 
(]•).... 
2656(k)__. 
2657(a)... 
2657 
(b)._. 
2657(c)-... 
2657(d)... 
2657(e) 
__. 
2657(f)_... 
2658 
2659 
2660 
2700 
2701. 
2702.... 
2703(a). 
2704_._. 
2705.... 
2706_._. 
2707(a). 
2707(b). 
2707(c). 
2707(d). 
2708..-. 
2709.... 
2710.._. 
2711.... 
2712.... 
2720___. 
2721.... 
2722.._. 
2723 
2724.._. 
2725.._. 
2726(a). 
2726(b). 
2726(c). 
2727.... 
2728-... 
2729.... 
2730(a). 
2730(b). 
2731.—. 
4801, 
4803. 
6201(a)(2)(A). 
6801(a). 
4804. 
6001, 7641. 
7101. 
4805. 
4805. 
7274. 
7206(4). 
7239(a). 
7271(1), 
7303(6)(B). 
7239(b). 
7201. 
7272. 
7267(d). 
7267(c). 
7267(a). 
7267(b). 
7303(6) 
(B). 
7303 
(6) 
(B). 
7303(6) 
(A). 
7328. 
7301(c). 
7303 
(6) 
(B). 
4803. 
4181. 
4182, 
4224, 
5831. 
6011(a), 
6065(a), 
6071, 
6081(a). 
6091(b)(1), (2). 
6151(a). 
6416(f). 
4216. 
4225, 
6416(e). 
6601(a), 
(f)(1). 
6671(a), 
6672. 
7201, 
7203. 
7201, 
7202. 
6671(b), 
7343. 
6302(b). 
6001. 
5811. 
5812. 
5813. 
5814. 
5842, 
6001(a). 
5843. 
5851. 
5852. 
5853. 
5844. 
5845. 
5861. 
5862(a). 
5862(b). 
5846. 
1939 Code 
section number 
2732 
2733 
2733 (a)... 
2734 
2734(e)... 
2800(a)... 
2800(a)(1). 
2800(a)(1)(A) 
2800(a)(1)(B) 
2800(a)(2) 
2800(a)(3).... 
2800(a)(4) 
2800(a)(5) 
2800(a)(6) 
2800(b)(2) 
2800(c) 
2800(d) 
2800(e)(1) 
2800(e)(2) 
2800(e)(3) 
2800(e)(4) 
2800(f) 
2801(b) 
2801(c)(1) 
2801(c)(2) 
2801(d) 
2801(e) 
2801(e)(1) 
2801(e)(2) 
2801(e)(3) 
2801(e)(4) 
2801(e)(5) 
2801(f) 
2802(a) 
2802(b) 
2802(c) 
2803(a) 
2803(b) 
2803(c) 
2803(d) 
2803(e) 
2803(f) 
2803(g) 
2804 
2805(a) 
2805(b) 
2806(a)(1), (2) 
2806(b)(1)__-. 
2806(c) 
2806(d) 
2806(e) 
2806(f) 
2806(g) 
2807 
2808(a) 
2809(a) 
2809(b)(1) 
2809(b)(2) 
2809(c) 
2809(d) 
1954 Code 
section number 
5847. 
5848. 
7701(a)(1). 
5821. 
6071, 
6091(a). 
6001(a)(9). 
5001(a)(1), 5005(a), 
5006(a). 
5026(a)(1), 
5007(a). 
5689. 
5001(a)(2). 
5001(a)(3), 
5007(b)(2). 
5001(a)(4), 
5007(c). 
5021(a), 
5025(b). 
5001(a)(5). 
5006(c). 
5001(b). 
5005(b). 
5004(a)(1). 
5004(a)(2). 
5004(a)(3). 
5004 
(
a
l 
(4). 
5006(d), 
5007(b)(1). 
5021(b). 
5391. 
6025(e). 
5281. 
6025. 
5272(a), 
5281(a). 
5273(a), 
5627. 
5386(b), 
6391. 
5386(a). 
5023. 
5628. 
6009(a), 5010(a). 
5010(b). 
5027(a). 
5008(b)(1)(E). 
6008(b)(3). 
5008(b)(4). 
5008(b)(2). 
5008(b)(5). 
5640. 
5642. 
5211. 
5688(a). 
5688(b). 
5634. 
5645. 
5625. 
5639. 
5646. 
5626. 
5687. 
5622. 
6212(a). 
5002(a). 
5002(b)(1). 
6002(b)(2). 
5002(c). 
5002(d). 
944 
INTERNAL REVENUE CODE OF 1954 
TABLE I—Continued 
1939 Code 
section number 
2810(a) 
2811 
2812(a) 
2813(a) 
2814(a)(1)..._ 
2814(a)(2) 
2815(a) 
2815(b)(1)(A) 
2815(b)(1)(B) 
2815(b)(1)(C) 
2815(b)(1)(D) 
2815(c) 
2815(d) 
2815(e) 
2816(a) 
2817(a) 
2817(b) 
2818(a) 
2818(b) 
2819 
2820(a) 
2821 
2822(a) 
2823(a) 
2825 
2826(a) 
2827(a) 
2828(a) 
2829(a) 
2830(a) 
2831 
2832__ 
_ 
2833(a) 
2834 
2836 
2838 
2839(a) 
2841(a) 
2841(b) 
2841(c) 
2842 
2843 
2844(a) 
2845 
2846(a) 
2847(a) 
2849 
2850(a) 
2851 
2852 
2853(a) 
2854 
2855(a) 
2856 
2857(a) 
2858 
2859 
2861(a) 
1954 Code 
section number 
5174(a), 
5601(a). 
5213(a), 
5609. 
5175(a), 
5271, 
5603. 
5282. 
5176(a), (c), 
5177(c), 
5604. 
5176(d). 
5177(a), 
5605. 
5177(b)(1). 
5177(b)(2). 
5177(b)(3). 
5177(b)(4). 
5551(a). 
5551(b)(1). 
5551(c). 
5178. 
5179(a). 
5179(b). 
5105(a). 
5602. 
5171, 
5607. 
5173(b), 
5192(b), 
5193(a). 
5682 
5173'(a), 5618. 
5173(c). 
5215. 
5196(a), 5617. 
5196(b), 5616. 
5196(c), 
5283, 
5615. 
5552. 
5196(d), 
5283. 
5116(a), 
5180(a), 
5274(a), 
5681(a). 
5172. 
5606(a). 
5216(a), 
5608(a), (b). 
5195(a), 5613. 
5192(c), 5612. 
5196(e), 5619. 
5197(a)(1)(A). 
5197(a)(1)(B). 
5620. 
5611. 
5610. 
5197(b). 
5007(e)(1). 
5007(e)(2). 
5191(a). 
5191(a), 
5650, 
5682. 
5624. 
5623. 
5649. 
5285(a). 
5629. 
5114(a), 
5285(b), 
5621. 
5114(b). 
5197(a)(2), 
5621. 
5282(b). 
1939 Code 
section number 
2862(a)-_. 
2863 
(a). 
_. 
2865 
(a)... 
2866 
2867 
2868 
2869 
2870 
2871 
2872 
2873 
2874(a)... 
2875 
2876 
2877(a)._. 
2878(a) 
__. 
2878(b)... 
2878(c). 
_. 
2878(d) 
... 
2879(a)... 
2879(b)._. 
2879 
(c)_.. 
2879(d)... 
2880(a)... 
2881(a)... 
2882(a)... 
2883 
(a)... 
2883(b).._ 
2883(c).. 
_ 
2883(d)... 
2883(e)... 
2883(f)___. 
2883 
(g)__. 
2884(a)... 
2885(a)... 
2885(b).._ 
2885(d)_.. 
2886(a). 
_. 
2887 
2888 
(a). 
_. 
2891(a)__. 
2891(b).__ 
2900 
2901(a)(1). 
2901(a)(2). 
2901(b). 
2901(c). 
2901(d). 
2903(a). 
2903(b). 
2903(c). 
2903(d). 
2903(e). 
2903(f). 
2903(g). 
2904(a). 
2905.... 
2908.-_. 
2909.... 
2910(a). 
2911.... 
1954 Code 
section number 
5282(c). 
5115(a). 
5630. 
5010(c), 
5636, 
5635. 
5637. 
5638. 
5195(b), 5614. 
5214(a), 5641. 
5241(b), 5231. 
5241(a), 5231. 
5252. 
5231, 
5246(a). 
5631. 
5192(d), 
5193(a). 
5009(c), 
5193(b). 
5193(c). 
5193(d). 
5242(a). 
5006(a). 
5232(a). 
5232(a), (c). 
5006(b). 
5245. 
5244. 
5194(a). -
-
5194(d). 
5194(c), 
5194(e)(1). 
5025(d), 
5194(f). 
5194(g). 
5194(h), 
5250(a), •-
5247(a). 
5009(b), 
5247(b). 
5648. 
5247(c). 
5012(a). 
5247(d). 
5522(a). 
5011(a). 
5006(a). 
5011(a)(1)(A). 
5011(a)(1)(B), 
5011(b). 
5011(a)(1)(B), (2). 
5011(a)(3), 
5011(a)(4). 
5243(a). 
5008(a)(1). 
5008(a)(2). 
5008(a)(3). 
5008(a)(4), 
5243(d). 
5243(c). 
5243(a), (b). 
5243(e). 
5643. 
5644. 
5243(b). 
5243(f). 
APPENDIX—TABLE 
I 
TABiiE I—Continued 
945 
1939 Code 
section number 
2912 
2913 
2914(a)_-_ 
2915(a).._ 
2916(a).. _ 
3030(a).--
3030(a)(1). 
3030(a)(2). 
3 0 3 0 ( b ) . . . 
3 0 3 1 ( a ) . . . 
3032(a). 
3033(a). 
3034(a). 
3 0 3 5 . . . 
3036___ 
3037(a) _ 
3038(a). 
3039(a). 
3040(a)-
3041(a). 
3042 (a). 
3043(a). 
3 0 4 4 . . . . 
3045_._. 
3070(a). 
3070(b). 
3072.._. 
3073(a). 
3074(a). 
3100(a). 
3101(a). 
3102.... 
3103..-. 
3104(a) _ 
3105(a). 
3106(a). 
3107__.. 
3108(a). 
3108(b). 
3108(c). 
3108(d). 
3109.... 
3110-... 
3111-... 
3112(a). 
3112(b). 
3113(a). 
3114(a). 
3114(b). 
3114(c). 
3114(d). 
3115(a). 
3116..-, 
1954 Code 
section number 
5632. 
5632. 
5633. 
5241(c). 
5194(b). 
5001(a)(9). 
5001(a)(5), (9), 
5041(a), 
5041(b), 
5042(a)(2), 5362, 
5368(b). 
6022, 5041(b)(4). 
5043(b). 
5354, 5362, 
5373(b)(1), 
5373(b)(3), 5391. 
5373(a), 5382(b)(2). 
5373(b)(1). 
5366. 
6366. 
5025(f), 5373(a),6381 
6382(a), 
(b)(1), (2) 
6383(a), 
(b)(3), 
(4) 
5392 
5362, 
5373 
(b)(4). 
5362. 
5370(a)(1). 
5361, 
5354, 5356, 
5368(a), 
(b);5369. 
6043(b), 
5368(a). 
6192(a), 6366. 
6661(a), 
(b); 
5385(b) 
5381,5382,5383,5392 
5381, 
5382, 
5384. 
6331(a). 
5331(b), (c). 
6647. 
5332. 
5333. 
5301. 
5302. 
6303. 
5306. 
6309, 6412. 
5305. 
6307. 
5308. 
5310(a). 
6310(b). 
6310(c). 
5310(d). 
5310(a). 
6502. 
6001(a)(6). 
5004(b), 5005(c). 
5007(d), 5689. 
5011(c). 
5304(a). 
5304(b). 
5304(c). 
6304(d). 
5686(a), (b). 
6686(a), (b); 7302. 
1939 Code 
section number 
3117(a). 
3118.... 
3119--.. 
3120.... 
3121(a). 
3121(c). 
3121(d). 
3122_-_ 
3123... 
3124(a). 
3126(a). 
3125(b) 
3150(a) 
3150(b)(1) 
3150(b)(2) 
3150(b)(3) 
3150(c) 
3153(b) 
3153(c) 
3155(a) 
3156(b) 
3155(c) 
3155(f) 
3157(a) 
3158 
3159(a)-(c).... 
3159(e) 
3159(f) 
3169(g) 
3159(h) 
3159(i) 
3159 
(
j
) 
3160 
3171(a) 
3172(a) 
3173(a) 
3173(b) 
(l)-(3) 
3173(b)(4) 
3173(c) 
3173(d) 
3174 
3175 
3176(a) 
3177(a) 
3177(b) 
3177(c) 
3177(d)(1) 
3177(d)(2) 
3178 
3179(a) 
3179(b) 
.3182(a) 
3182(b) 
3183(a) 
3183(b) 
3183(c) 
3206 
3207 
3208 
3210 
1954 Code 
section number 
5314. 
6688(d). 
5315. 
6316. 
6313(a). 
6313(b). 
6317(b). 
5317(a). 
5318. 
5319. 
6001(a)(8), 5007(d), 
5311. 
5310(b). 
5051(a). 
5054. 
5065. 
6689. 
5051(b). 
6053(a), 
5401(b). 
5053(b). 
6401(a). 
6401(b). 
5415(a). 
5412, 
6413, 
6675. 
5056. 
5402(a), 5411. 
6671, 5672, 5673, 
6674. 
6676(1). 
5676(2). 
5676(3). 
6676(4). 
6676(6). 
6674. 
6062(b). 
5367, 5565(a). 
6061(b). 
5683. 
5684. 
5690. 
5685. 
5688(c). 
5064. 
5557. 
6566. 
5621(a). 
6621(c)(1), (2). 
5621(b). 
5521(d)(1). 
5521(d)(2). 
5523. 
5062(a). 
5062(b). 
6511. 
5001(a)(7). 
6217(a). 
5217(b). 
5217(c). 
4821. 
7235(d), 
7264. 
4822, 
4826. 
4841. 
946 
INTERNAL REVENUE CODE OF 195 
4 
TABUB I—Continued 
1939 Code 
section number 
3211 
3212 
3220 
3221 
3222 
3223 
3224 
3225 
3226 
3227 
3228 
3230 
3231 
3232 
3233 
3234 
3235 
3236 
3237 
3238 
3239 
3250(a)(1) 
3250(a)(3) 
3250(a)(4) 
3250(b)(1) 
3250(b)(2) 
3250(b)(4) 
3250(c)(1) 
3250(d)(1) 
3250(d)(2) 
3250(d)(3) 
3250(e)(1) 
3250(e)(2) 
3250(e)(3) 
3250(e)(4) 
3250(f)(1). 
3250(g)... 
3250(h) 
... 
3250(i)_... 
3250(j)(l). 
3250 
(j) 
(3). 
3250(1) 
(1). 
3250(1) 
(2), 
3250(1) 
(3). 
3250(1) 
(4). 
3250(1) 
(5) 
3251(a).. 
3251(b).., 
3251(c)... 
3252(a).. 
3252(b).. 
3252 
(c)._. 
3252(d)_. 
3253 
3254(b)__ 
3254(c)(1) 
3254(c)(2) 
3254(d).. 
1954 Code 
section number 
7266(a). 
4842. 
4721, 
6001, 6151(a). 
4722. 
4772. 
4724. 
7237(a). 
4775. 
4725. 
4731,7343, 
7701(a). 
4751, 4752, 6151(a). 
4753. 
4772. 
4754, 6001, 
6065(a), 6071, 
6081(a), 6091(a). 
4755. 
7237(a). 
4775. 
4766. 
4761, 7701(a). 
5111(a)(1), 
5121(b)(1). 
5111(a)(2). 
5113(a), 
6121(a)(1). 
6122(c). 
5121(a)(2). 
5091. 
6111(b)(1). 
6111(b)(2). 
5091, 5113(b). 
6121(b)(1). 
6121(b)(2). 
6121(c). 
5123(a). 
6081. 
5113(c). 
6026(g). 
6025(h). 
5101. 
6106. 
5131(a). 
5131(b). 
5132. 
6133. 
5134. 
5113(d)(1). 
5113(d)(2). 
6123(c). 
6124(a). 
6124(b). 
6124(c). 
5692. 
5691, 7301(a). 
5112(a). 
5122(a). 
5111. 
5052(a), 5092, 
6402(a). 
1939 Code 
section number 
3254(e)-_ 
3254(f)._. 
3254(g).. 
3254(h)_. 
3256(a)_._ 
3255 
(b)__ 
3255(c).-. 
3260 
3261 
(a)-_ 
3261(b)_. 
3262 
3263(a).. 
3263(b)_. 
3267 
3268 
3270(a) 
_. 
3271 
3271(a)-. 
3271(b)._ 
3271(c)(1) 
3272 
(a). 
_ 
3273 
(a). 
_ 
3273(b)-. 
3274 
3276 
3276 
3277 
3278 
3279 
3280(a)._ 
3281 
3282 
3283 
3285 
3286 
3287 
3290 
3291 
3292 
3293 
3294 
3297 
3298 
3300(a).. 
3300(b)__ 
3300(c) 
_. 
3301(a).. 
3301(b).. 
3303 
3304 
(a) 
_ 
_ 
3304(b)_. 
3804(c).. 
3804(d)._ 
3304(e)-_ 
3305 
3310 
1954 Code 
section number 
5112(b). 
5122(b). 
5025(c), 6082, 
5387(c). 
5102. 
6123 (b) (1). 
5123 (b) (2). 
5123 (b) (3). 
5801(a). 
5802. 
5841. 
5803. 
5854(a). 
5854(a), (b). 
4461, 4463, 4462. 
4472, 4473, 4471. 
5141, 7011(a). 
4901. 
5142(a). 
5142(b), 6151(a). 
6104, 5142(c). 
5143(a), 
6011(a). 
6065(a), 
6071, 
6081(a), 6091(b), 
6151(a). 
5145, 6801(a). 
5146, 6806(a). 
5693, 7273(a). 
6147, 
6107. 
4906, 5148. 
4902, 5144(a). 
4903, 5144(c). 
4904, 5144(b). 
4905, 5144, 
7011(b). 
6302(b). 
6149, 6302(b). 
4907, 
5144(e) 
4401, 
4404, 
4421, 
6419. 
4403. 
4411. 
4412, 
6091 
(b). 
4413, 4903, 4907, 
6107. 
6806(c). 
7262, 7273(b). 
4422. 
4423. 
6801(a). 
7208. 
6801(b), 6804. 
6805(a). 
6805(b). 
6805(c). 
6806(d). 
4402, 
6331(a). 
APPENDIX—TABLE I 
TABLE I—Continued 
947 
1939 Code 
section number 
3310(a). 
3310(b). 
3310(c). 
3310(d). 
3310(e) 
_.. 
3310(f)(1). 
3310(f)(2). 
3311 
3312(a). 
3312(b). 
3312(c). 
3312(d). 
3313-_.. 
3314 
3320(a)__. 
3320(b)___ 
3321 
3321(b)-_. 
3321(c)-.-
3322 
3323(a)(1)-
3323(a)(2). 
3323(a)(3). 
3323(b)--_ 
3324(a)---
3324(b).--
3324 
(c)_.. 
3325 
3326 
3330 
3331 
3332-3335. 
3350(a)... 
3350(b).__ 
3351(a).--
3351(b)-.. 
3351(c)... 
3360(a)... 
3360(b)..-
1954 Code 
section number 
3360(c) 
3361(a) 
3361(b) 
3361(c) 
3400(a), 
(c).._. 
3400(b) 
3401 
3403 
3403(e) 
3404 
3405 
3406(a)(1). 
6011(a), 6071, 
6601(c)(4), 6659. 
6011(a), 
6601(c)(4), 
6659. 
6601(a), 
6601(f)(1), 
6659. 
6155(a), 
6601(f)(1), 
6659. 
6659. 
5703(c), 
6011(a), 
6071, 
6081(a). 
6302(c). 
6155(a), 
6201(a)(2)(A), 
6601(c)(4), 6659. 
6501(a). 
6501(c)(1), 
6501(c)(3). 
6501(c)(2). 
6502(a). 
5705(a), 6511(a), 
6511(b)(1), 
(2). 
7268. 
7206(4). 
7301. 
7301(d). 
7271(4). 
7271(4). 
7208(5). 
7303(7). 
7341(a). 
7341(b). 
7341(c). 
7211. 
7304. 
6065(a). 
5704(b), 7510. 
7652(b)(1). 
7652(b)(2). 
7653(a)(2). 
7653(b). 
7653(c). 
7652(a)(1). 
7101, 7652(a)(2), 
7803(c). 
7652(a)(3). 
7653(a)(1). 
7653(b). 
7653(c). 
4071, 
4072, 
4073. 
4061, 
4062, 
4063. 
6416(c). 
4141, 4142, 
4143, 
4151, 4152. 
4111, 
4112, 4113. 
4161. 
1939 Code 
section number 
3406(a)(2) 
3406(a)(3) 
3406(a)(4) 
3406(a)(5) 
3406(a)(6) 
3406(a)(7) 
3406(a)(8) 
3406(a)(9) 
3406(a) (10) — . 
3406(b) 
3406(c) 
3407 
3408 
3408(b) 
3409(a) 
3409(b) 
3412(a)-(f)-_-. 
3412(g). 
3 4 1 3 - . 
3414-
3415. 
3420-
3422_._ 
3423--
3424—. 
3 4 2 5 — 
3 4 3 0 — 
3 4 3 1 — 
3440.— 
3441... 
3442... 
3443-. 
3444-... 
3445... 
3446... 
3 4 4 7 — 
3448(a). 
3448 
(b). 
3449. 
3450. 
3451. 
3453. 
3460. 
3461. 
3462. 
3465. 
3466. 
3467. 
1954 Code 
section number 
3468. 
4121. 
4171, 
4172, 
4173. 
4191, 
4192. 
4131. 
4221. 
4181,4182,4224,5831. 
4201, 4221. 
6416(d). 
4211. 
4081, 
4082, 4083, 
4101, 4102, 7101, 
7232. 
6412(b). 
4091, 
4092, 
4093, 
7101. 
4521, 4531, 4541, 
4551. 
4521. 
4531, 
4532. 
4551, 
4552, 
4553. 
4541, 
4542. 
4601. 
4217. 
4216. 
4220, 
4224. 
6416, 6611. 
4218. 
4219. 
4223. 
6011(a), 
6065(a), 
6071, 
6081(a), 
6091(b), 
6151(a). 
6151(a), 6601(a), 
(
f
) 
(1). 
4222. 
4281, 
4282, 
4283. 
6011(a), 
6065(a), 
6071, 6081, 
6091(b), 
6151(a). 
4253, 
4251, 
4252, 
4254. 
4292. 
4253. 
4291, 
6011(a), 
6065(a), 6071, 
6081(a), 
6091(b), 
6151(a), 
6161(a). 
948 
INTERNAL REVENUE CODE OF 1954 
TABLE I—Continued 
1939 Code 
section number 
3469(a), 
(b), 
(c) 
3469(d) 
3469(e) 
3469(f) 
3470 
3471 
3472 
3473 
3474 
3475(a) 
3475(b) 
3475(c) 
3475(d) 
3475(e) 
3480 
3481 
3482 
3483 
3490 
3491 
3492 
3493(a) 
3493(b) 
3494(a) 
3494(b) 
3495 
3496 
3497 
3498 
3500 
3501 
3506 
3507 
3508 
3600 
3601(a)(1) 
3601(a)(2) 
3601(b) 
3601(c) 
3602 
3603 
3604(a) 
3604(b) 
3604(c) 
3611(a)(1) 
3611(a)(2) 
3611(b) 
3611(c) 
3612(a) 
1954 Code 
section number 
4261, 
4262. 
4291, 
6011(a), 
6065(a), 6071, 
6091(b), 
6151(a). 
6081(a), 
6161(a). 
4262, 
4292. 
6151(a), 6601(a), (f). 
6415, 
6416(f). 
4271, 
4272. 
4272, 
4292. 
4271, 
4291, 
6011(a), 
6065(a), 6071, 
6091(b), 
6151(a). 
6081(a), 
6161(a). 
4273, 
7272. 
4331, 4361. 
4331, 4332, 4341, 
4342, 4343, 4344, 
4351, 
4352, 
4353. 
4361, 
4362. 
4382. 
4501, 
4503. 
4501, 
6011(a), 6071, 
6091(b), 
6151(a). 
4502. 
6418(b). 
6511(e)(2). 
6418(a). 
6511(e)(1). 
6601(a), 
6601(f). 
4501. 
4504. 
7240. 
4502, 
7701(a). 
4501, 
6412(c). 
7601(a). 
7606(a). 
7606(b). 
7342. 
7212(a), (b). 
6001. 
6046(a), 6071, 
6091(a). 
6046(b), 
6046(c), 
6065(a). 
7203, 
7201. 
6011(a), 
6081(a), 
6091(a), 
6091(b)(1), 
6091(b)(2). 
6020(a). 
6071. 
6065(a), 6071, 
6091(a), 
6091(b)(1), 
6091(b)(2). 
6020(b). 
1939 Code 
section number 
3612(c) 
3612(d)(l)___ 
3612(d) 
(2)... 
3612(e) 
3612(f) 
3613 
3614 
3615 
3615(a) 
3615(b) 
3615(c) 
3615(d) 
3615(e) 
3616(a) 
3616(b) 
3616(c) 
3617 
3630 
3631 
3632(a) 
3632(a)(1) 
— . 
3632(b) 
3633 
3633(a) 
3633(b) 
3634 
3640 
3641 
3642 
3643 
3644 
3645 
3646 
3647 
3650 
3651(a)(1)—. 
3651(a)(2)__.. 
3651(b) 
3652 
3653(a) 
3653(b) 
3654 
3655(a) 
3655(b) 
3656(a)(1) 
— , 
3656(a)(2)(A) 
3656(a)(2)(B) 
3656(b)(1) — 
3656(b)(2)_.. 
3657 
3658 
3659(a) 
3659(b) 
3660 
3660(a) 
3660(b) 
3661 
3662 
3663 
3670 
3671 
1954 Code 
section number 
6020(b). 
6651(a). 
6653(b). 
6201(a)(1). 
6021. 
7602, 
7605(a). 
7605(a). 
7602. 
7602. 
7602. 
7603. 
7604(b). - 
- 
-
7207. 
7210. 
6101. 
7605(b). 
7622(a). 
7602. 
7622(b). 
7402(b). 
7604(a). 
6081(a). 
6201(a). 
6203. 
6204. 
6202. 
6201(a). 
7621. 
6301. 
6302(a). 
7421(a). 
7421(b). 
6303(a), 
6659 
6601(a), 
6601(f)(1), 
6659. 
6311(a). 
6311(b)(1). 
6311(b)(2). 
6311(a). 
6311(b)(1). 
6312(a). 
6313. 
6314(a). 
6331(a). 
6155(a), 
6862. 
6863(a), 7101. 
7501. 
6321. 
6322. 
APPENDIX—TABLE I 
TABLE I—Continued 
949 
1939 Code 
section number 
3672 
3672 
(a). 
_
-
. 
3672(b)-.., 
3673(a)..., 
3673(b).--
3674(a)... 
3674(b)..-. 
3675 
3676 
3677 
3678 
3679(a)..-
3679(b)..-
3679(c)-_. 
3679(d).._ 
3680 
3690 
3691 
3692 
3693 
3693 
(a)--_ 
3693(b).._ 
3693(c)-.. 
3693(d)... 
3694 
3695(a).--
3695(b).--
3695 
(c)__-
3696 
3697 
(a) 
_.-
3697(b)---
3697(c)... 
3697(d).-. 
3698 
3700 
3701 
3701(a)... 
3701(b)... 
3701(c)... 
3701(d).--
3701 (e). 
- 
. 
3701 
(f)_.. 
3702 
(a)... 
3702(b)(1). 
3702(b)(2). 
3702 
(c)_.. 
3703(a) 
_-. 
3703(b)..-
3704(a)--. 
3704(b)-.. 
3704(c)(1). 
3704(c)(2). 
3705 
3706(a)--. 
3706(b)... 
3706(c)-(e) 
3706(f).— 
3707 
3710(a)-_. 
1954 Code 
section number 
7207. 
6323(a). 
6323(d). 
6325(a)(1). 
6325(a)(2). 
6325(b)(1). 
6325(b)(2). 
6325(c). 
7102. 
7403. 
7424(a). 
7424(b). 
7424(c). 
6331(a), (b), 
6334. 
6331(a), 
6331(b), 
6334(c). 
6335(e)(2)(E). 
6335(a). 
6335(b). 
6335(d). 
6335(e)(2)(F); 
6342(a). 
6335(e)(1), 
6335(e)(2)(A). 
6335(e)(2), 
7505(a). 
7505(b). 
6337(a). 
6339(a)(1). 
6339(a)(2). 
6339(a)(3). 
6339(a)(4). 
6331(a), 
6331(b). 
6335(e)(2)(E). 
6335(a). 
6335(b). 
6335(d). 
6335(e)(1), 
(2) 
(A), 
(B). 
6335(e)(1). 
6335(e)(2)(D), (T); 
6335(e)(3). 
6337(a). 
6337(b)(1). 
6337(b)(2). 
6337(c). 
6338(c). 
6338(a). 
6338(c). 
6338(b). 
6339(b)(1). 
6339(b) 
(2). 
6340(a). 
6340(a). 
6340(b). 
6332(a). 
1939 Code 
section number 
3710(b)... 
3710(c) 
3711 
3712 
3713 
3714 
Ca) 
3714(b)-._ 
3715 
3716 
3717 
3720(a)(1). 
3720(a)(2). 
3720(a)(3). 
3720(b).-. 
3720(c)..-
3721 
3722 
3722(a)--. 
3722(b)-_. 
3722(c)---
3722(d)... 
3723(a)... 
3723(b)- 
— 
3723(c).--
3723(d)..-
3724 
3725 
3726 
3727 
3740 
3742 
3743 
3745 
3746(a)..-
3746(b)-.-
3746(c).-. 
3746(d)-.. 
3747 
3748 
3760 
3761 
3762 
3770(a)(1). 
3770(a) 
(2) 
_ 
3770(a)(3). 
3770 
(a)(4) 
_ 
3770(a)(5)-
3770(b)---
3770(b)(1). 
3770(b)(2). 
3770(c)... 
3771(a)-.-
3771(b)(1). 
3771(b)(2). 
3771 
(c) 
_ 
. 
-
3771(d)... 
3771(e)... 
3771(f), 
(g) 
3772(a)(1)-
3772 
(a)(2) 
_ 
3772(a)(3)-
1954 Code 
section number 
6332(b). 
6332(c), 
7343. 
6333. 
6335(c), 
6342(b). 
6502(b). 
6331(e). 
6341. 
7301(a). 
7301(b). 
7301(c). 
7321. 
7322. 
7324. 
7324(1). 
7324(2). 
7324(3). 
7324(4). 
7323(a). 
7323(b). 
7323(c). 
7101, 
7325. 
6807. 
7327. 
7401. 
7405(a). 
6532(b), 
7405(b). 
6602 
7406. 
6531. 
7121. 
7122. 
7206(5). 
6402(a), 
6404(a). 
6401(a). 
6407. 
6402(a). 
6402(a). 
6404(a). 
7423. 
7423(1). 
7423(2). 
6401(c). 
6611(a). 
6611(b)(1). 
6611(b)(2), 
6611(e). 
6611(c). 
6611(f). 
7422(a). 
6532(a)(1). 
6532(a)(4). 
950 
INTERNAL REVENUE CODE OF 
1954 
TABLE I—Continued 
1939 Code 
section number 
3772(b) 
3772(c) 
3772(d) 
3772(e) 
3773 
3774 
3774(b) 
3775 
--. 
3777(a) 
3777(b) 
_. 
3777(c) 
3778 
3779(a) 
3779(b) 
3779(c) 
3779(d) 
3779(e) 
3779(f) 
— 
3779(g) 
3779(h) 
3779(i) 
— 
3780(a) 
3780(b) 
3780(c) 
3781 
3790 
3791(a) 
3791(b) 
-. 
3792 
— . 
3793 
3793(a)(2) 
3793(b) 
3793(b)(2) 
3794 
3795(a) 
3795(b) 
3795(c) 
3795(d) 
3797(a) 
(l)-(ll) 
3797(a)(12)... 
3797(a)(13).._ 
3797(a)(14)-
(20). 
3797(b)_ 
, 
3797(c) 
3798 
3799 
3800 
3801 
3802__ 
3803 
3893_. 
3893 
3804(a) 
3804(b), 
(c).__ 
1954 Code 
section number 
7422(b). 
7422(c). 
7422(d). 
6514(a). 
6532(a)(2). 
6514(b). 
6405(a). 
6405(b). 
6405(c). 
6091(a). 
6164(a). 
6065(a), 6071. 
6081(a), 6164(b). 
6164(c). 
6164(d). 
6164(e). 
6164(f). 
6164(g). 
6155(a), 6164(h). 
6601(a), 6601(e), 
6601(f)(1). 
6065(a), (b);6071, 
6091(a), 6411(a). 
6411(b). 
6213(b)(2). 
6164(i), 6411(c). 
6406, 
6611(g). 
6071, 
6081(a), 
6091(a), 
6091(b)(1), (2); 
7805(a). 
7805(b). 
7623. 
7206(3). 
7303(8), 
7206(2), 7207. 
7343. 
6601(a) 
7506(a). 
7506(b). 
7506(c). 
7506(d). 
7701(a) 
(l)-(ll). 
7701(a)(13). 
1465, 
7701(a) 
(14)-
(20). 
7701(b). 
7701(c). 
7507. 
77. 
7402(a). 
1311-1314. 
7511. 
7852(a). 
7508(a). 
1939 Code 
section number 
3804(d)... 
3804(e)... 
3804(f).... 
3805 
3806 
3808 
3809(a)... 
3809(b).-. 
3809(c)... 
3810 
3811 
3812 
3813 
3814 
3900 
3901(a)... 
3901(b)._. 
3905 
3906 
3910 
3911 
3915 
3916 
3920 
3921 
3930 
(a)... 
3930(b)---
3931 
3932 
3940 
3941 
3942 
3943 
3944 
3950 
3951 
3952 
3953 
3954 
3955 
3960 
3961 
3962 
3963 
3964 
3965 
3966 
3967 
3970 
3971(a).-. 
3971(b)-.. 
3971(b)(1) 
3971(b)(2) 
3971(b)(3) 
3975 
3976 
3977 
3978 
3990 
3991 
3992 
1954 Code 
section number 
7508(b). 
7508(a). 
6072(e). 
1481. 
7206(1). 
6061, 
6064. 
6065(a). 
7651. 
6521. 
503. 
504. 
7802. 
6801(a), 
7805(c). 
7803(b)(2). 
7803(a). 
7803(a). 
7801(b). 
7801(b). 
7801(c). 
7803(c), 
7101. 
7808. 
7809(a). 
7809(b). 
7809(b)(1). 
7809(b)(2). 
7809(b)(3). 
7803(d). 
7803(d). 
7803(d). 
7803(d). 
7101, 
7402(d), 
7803(c). 
APPENDIX—TABLE I 
TABLE I—Continued 
951 
1939 Code 
section number 
3993 
3994 -
3995(c) 
-
3996__-
3997 
4000 
4001 
- 
- -
4002 
__ __ 
4003 - -_ --_ 
4010 ---
4011 
4012_ 
4013(a) 
4013(b)-(d)___ 
4014__ 
_- __ 
4015 
4016-_-
4017 
--
4018 
4019 
-
4020 
4021__-
4022 
4030 
-
1954 Code 
section number 
7402(d). 
7803(a). 
7101, 7803(c). 
5241. 
1939 Code 
section number 
4031 
4032 
4033 
4040 
4041(a) 
4041(b) 
4042 
4043 
4044 _ _-- . 
4045 .-
4046 
4047(a)(1) 
4047(b) 
4047(c), (d).__ 
4047(e) 
4048 
5000 
5001 
5002 
5003 
5004 
__ . 
5010 
5011 
5012 
1954 Code 
section number 
7803(b)(1). 
7803(a). 
7402(c). 
7213(b). 
7214(b). 
7214(a). 
7344. 
8001. 
8002. 
8003. 
8004. 
8005. 
8021. 
8022. 
8023. 
952 
INTERNAL REVENUE CODE OF 1954 
TABLE 
II 
1954 Code 
section 
number 
1--
2.. 
3.. 
4._ 
5._ 
11_ 
12. 
21. 
31_ 
32. 
33. 
34. 
35. 
36. 
37. 
38. 
61_ 
62. 
63.. 
71-
72. 
73_. 
74.. 
75.. 
76.. 
77-. 
101 
102 
103 
104 
105 
106 
107 
108 
109 
110 
111 
112 
113 
114 
115 
116 
117 
118 
119 
120 
121. 
141. 
142 
143 
144 
145 
151 
152 
1939 Code 
section number 
11, 12(b)(3), (c),(f). 
12(d). 
400. 
23(aa)(4),401, 402, 404. 
13, 15, 104(b), 261. 
108. 
35, 322(a)(4). 
32. 
31. 
25. 
. . . 
23(aa)(2). 
-
22(a). 
22 (n). 
21. 
22 (k). 
22(b)(2). 
22 (m). 
22 (o). 
22 (j), 3799. 
123 
22(b)(1). 
22(b)(3). 
22(b)(4). 
22(b)(5). 
22(b)(6). 
22(b)(9), (10). 
22(b)(ll). 
22(b) (12). 
22(b) (13). 
22(b) (14). 
22(b) (16). 
22(b)(8), 116(d), (e). 
22(b) (17), 116(i). 
23(aa)(l). 
23(aa)(4), (5), 213(d). 
23(aa)(6). 
23(aa)(3), (7). 
25(b)(1). 
25(b)(3). 
1954 Code 
section 
number 
153_. 
1 5 4 -
161_. 
162.. 
163.-
1 6 4 -
165.. 
166.. 
167-. 
168-. 
1 6 9 -
1 7 0 -
171_. 
172.. 
173.. 
174-. 
175.. 
2 1 1 . . 
212.. 
2 1 3 . . 
214.. 
2 1 5 . . 
216.. 
217.. 
2 4 1 -
2 4 2 -
2 4 3 -
2 4 4 -
245__ 
246._ 
247.. 
248._ 
2 6 1 . . 
2 6 2 -
2 6 3 -
264.. 
265-. 
2 6 6 -
2 6 7 -
2 6 8 -
2 6 9 -
2 7 0 . . 
2 7 1 . . 
272.. 
2 7 3 -
3 0 1 -
3 0 2 -
3 0 3 -
3 0 4 -
305--
3 0 6 -
3 0 7 . . 
1939 Code 
section number 
25(b)(2). 
23 
• — 
. 
23(a)(1). ' 
23(b). 
23(c), (d). 
23(e), (f), (g)(1), (2), (3), 
(4), (h), (i), (k)(2), 
23 (k). 
23(1), 23(n), 114(a). 
23 (t), 124 
A. 
23 (t), 124B. 
23 (o), (q), 120. 
23(v), 125. 
23(s), 122, 
- 
-; 
23(bb). 
23 
23(a)(2). 
23(x). 
23(u). 
23(z). 
26. 
26(a). 
26(b)(1). 
26(b)(2). 
. 
26(b)(3). 
26(b). 
26(h). 
24(a). 
24(a)(1). 
23(a)(1)(C), 24(a) (2), (3). 
24(a)(4), (6). 
23(b), 24(a)(5). 
24(a)(7). 
24(b), (c). 
24(f). 
129. 
130. 
23(k)(6). 
24(d). 
22(e), 115(a), (b), (d), (e), 
(i). 
115(c), (g)(1), (i). 
115(g)(3). 
115(g)(2). 
115(f). 
113(a) (19). 
APPENDIX—TABLE II 
TABLE II—Continued 
953 
1954 Code 
section 
number 
311 
312 
316 
317 
318 
331 
332 
333 
334 
336 
337 
338 
341 
342 
346 
351 
354 
355 
356 
357 
358 
361 
362 
363 
367 
368 
371 
372 
373 
381 
382 
391 
392 
393 
394 
395 
401 
402 
403 
404 
421 
441 
442 
443 
446 
451 
452 
453 
_-_ 
454 
461 
462 
471 
472 
481 
482 
501 
502 
503 
504 
1939 Code 
section number 
115(c), (h), (1), (m), 
394(d). 
115(a), (b). 
115(c). 
112(b)(6). 
112(b)(7). 
113(a)(15), (18). 
117(m). 
115(c). 
! 
115(i). 
112(b)(5), (c), (e). 
112(b)(3). 
112(b)(3), (11). 
112(c), (e). 
112(k). 
113(a)(6), (23). 
112(b)(4), (d), (e). 
113(a)(7), (8). 
112(i). 
112(g)(1), (2), (h). 
112(b)(10), (c),(d), (e), 
(k), (1). 
113(a) (22). 
112(b)(9),113(a)(20),(21). 
! 
1 
165(a). 
165(b), (c), (d). 
22(b)(2)(B). 
23(p). 
130A. 
41, 48(a), (b). 
46. 
47(a), (c), (e), (g); 146(a). 
41. 
42(a) 
44. 
42(b), (c), (d). 
43. 
22(c). 
22(d) (l)-(5). 
45. 
101 except (12) and last 
par.; 165(a), 421. 
Last par. 101. 
3813. 
3814. 
1954 Code 
section 
number 
511 
512 
513 
514 
515 
521 
522 
526 
531 
532 
533 
534 
535 
536 
537 
541 
542 
543 
544 
545 
546 
547 
551 
552 
553 
554 
555 
556 
557 
561 
562 
563 
564 
565 
581 
582 
583 
584 
591._.__._ 
592 
593 
594 
601 
611 
612 
613 
614 
615 
616 
621 
631 
632 
641 
642 
643 
651 
652 
661 
662 
663 
665 
1939 Code 
section number 
421. 
421(c), (d); 422. 
422(b). 
423. 
424. 
- - ., 
101 (12) (A). 
101(12) (B). 
: 
116(g). 
102(a). 
102(a). 
102(b), (c). 
26(d), 27(b)(2), 102(d). 
102(f). 
500. 
501. 
502, 507(b). 
503. 
26(c), (d); 504, 505. 
505(e). 
506 
' 
:::.,l 
III: 
i: :--:Ji 
333. 
.. : 
;-;i 
3 3 4 . 
' 
i 
' ' ^ • 
26(c), 335. 336. 
336(d). 
26(f), 27(a). 
26(f), 27(b)-(i). 
504(c). 
26(f), 27(c)-(i). 
26(g), 28. 
104(a). 
23(k)(2), 117(i) 
121. 
169, second sentence of 170. 
23(r). 
23(dd). 
r-- 
IVA 
23 (k). 
r - - 
-V;'! 
110. 
i--~ " i t T 
26(d). 
iXl 
23(m). 
114(b)(1). 
114(b)(3), (4). 
23(ff). 
23 (cc). 
: 
---^p 
22(b) (15). 
- - 
)"^ 
ii7(k). 
•-- 
;r : 
105. 
161. 
162(a), (e), (f); 163, 168, 
170, 172. 
162(d). 
162(b). 
162(b), 164. 
162(b), (c). 
162(b), (c), 164. 
162(d). 
49012°—54-
-63 
954 
INTERNAL REVENUE CODE OF 
1954 
TABLE II—Continued 
1954 Code 
section 
number 
666. 
667-
668. 
671. 
672. 
673-
674. 
675. 
676. 
677-
678-
681. 
682_ 
683-
691-
692-
701. 
702_ 
703-
704-
705-
706-
707-
708. 
721-
722-
723. 
731-
732-
733-
734. 
735-
736-
741-
742-
743-
751-
752-
753-
754. 
755. 
761. 
771_ 
801_ 
802-
803-
804-
805-
806. 
807-
821-
822. 
823. 
831. 
832. 
841. 
842. 
851. 
852. 
853. 
854. 
1939 Code 
section number 
166. 
167. 
162(g). 
171. 
126. 
154. 
181. 
182, 183, 184, 186, 189. 
183, 189. 
191, 3797(a)(2). 
188. 
113(a) (13). 
113(a) (13). 
3797(a)(2). 
201(b). 
201(a)(1). 
201(c) (l)-(7),(d), (e). 
202(b). 
203A(b), (c), (d). 
202(c). 
201(a)(2), (3). 
207(a). 
207(a)(6), (b)(1), (4), (c), 
(d), (e), (f). 
207(b)(2), (3). 
204(a). 
204(a)(2), (b)-(f). 
205. 
206. 
361. 
362(a), (b)(l)-(7). 
1954 Code 
section 
number 
855. 
861. 
862. 
863. 
864. 
871-
872. 
873. 
874. 
875. 
876. 
877. 
881-
882-
883_. 
884-. 
891-. 
892-. 
893-
894-. 
901-
902.. 
903-
904.. 
905-
911-
912.. 
921.. 
922._ 
931_-
932.. 
933.. 
941 
_. 
942.. 
943_. 
1001. 
1002. 
1011. 
1012. 
1013. 
1014. 
1015. 
1016. 
1017. 
1018. 
1019. 
1020. 
1021. 
1022. 
1031. 
1032. 
1033. 
1034. 
1035. 
1036. 
1051. 
1052. 
1053. 
1054. 
1071. 
1939 Code 
section number 
362(b)(8). 
119(a), (b), (e). 
119(c), (d), (e). 
119(e). 
119(f). 
211(a), (b), (c). 
212. 
213, 214. 
215,216. 
219. 
220. 
' i' ! 
221. 
231(a). 
231(b), (c); 232(a), (b); 
233, 234, 235(a). 
231(d). 
236(b), 237, 238. 
103. 
116(c). 
116(h). 
22(b)(7). 
131(a), (g). 
131(f)(1), (2). 
131(h). 
131(b)(1). 
131(c), (d), (e). 
116(a). 
116(j), (k). 
109. 
26 (i). 
251. 
252. 
i , 
116(1). 
262. 
263. 
116(f), 265. 
• -
111. 
112(a). 
113(b), except (l)-(4). 
113(a). 
113(a)(1). 
113(a)(5). 
113(a)(2), (3), (4). 
113(b)(1), (2). 
113(b)(3). 
133(b)(4). 
113(c). 
. 
:, 
113(d). 
^ -
113(e). 
112(b)(1), 
(c)(1), 
113(a)(6). 
112(f), 113(a)(9). 
112(n). 
(e), 
112(b)(2). 
-
113(a)(11). 
113(a)(12), (16). 
113(a) (14). 
112(m). 
klQ 
APPENDIX—TABLE II 
955 
TABLE II—Continued 
1954 Code 
section 
number 
1081 
1082 
1083 
1091 
1201 
1202 
1211 
1212 
1221 
1222__. 
1223 
1231 
1232 
1233 
1234 
1235 
1236_-- _ 
1237 
1238 
1239 
1240 
1241 
1301 
1302 
1303 
1304 
1311 
1312 
1313 
1314 
1315 
1321 
1331 
1332 
1333 
1334 
1335 
1336 
1337 
1341 
1346 
1347 
1351 
1361 
1401 
1402 
1403 
1441 
1442 
1443 
1451 
1461 
1462 
1463 
1464 
1465 
1471 
1481 
1491 
1492 
1493 
1494 
._ 
1939 Code 
section number 
112(b)(8), 
371. 
372, 113(a) 
(17). 
373. 
118, 113(a) 
(10). 
117(c). 
23(ee), 117(b). 
117(d). 
117(e). 
117(a)(1). 
117(a) 
(2)-(10). 
117(h). 
117(j). 
117(f). 
117(e), (g)(1). 
117(g)(2). 
Il7(n). 
117(g)(3). 
117(o). 
117(p). 
107(a). 
107(b). 
107(d). 
107(c), (e). 
3801(b). 
3801(b). 
3801(a). 
3801(c), (d), 
(e), (f), (g). 
22(d)(6). 
127(c)(1). 
127(c)(2). 
127(c)(3). 
127(c)(4). 
127(c)(5). 
127(d). 
127(e), (f). 
128. 
106. 
480. 
481. 
482. 
143(b). 
144. 
143(h). 
143(a). 
143(c). • 
143(d). 
143(e). 
143(f). 
3797(a) 
(16). 
650, 651. 
3806. 
1250. 
1251. 
1252. 
1253. 
1 
1954 Code 
section 
number 
1501 
1502 
1503 
1504 
1505 
1551 
1552 
2001 
2002 
2011 
2012 
2013 
2014 
2015 
2016 
2031 
2032 
2033 
2034 
2035 
2036 
2037 
2038 
2039 
2040 
2041 
2042 
2043 
2044 
2051 
2052 
2053-
2054 
2055 
2056 
2101 
2102 
2103 
2104 
2105 
2106 
2201 
2202 
2203 
2204 
2205 
2206 
2207 
2501 
2502 
2503 
2504 
2511 
2512 
2513 
2514 
2515 
1939 Code 
section number 
141(a). 
141(b). 
141(c). 
141(d), (e), 
(f), (g). 
141(h), (i). 
15(c). 
'I'.i^ 
810, 
935. 
• .:ii.' 
822(b). 
^ 
. 
810, 813(b). 
813(a)(2), 936(b). 
813(c), 936(c). 
927. 
874(b)(3). 
811(k). 
811(j). 
811(a). 
811(b). 
811(c)(1)(A), 
811(1). 
811(c)(1)(B). 
811(c)(1)(C), 
(c)(2), (3). 
811(d). 
811(e). 
811(f); 403(d)(2) R.A. 
1942; 2, 
P.L. 
635 (80th 
Cong.), 
811(g). 
811(i), 
812(b). 
811(h). 
812. 
935(c). 
812(b). 
812(b). 
812(d). 
812(e). 
860,935. 
- 
- 
! 
^
- 
' 
861(a)(2). 
- 
-
'
•
'
. 
861(a). 
'
-
"
!
»
! 
862. 
; 
rO'H-
8 6 3 . 
i 
i • 
• •
• 
86L 
- 
I •
• 
939. 
. 
f >
r 
850. 
'i-'l 
930(a). 
825(a). 
826(b). 
826(c;. 
826(d). 
1000(a). 
1001(a), 
(b); 1008(a), 
1030(a). 
1003(a), 1003(b). 
1000(b), 1030(b). 
1002, 
1005 
1000(f). 
1000(c); 452(b)(2) R.A. 
1942; 2, 
P.L. 
635 
(80th 
Cong.). 
956 
INTERNAL REVENUE CODE OF 1954 
TABLE II—Continued 
1954 
Code 
section 
number 
2516 
2521 
2522 
2523 
2524 
3101 
3102 
3111.._... 
3112 
3121 
3122 
3123 
3124 
3125 
3201 
3202 
3211 
3212 
3221 
3231 
3232 
3233 
3301 
3302 
3303 
3304 
3305 
3306 
3307 
3308 
3401 
3402 
3403 
3404 
3501 
3502 
3503 
3504 
4001 
4002 
4003 
4011 
4012 
4013 
4021 
4022 
4031 
4041 
4051 
4052 
4053 
4054 
4055 
4056 
4057 
4061 
4062 
4063 
4071_ _
_ 
4072 
4073 
4081 
1939 
Code 
section 
number 
1004(a)(1). 
1004(a)(2), 
1004(b). 
1004(a)(3). 
1004(c). 
1400. 
1401(a), (b). 
1410. 
1412. 
1426(a)-(e), 
(g)-a). 
1420(e). 
1427. 
1428. 
1432. 
1500. 
1501(a), (b). 
1510. 
1511. 
1520. 
1532(a)-(e), (g), 
(h). 
1534. 
1538. 
1600. 
1601(a), 
(b), (0). 
1602. 
1603. 
1606. 
1607(a)-(i), 
a)-(o) 
1608. 
1611. 
1621. 
1622(a)-(d), 
(g)-(k). 
1623. 
1624. 
1420(a), 1530(a), 1605(a), 
1402, 
1503, 
1512, 
1622(e). 
1422, 1531. 
1632. 
1650.2400. 
2412(a). 
2400, 
2412(b). 
1650, 
2401. 
2401, 
2412(a). 
2412(b). 
1650, 
2402(a). 
2402(a), (b). 
1651(a). 
2450. 
2403(c). 
2404. 
' 
2405. 
2413. 
2406, 
2453. 
2406. 
3403(a), 
(b), (c). 
3403(c), (d). 
3400(a). 
3400(c). 
3400(a). 
3412(a). 
r 
-U 
1954 
Code 
section 
number 
4082 
4083 
4091 
4092 
4093 
4101 
4102 
4111 
4112 
4113 
4121 
4131 
4141 
4142 
4143 
4151 
4152 
4161 
4171 
4172 
4173 
4181 
4182 
4191 
4192 
4201 
4211 
4216 
4217 
4218 
4219 
4220 
4221 
4222 
4223 
4224 
4225 
4226 
4231 
4232 
4233 
4234 
4241 
4242 
4243 
4251 
4252 
4253 
4254 
4261 
4262 
4271 
4272 
4273 
4281 
4282 
4283 
4286 
4287 
4291 
1939 
Code 
section 
number 
3412(b), 
3412(c). 
3412(a). 
3413. 
3413. 
3413. 
3412(d). 
.
. '
•
-
.
! 
3412(e). 
- : '
J
i 
3405. 
. 
'is 
3405. 
3405(b). 
3406(a)(3). 
3406(a). 
3404(a). 
3404(b). 
3404(a), 
3404(b), 
3404(d). 
3404(d). 
3406(a)(1). 
3406(a). 
3406(a)(4). 
; 
3406(a)(4). 
2700(a), 
3407. 
2700(b) 
(2), 
3407; 
706, 
P.L. 
911 
(81st 
Cong.). 
3406(a)(6). 
3406(a)(6). 
3408(a). 
; 
, 
3409(a). 
2704, 
3441. 
3440. 
3444. 
3445. 
•
:
" 
3442. 
3406(b), 
3408(b). 
2456, 
3451. 
3446. 
2700(b), 
3407, 
3442(3). 
2705. 
1700. 
1700(e), 1704. 
1701. 
1702, 
1703. 
. .
' 
1710. 
_
^ 
1712. 
>
r
,
t 
1711. 
3465. 
'..i 
3465. 
3465, 
3466(b), (c). 
3465. 
3469. 
3469(a), 
(b), (f). 
3475(a), (c). 
3475(a), (b). 
3475(e). 
. 
t 
3460(a). 
3460(b). 
i J 
; 
3460(c). 
1850. 
1857. 
1715(a), 1851, 3467(b), 
3469(d), 
3475(c). 
^c( 
APPENDIX—TABLE II 
TABLE II—Continued 
W7 
1954 
Code 
number 
4292 
4293 
4294 
4301 
4302 
4303 
4304 
4305 
4311 
4312 
4313 
4314 
4315 
4316 
4321 
4322 
4323 
4324 
4331 
4332 
4333 
4341 
4342... _ 
4343 
4344_ _
_ 
4345 
4351 
4352 
4353 
4354 
4361 
4362 
4363 
4371 
4372 
4373 
4374 
4375 
4381 
4382 
4383 
4401 
4402 
4403 
4404 
4405 
4411 
4412 
4413 
4414_ _. 
4421 
4422 
4423 
4451 
4452 
4453 
4454 
4455 
4456 
4457 
1939 
Code 
section 
number 
3466(a), 
3469(f), 
3475(b)(1). 
307 
R. 
A. 1943. 
1800, 1802(a). 
1802(a). 
1808(g). 
1802(a). 
: 
.
.
. 
-
1800, 1801. i 
180L 
I 
180L 
; 
1801. 
1801. 
1800, 1802(b). 
1802(b). 
1802(b). 
: -
3480, 
3481(a). 
3481(a). 
1802(b), 
3481(a). 
1802(b), 
3481(a). 
1802(c), 
3481(b). 
1802(b), 3481. 
1802(b), 
3481(a). 
1802(b), 
3481(a). 
1802(.b), 3481(a). 
3480, 
3482. 
3482. 
, 
1804 
(a)-(c). 
1804(a)-(d). 
1804, 1808(b). 
1821(b)(3). 
1801, 1802(a), (b). 
1808(a)-(f), except (b). 
3483. 
1809(a). 
3285(a), (c), 
(d). 
3285(e). 
3287. 
3285(f). 
3290. 
3291. 
3292. 
.
. ; 
3285(b). 
' 
3297. 
; 
3298. 
1807. 
1831(a). 
1830. 
1809(a). 
1831(b). 
1832. 
I 
1 
1954 
Code 
section 
number 
4461 
4462 
4463 
4471 
4472 
4473 
4474 
4501 
4502 
4503 
4504 
4511 
4512 
4513 
4514 
4521 
4531 
4532 
4541 
4542 
4551 
4552 
4553 
4561 
4562 
4571 
4572 
4581 
4582 
4591 
4592 
4593 
4694 
4595 
4596 
4597 
4601__. _ 
4602 
4603 
4701 
4702 
4703 
4704 
4705 
4706 
4707 
4711 
4712 
4713 
4714 
4715 
4721 
4722 
4723 
4724 
4725 
4726 
4731 
4732 
4733 
1939 
Code 
section 
number 
3267(a). 
3267(b). 
3267(c). 
1650, 3268(a). 
3268(a). 
3268(a). 
- 
<-'^i-" 
3490(a), 
3491(a), 
3500, 
3508. 
3492, 3507. 
3490(b). 
te-ifr 
3501. 
2470(a)(1), (2). 
2477. 
2470(a)(2), 2470(b), 2474. 
3420, 
3422 
-
- 
-
3420,3423. ' 
-
'
•
' -
3423. 
!
^
'
^
-
3420, 
3425. i 
3425. 
i--- 
'
^
"
f
'
^
' 
3420,3424. 
-^"^ 
3424. 
""• 
3424(a). 
2490, 
2491 
(a\ 
2491(a). 
2490, 
2491(b), 
2491(d). 
2491(f). 
2490, 
2491(c). 
• 
2491(c),(g), 2492. 
2306, 
2311(a). 
2300. 
2300, 
2307. 
i -
2302. 
• 
' 
2303,2404. 
'^' 
2302(e). 
- 
- 
< '
^
^
'
-
2303(c). 
2493, 
3430. 
2492. 
; -
.
-
.
.
.
. ._-:irit^ 
2550(a), (b). ' 
- '
^
'
'
^ 
2551(a), (b), (c). 
2552(a). 
2553. 
2554. 
; 
^..^^I6l-
2558(a), (c). 
2567(a). 
2567(b), 
2568. 
2569. 
2571. 
3220. 
-
3221. 
- i 
2553(a). 
• 
3224. 
3227(a). 
P. 
L. 
240, 
(83d 
Cong.); 
3228(a). 
2555. 
2558(b). 
-
958 
INTERNAL REVENUE CODE 
OF 
1954 
TABLE II—Continued 
1954 
Code 
section 
number 
4734 
4735 
4736 
4741 
4742 
4743 
4744 
4745 
4746 
4751 
4752 
4753 
4754 
4765 
4756 
4757 
-
4761 
4762 
4771 
4772 
4773 
4774 
4775 
4776 
4801 
4802 
4803 
4804 
4805 
4806 
4811 
4812 
4813 
4814 
4815 
4816 
4817 
4818 
4819 
4821 
4822 
4826 
4831 
4832 
4833 
4834 
4835 
4836 
4841 
4842 
4846 
4851 
4852 
4853__ _ 
4854 
4861 
4862 
4863 
4864 
1939 
Code 
section 
number 
2561. 
2564; 
P. 
L. 
238, 
(83d 
Cong.). 
2562. 
2590(a). (b). 
2591. 
2592(a). 
2593. 
2598. 
3230(a). 
3230(b), 
(c), (d). 
3231. 
3233. 
3234. 
2601, 
3237. 
3238. 
2603. 
2550(c)(1), (2); 
2552(b), 
2590(c), 
2592(b). 
3222, 
3232. 
2556, 2595. 
2563, 
2602. 
3226, 3236. 
2651(a), (b). 
2650. 
2651(c), 
2669(a). 
2653 
2654, 
2665. 
2321(a), (b). 
2306, 
2327(a). 
2305, 
2321(c), 
2327(a), 
(d). 
2322(b)-(e). 
2323(c), 
2324. 
2307, 
2327(a). 
2325. 
2311, 
2327(a). 
3206. 
3208. 
2320,2322(a), 
2323 
(a), 
(b) 
; 
3208. 
2351(a), 
(b); 2356. 
2351(c), 
2355, 
2356, 2361. 
2352(b)-(e). 
2353(b), 
2354(b), (c). 
2360. 
3210. 
3212. 
2350, 
2352(a), 
2353(a), 
2354(a). 
1920(a), (b). 
1931. 
1925. 
1926. 
1921. 
1927. 
1922. 
1923. 
i 
1954 
Code 
section 
number 
4865 
4871 
4872 
4873 
4874 
4875 
4876 
4877 
4881 
4882 
4883 
4884 
4885 
4886 
4891 
4892 
4893 
4894 
4895 
4896 
4897 
4901 
4902 
4903 
4904 
4905 
4906 
4907 
6001 
5002 
5003 
6004 
6005 
5006 
5007 
6008 
6009 
5010 
5011__ __ 
6012 
5021_. -_ 
6022__ 
5023 
5024 
6026 
6026 
6027 
5028 
5041 
5042. _ 
-
6043 
5044 
5046-- --
1939 
Code 
section 
number 
1924. 
1920(c). 
1928. 
. 't 
1932. 
s
/
'
L 
1930. 
1935. 
1933. 
1900. 
1905. 
1901, 1906. 
1902. 
1903. 
1805. 
1806. 
.
. 
• • 
1809(a). 
1805. 
1806. 
1805. 
3271. 
3277. 
3278,3292 
; 
3279. 
3280. 
3276. 
1 
3283, 
3292. 
2800(a)(1), (4), (6), 
(c); 
3030 (a)(1); 3111; 
3125(a); 
3182(b). 
2809(a), 
(b)(1), 
(2),(c),(d). 
2800(e)(1), (2), 
(3), (4); 
3112. 
2800(a)(1), 
(d);3112. 
2800(a)(1), 
(b)(2), 
(f); 
2879(b); 
2880, 2900(a). 
2800(f), 
(a)(3), (4); 
2846(a), 2847(a); 
3112(b); 
3125(a). 
2803(a)-(e), 2903(b)-(e). 
2802, 
2886, 
2878. 
2802(a), 
(b);2866. 
2891(b), 
2901 
fa), 
(b), (c), 
(d);3113. 
2887. 
2800(a)(6), 
2801(b). 
3030(a)(2). 
.
:
. 
2801(e)(5). 
Hr 
2800(a) 
(6); 
2801(c) 
(2), (e); 
2883(e), 
3036(a), 
3250(h), 
(i); 3254(g). 
2800(a)(1)(A). 
2802(c). 
3030(a)(1), (2). 
3030(a)(1). 
3030(b), 
3041. 
blQ 
APPENDIX—TABLE II 
TABLE II—Continued 
1954 
Code 
section 
number 
5051 
5052 
5053 
5054 
5055 
5056 
5057 
5061 
5062___.__ 
5063 
5064 
5065 
5081 
5082 
5083 
5084 
5091 
5092 
5093 
5101 
5102 
5103 
5104 
5105 
5106 
5111 
5112 
5113 
5114 
5115 
5116 
5121 
5122 
5123 
5124 
5131 
5132 
5133 
5134 
5141 
5142 
5143 
5144 
5145 
5146 
5147 
5148 
5149 
5171 
5172 
5173 
5174 
5175 
5176 
5177 
1939 
Code 
section 
number 
3150(a), (c). 
3160, 3254. 
3153(b) 
(c). 
3150(b)(1). 
3150(b)(2), 
3157(a). 
3172(a). 
3179(a), (b). 
1656(a), (b), (c). 
3174. 
3250(f)(1). 
3254(g). 
3250(c)(1), 
(d)(3). 
3254(d). 
3250(j)(l). 
3254(h). 
3271(c)(1). 
2818(a). 
3250 
(j) 
(3). 
3250(a)(1), (a)(3), 
(d)(1), 
(d)(2); 
3254(c)(2). 
3254(b), (e). 
3250(a)(4), (d)(3), (g); 
3251(a), (b). 
2857, 2858. 
2863. 
2831. 
3250(b)(1), (b)(4), 
(e)(1), 
(2), (3). 
3250(b)(2), 3254(c)(l),(f). 
3250(e)(4); 3251(c); 
3255(a), (b), (c). 
3252(a), (b), (c). 
3250(1) 
(1), (2). 
3250(1) 
(3). 
3250(1) 
(4). 
3250(1) 
(5). 
3270. 
3271(a), (b), (c). 
3272(a). 
3277, 3278, 3279, 3280(a), 
3283. 
3273(a). 
3273(b). 
3275(a). 
3276. 
3282. 
2819. 
2832. 
2820(a), 
2822, 2823. 
2810. 
2812. 
2814(a)(1), 
(a)(2). 
2814(a)(1); 
2815(a), 
(b)(1)(A), (B), 
(C), 
(D) 
1954 
Code 
section 
number 
5178 
5179 
5180 
5191 
5192 
5193 
5194 
5195 
5196 
5197 
5211 
5212 
5213 
5214 
5215 
5216 
5217 
5231 
5232 
5233 
5241 
5242 
5243 
5244 
5245 
5246 
5247 
5248 
5249 
5250 
5251 
5252 
5271 
5272 
5273 
5274 
5275 
5281 
5282 
5283 
5284 
5285 
5301 
5302 
5303 
5304 
5305 
5306 
5307 
5308 
5309 
5310 
5311 
5312 
5313 
5314 
5315 
5316 
5317 
1939 
Code 
section 
number 
2816. 
2817(a), (b). 
2831. 
2849, 
2850(a). 
2820, 2838, 2877, 3042. 
2820, 
2878(a), 
(b), 
(c), (d). 
2883(a)-(g), 
2916. 
2836, 2870. 
2826, 2827, 2828, 2830, 
2839. 
2841, 
2844, 
2859. 
2804. 
2808. 
2811. 
2871. 
:,... 
2825. 
J
.
:
H
^
;
r
i 
2834. 
3183(a), (b), (c). 
2872, 
2873, 
2875. 
2879(c), (d). 
2872, 
2873, 2915, 
4013(a). 
2879(a). 
2903(a), (f), 
(g); 
2904, 
2905, 
2910, 2911. 
2882. 
2881. 
2875. 
2885(a), (b), 
2886, 2888. 
2884. 
2874. 
2812. 
2801(e)(1). 
2801(e)(2). 
2831. 
.
: 
X
.
!
-
:
r
, 
, ^~ 
-
, 
2801(e)(1), (d). 
2813, 
2861, 
2862. 
2828, 2830. 
2855, 
2857. 
3100. 
3101. 
3102. 
3114. 
3105. 
: 
(?UU 
3103. 
' 
. 
!
• 
-
3106. 
3107. 
3104. 
3108(a)-(d);3109, 
3125(b). 
3125(a). 
3121(a), (c). 
3117. 
3119. 
3120. 
3121(d), 
3122. 
960 
INTERNAL REVENUE CODE OF 1954 
TABLE II—Continued 
1954 
Code 
section 
number 
5318 
5319 
5320 
5331 
5332 
5333 
5334 
5351 
5352 
5353 
5354 
5355 
5356 
5357 
5361 
5362 
5363 
5364 
5365 
5366 
5367 
5368____-
5369 
5370 
5371 
5372 
5373 
5381 
5382 
5383 
5384 
5385 
5386 
5387 
5388 
5391 
5392 
5401 
5402 
5403 
5411. 
5412 
5413 
5414 
5415 
5416 
5501 
5502_. ._ 
5511 
5512 
5521 
6522 
5523 
5551 
5552 
5553 
5554 
5555 
5556 
1939 
Code 
section 
number 
3123. 
3124. 
3070(a), (b). 
3073. 
3074. 
3040. 
< 
3031(a), 
3040. 
3040. 
3030(a)(1), 
3031(a), 
3037, 
3038; 
19 
U. 
S. 
C. 81(c), 
1309, 1311. 
3034, 
3035, 
3042. 
3171. 
3030(a)(1), 
3040, 
3041} 
3040. 
3039. 
3031, 
3032, 
3033, 
3036, 
3037(a). 
3036, 
3044(a), 3045. 
3032, 
3036, 
3044, 
3045. 
3036, 
3044(b), (c). 
3045. 
3043(a). 
2801(e)(3), (4). 
3254(g). 
2801(c), 
(e)(3); 3031(a). 
3036, 
3044(b), 3045. 
3153(b); 
3155(a), 
(b). 
3158, 
3254(d). 
3158. 
3104, 3155(f). 
3155(f). 
3155(c). 
3110. 
3182(a). 
3177(a), (b), (c), (d)(1). 
2891(a). 
3178. 
2815(c), 
(d), (e). 
2829. 
. _ 
3171. 
3176. 
1954 
Code 
section 
number 
5557 
5601 
5602 
5603 
5604 
5605 
5606 
5607 
5608 
5609 
5610 
5611 
5612 
5613 
5614 
5615 
5616 
5617 
5618 
5619 
5620 
5621 
5622 
5623 
5624 
5625 
5626 
5627 
5628 
5629 
5630 
5631 
5632 
5633 
5634 
5635 
5636 
5637 
5638 
5639 
5640 
5641 
5642 
5643 
5644 
-
5645 
5646 
5647 
5648 
5649 
5650 
5661 
5662 
5663 
5671 
5672 _ 
5673 
5674._ _-
5675 
5676 
5681 
5682 
1939 
Code 
section 
number 
3175. 
2810. 
2818. 
2812. 
2814. 
- -
2815(a). 
2833. 
i
. -
2819. 
2834. 
2811. 
2843. 
,i« 
• 
2842. 
2838. 
2836. 
2870. 
2828. 
2827. 
2826. 
2822. 
2839. 
1 
2841. 
2857(a), 
2859. . 
2807. 
2853. 
2852. 
2806(c). 
2806(f). 
2801(e)(2) 
'
' 
2801(f). 
2856. 
2865. 
„-. -
2876. 
2912,2913. 
2914(a). 
2806(a)(1) 
(2). 
2867. 
.
.
-
- . -
2866. 
;
.
. 
2868. 
2869. 
2806(d). 
2803(f). 
2871. 
2803(g). 
2908. 
2909. 
2806(b)(1). 
2806(e). 
.. . 
• 
3072. 
2885(d). 
2854. 
2850. 
. 
3043. 
3159. 
3159. 
3159. 
3159. 
3155(f). 
3159(e), 
(f), 
(g). 
(h). a; 
2831. 
2821, 
2851. 
> 
i 
I 
• 
' 
\. 
^oO 
APPENDIX—TABLE II 
TABLE II—Continued 
961 
1954 
Code 
section 
number 
5683 
5684 
5685 
5686 
5687 
6688 
5689 
5690 
5691 
5692 
5693 
5701 
5702 
5703 
5704 
5705 
5706 
5707 
5711 
6712 
5713 
5721 
5722 
5723 
5731 
5732 
5741 
5751 
6752 
5753 
5761 
5762 
< 
' • ' 
fctSf-
5763 
' 
5801 
5802__.___ 
5803 
6811 
1939 Code 
section 
number 
3173(a). 
3173(b). 
! 
3173(c). 
3115, 
3116. 
; 
2806(g). 
2805(a)-(b);3118, 
3173(d), 
63 
Stat. 
377 
et seq. 
2800(a)(1)(B), 3112(b), 
3150(b)(3). 
3173(b)(4). 
3263. 
3252. 
3274. 
2000. 
2010, 
2030, 2050, 2110. 
2001, 2002(b), (c), 
2194, 
3310(f)(2). 
2040, 2101, 2111(f); 
2130(d); 2136(a)(1), 
(2), (3); 2197(b); 
2130(d). 
2137, 2198, 3313. 
2136. 
2000(g)(1), (2), 
(3). 
2013, 2033, 2039(a), 2053. 
2012, 2032, 2052. 
2014, 2054. 
2017, 2036. 
2019, 2038, 2039(b), 2194. 
2100, 2102, 2103(a)(1), 
2111, 2112ra)(l), 
2130(a) 
(b)(c). 
2059, 2060. 
2058. 
2018, 2037, 
2039(b)(1), 
2066, 2194. 
2104(a), 2113, 2170(a)(2). 
2103(e), 2112(e). 
2190. 
2156(c), 2161(m)(l), 
2180(1). 
2130(a), (b), 
(c); 
2151(a), 
(c); 
2155(a), 2156, 
2160(a)-(e), (g), (i); 
2161(a), (c), 
(e)-(g); 
2162(a)(2), (4), (b); 
2170(a)(2), (4), 
(b); 
2171(a), (b)(2); 
2172, 
2173(a), 2174, 
2176(a)(2), (3); 
2180(a), 
(d)-(f). 
2166(b), 
2160(h), 2161(b), 
(h), (l)(l),(j)(l), (I)(l), 
(m) 
(2); 
2170(b), 
2171(a), 
2176, 2180(b), 
(g)(1), (h),(i),(k), 
(1)(1), (2). 
3260. 
3261(a). 
3262. 
2720. 
1954 Code 
number 
6812 
5813 
6814 
6821 
5831 
5841 
6842 
6843 
5844 
5845 
5846 
5847 
5848 
6851 
6852 
6853 
6864 
6861 
5862 
6001 
6011(a).-_ 
.
(
i 
6011(b)_-_ 
6012(a)-__ 
6012(b)(1)-
6012(b)(2)-
6012(b)(3)-
6012(b)(4). 
6012(b)(5)-
6013 
(a). 
_. 
6013(b)___ 
6014(a) 
_.-
6014(b)_-_ 
6016(a) 
_-. 
6016(b)._. 
6016(c).-. 
6016(d)__-
6015(e)..-
6015(f) 
6016(g)... 
6015(h)... 
6016 
6017 
1939 Code 
section number 
2721. 
2722. 
2723. 
2734. 
2700, 3407. 
3261(b). 
2724. 
2726. 
2727. 
2728. 
• • 
2731. 
2732. 
2733. 
2726(a). 
2726(b). 
2726(c). 
3263. 
2729. 
-' ' 
2730. 
51, 
64(a), (b); 
821(d), 
1007(a), 
(b);1720. 1835, 
1928(b), 
2302, 2303, 
2322(c), 
2324, 2352, 
2556, 
2669(d), 
2694(a), 
2663(b), 
2709, 2724, 
3220(c), 
3233(a), 3603. 
47(a), 61, 
143(c), 215(a), 
217, 235, 251(g), 
1420(c), 1530(b), 
1604(a), 1624, 
1700(c)(2), (d)(2). 
(e)(2); 
1716(a), 
1862(a), 
1902(a)(1), 2403(a), 
2451(a), 
2471, 2701, 
3272(a), 3310(a), 
(b), 
(f)(1), 3448(a), 3461, 
3467(b), 3469(d), 
3475(c), 3491(a), 
3611(a)(1) 
51(a), 
62(a), 142(a)(2), 
(3), (4); 
217(b), 
235(b). 
51(b)(4), (c), 
(g)(6); 
142(a)(1). 
51(c)J 58(f), 
142(a). 
62(a). 
142(a). 
142(b). 
51(b)(1), (2), 
(3), 
(4), (5). 
51(g)(l)-(6). 
51(f)(1), (2), 
(4). 
51(b)(1), 51(f)(3). 
58(a). 
58(c). 
68(b). 
68(b), 
58(d)(2). 
68(d)(3). 
1 
60(b). 
1 
58(a). 
: 
482(a). 
962 
INTERNAL REVENUE CODE OF 1954 
TABLE II—Continued 
1954 Code 
section 
number 
6018(a)__. 
6018(b)___ 
6019(a) __. 
6 0 1 9 ( b ) . . . 
6020(a) __. 
6020(b)_._ 
6020(c).._ 
6021 
6031 
6032 
6033(a) ___ 
6033(b)__-
6033(c)___ 
6 0 3 4 ( a ) . . . 
6034(b).__ 
6035 (a). _ . 
6 0 3 5 ( b ) . . . 
6036 
6037 
6041 ( a ) . . . 
6041(b)-._ 
6041(c).__ 
6041(d)___ 
6042 
6043 
6044(a)__. 
6044(b)._. 
6044(c) _ - -
6046 
6046(a)--. 
6 0 4 6 ( b ) . . . 
6046(c)---
6046(d)-.-
6051 (a). _ . 
6051(b)---
6051(c)---
6051(d)-._ 
6061 
6062 
6063 
6064-
6 0 6 5 ( a ) . . . 
•
; 
• • . 
6065(b)..-
6071 
1939 Code 
section number 
821(a)(1), 864(a)(1), 937. 
821(a)(2), 864(a)(2). 
1006(a). 
3611(a)(2). 
3612(a), (c). 
3613. 
187. 
169(f). 
64(f). 
153(a). 
153(b). 
153(b). 
338. 
339. 
274(a), 820. 
147(b)(2). 
147(b)(1). 
147(c). 
148(a), (b), (c). 
148(d), (e). 
148(f). 
148(f). 
/.•.H.:,: 
148(f). 
' ' ' 
149. 
3604(a). 
, 
3604(b). 
i 
3604(b). 
1403, 1633(a), (b). 
1633(a). 
1633(b). 
1633(b). 
3809(b). 
; 
52(a). 
187. 
58(g), 3809(b). 
142(a), (b), 148(a), (d). 
(e); 149, 169(f), 187, 
233, 821(a), 864(a), 
1006(a), 1604(a), 
1716(a), 1852(a), 
1902(a)(1), 2403(a), 
2471, 2555(a), (c);2701, 
3233(a), 3272(a), 
3330, 3448(a), 3461, 
3467(b), 3469(d), 
3475(c), 3604(b), 
3611(a), (c), 3779(b), 
3780(a), 3809(c). 
61(a), 64(f), 58(b), 216(a), 
3780(a). 
141(b), 147(a), 148(a), (b), 
(c),(e); 149, 150,163(a), 
(b), 821(b), 864(b), 
874(b)(3), 1253(a), 
1420(c), 1630(b), 
1604(a), 1716(b), 
1954 Code 
section 
number 
6071 
6072 (a). _-
6072(b)._. 
6072(c). _-
6072(d)_._ 
6072(e).__ 
6073 ( a ) . . . 
6073(b)_--
6073 ( c ) . _ . 
6073(d)..-
6073(e)-.. 
6074(a)__-
6074(b).--
6074 ( c ) _ . . 
6 0 7 5 ( a ) . . . 
6075(b)-.. 
6081 ( a ) - . . 
; 
, > M l i : , 
, ' ''^'.l' 
. • L 
; • ' . ' : • 
6081(b)... 
6081(c)..-
6 0 9 1 ( a ) . . . 
6091(b)(1)-
1939 Code 
section number 
1852(a), 1902(a)(1), 
2403(a), 2461(a), 2471, 
2555(b), (c), 2701, 
2734(e), 3233(a), 
3272(a), 3310(a), 
(f)(1); 3448(a), 3461, 
3467(b), 3469(d), 
3475(c), 3491(a), 
3604(a), 3611(b), (c); 
3779(b), 3780(a), 
3791(a). 
53(a)(1), 143(c). 
53(a). 
217(a), 236(a). 
3806. 
58(d)(1), 
. ;^ 
60(a). 
68(d)(2). 
i 
Ml-
60(b). 
!^" 
60(c). 
1 
i 
! 
- ,,_ .. 
821(b), 864(b). 
1006(b). 
63(a)(2), 
58(e), 
141(b), 
147(a), 148(a), (b), (c), 
(e); 
149, 160, 153(a), 
(b); 
821(b), 
864(b), 
874(b)(3), 1263(a), 
1420(c), 1630(b), 
1604(b), 1626(c), 
1633(c), 1716(b), 
2403(a), 2451(a), 2471, 
2555(c)(1), 2701, 
3233(a), 3272(a), 
3310(f)(1), 3448(a), 
3461, 3467(b), 3469(e), 
3475(d), 3611(a)(1), 
3634, 3779(b), 3791(a). 
147(a), 148(b), (c), (d). 
149, 
160, 163(a), 
(b). 
820, 874(b)(3), 1253(a), 
1420(c), 1630(b), 
2556(c)(1), 2734(e), 
3233(a), 3604(a), 
3611(a)(1), (c); 3779(a), 
3780(a), 3791(a). 
53(b)(1), 58(d)(2), 60(b), 
143(c), 821(c), 
864(c), 
1006(b), 1604(a), 
1716(e), 1852(b), 
1902(a)(2), 2403(a), 
2451(a), 2471, 2701, 
3272(a), 3291(a), 
3448(a), 3461, 3467(b), 
3469(d), 3475(c), 
3491(c), 3611(a)(1), (c); 
3791(a). 
J c " 
APPENDIX—TABLE 
I I ' 
TABLE II—Continued 
963 
1954 Code 
section 
number 
6091(b)(2). 
-
-
^
, 
' 
. ' 
• ' > " ' 
6091(b)(3)-
6091(b)(4). 
6101 
6102 
6 1 0 3 ( a ) . . . 
6103(b).._ 
6 1 0 3 ( c ) . . . 
6103(d).._ 
6 1 0 3 ( e ) . . . 
6103(f) 
6104 
6105 
6106 
6107 
6108 
6109 
6151(a)._. 
6151(b).--
6151(c).-_ 
6152(a)(1)-
6152(a)(1) 
(A). 
6152(a)(1) 
(B). 
6152(a)(2). 
6152(a)(3). 
6152(b)(1)-
6152(b)(2). 
6152(c)..-
i6152(d)--_ 
6153(a)---
6153(b)---
6153(c).--
6153(d).--
6153(e)---
6153(f) 
6154 
6 1 5 5 ( a ) . . . 
' 
1 
1939 Code 
section number 
53(b)(2), 
141(b), 
143(c), 
1604(a), 1716(c), 
1852(b), 1902(a)(2), 
2403(a), 2451(a), 2471, 
2701, 3272(a), 3291(a), 
3448(a), 3461, 3467(b), 
3469(d), 3475(c), 
3491(c), 3611(a)(1), (c); 
3791(a). 
821(c), 864(c). 
3630. 
5 5 ( a ) . 
• 
. 
55(b). M3TJ' 
55(c). 
55(d). 
58(h). 
55(e). 
153(c). 
722(g). 
1604(c). 
3275, 3292. 
63. 
56(a), 143(c), (h); 144, 
218(a), 236(a), 
822(a)(1), 1008(a), 
1253(a), 1530(b), 
1715(b), (c); 1853(a), 
(b); 1902(a)(3), (b); 
2403(b), 2451(a), (b); 
2472, 2702(a), 3220, 
3230, 3271(b), 3272(a), 
3448,(a), (b); 3461, 
3467(b), 3469(b), 3470, 
3475(c), 3491(a), (c). 
51(f)(2), 56(i). 
322(b)(4), (e). 
56(b)(2)(A). 
56(b)(2)(A). 
56(b)(2)(B). 
56(b)(1). 
1605(c). 
56(b)(3)(A), 1605(c). 
56(b)(3)(B). 
272 (i). 
56(b)(4). 
59(a). 
60(a). 
59(b). 
60(b). 
60(c). 
59(c). 
22(d)(6)(F), 51(f)(2), 
131(c), 146(a), 272(b), 
(c); 273(a), (g), (i); 
274(b), 292(a), 871(b), 
(c), (i); 872(a), (g), (i); 
1954 Code 
section 
number 
6155(a)._-
6155(b)--. 
6156 
6161(a)(1). 
6161(a)(2)-
6161(b)(1) 
6161(b)(2)-
6161(c)-.. 
6161(d).--
6162(a)-._ 
6162(b)..-
6163(a)..-
6163(b)... 
6164(a)-.-
6164(b)---
6164(c)-.. 
6164(d)---
6 1 6 4 ( e ) . . . 
6164(f)—-
6164(g)-. _ 
6164(h)---
6164(i) 
6165 
6201 (a) _._ 
6201(a)(1). 
6201(a)(2) 
(A). 
6201(a)(2) 
(B). 
6201(a)(3)-
6201(b).._ 
6201(c)-__ 
6201(d)._. 
6202 
6203 
6204 
6205(a)(1)-
6205(a)(2)-
6205(b).__ 
6206 
6211(a)---
6211(b)(1). 
6211(b)(2). 
6211(b)(3). 
6212(a).. _ 
6212(b)(l)-
6212(b)(2). 
6212(b)(3)-
6212(c)(1)-
6212(c)(2). 
6213(a)---
6213(b)(1) 
6213(b)(2)-
6213(b)(3)-
1939 Code 
section number 
874(b)(3), 891, 1012(b), 
(c); 1013(a), (g), (i); 
1015(b), 1021, 1117(g), 
1605(c), 3310(d), 3311, 
3660(a), 3779(h). 
56(c), 58(e), 1008(b)i 
1605(d), 3467(b), 
3469(e), 3475(d). 
822(a)(2). 
272(j), 10l2(i). 
871(h). 
274(b), 1015(b). 
56(c)(2). 
925, 926. 
3779(a). 
3779(b). 
3779(c). 
3779(d). 
3779(e). 
3779(f). 
J;^^r*^ 
3779(g). 
3779(h). 
3781. 
66(c)(2), 272(j), 822(a)(2)i 
871(h), 1012(i). 
3640, 3647. 
3612(f). 
1809(b)(2), 2351(c)(2), 
2651(c)(2), 3311. 
59(d). 
22(m)(4). 
3644. 
3641. 
3642. 
1401(c), 1411, 1501(c), 
1521. 
1411. 
1421, 1502, 1522. 
271(a), 870, 1011. 
271(b)(1). 
271(b)(2). 
271(b)(3). 
272(a), 871(a), 1012(a). 
272(k), 1012(j). 
272(a). 
901(d). 
272(f), 871(f), 1012(f). 
272(a), 871(a), 1012(a). 
272(f), 871(f), 1012(f). 
3780(c). 
964 
INTERNAL REVENUE CODE OF 1954 
TABLE II—Continued 
1954 Code 
section 
number 
6213(c)-__ 
6213(d)__. 
6213(e)-.. 
6214(a)---
6214(b)---
6214(c)--. 
6215(a)---
6215(b)---
6216 
6301 
6302(a)-_. 
6302(b)--. 
6302(c)---
6303(a)--. 
6 3 0 3 ( b ) . . . 
6304 
6 3 1 1 ( a ) . . . 
6311(b)(1)-
6311(b)(2)-
6312(a) _ - . 
6312(b)--. 
6313 
6314(a)--. 
6314(b)_.. 
6 3 1 4 ( c ) . . . 
6315 
6316 
6321 
6322 
6323 ( a ) - . . 
6323(a)(1). 
6323(a)(2). 
6323(a)(3)-
6323(b)_-_ 
6323(c)..-
6323(d)(1)-
6323(d)(2)-
6 3 2 3 ( e ) . . . 
6324(a)(1). 
6324(a)(2)-
6324(a)(3)-
6324(b)--. 
6 3 2 4 ( c ) . . -
6325(a)(1)-
6325(a)(2). 
6325(b)(1)-
6325(b)(2). 
6 3 2 5 ( c ) . . . 
6 3 2 5 ( d ) . . . 
6326 
6331 (a). _-
6 3 3 1 ( b ) . . . 
6 3 3 1 ( c ) . . . 
6 3 3 1 ( d ) . . . 
6332(a).. _ 
6 3 3 2 ( b ) . . . 
6332 (c)_--
6333 
6334(a)---
1939 Code 
section number 
272(c), 871(c), 1012(c). 
272(d), 871(d), 1012(d). 
272(e), 871(e), 1012(e). 
272(g), 1012(g). 
272(h), 871(g), 1012(h). 
272(b), 871(b), 1012(b). 
3651(a)(1). 
3652. 
1420(c), 1719, 2550(c), 
2708, 3281, 3282. 
3310(f)(2). 
3655(a). 
3656(a)(1), (b)(1). 
3656(a)(2)(A), (b)(2). 
3656(a)(2)(B). 
3657. 
56(g), 
1008(d), 
1420(d), 
1530(d), 1605(e), 3658. 
1008(e), 3659(a). 
823. 
59(d). 
3670. 
3671. 
3672(a). 
3672(a)(1). 
3672(a)(2). 
3672(a)(3). 
3672(b)(1). 
3672(b)(2). 
827(a). 
827(b). 
827(c). 
1009. 
827(a), 1009, 3673(a). 
3673(b). 
3674(a). 
3674(b). 
3675. 
3310, 3660, 3690, 
3692, 
3700. 
3690, 3692, 3700. 
3715. 
3710(a). 
3710(b). 
3710(c). 
3711. 
3691(a). 
1954 Code 
section 
number 
6 3 3 4 ( b ) . . . 
6 3 3 4 ( c ) . . . 
6335(a)-.-
6 3 3 5 ( b ) . . . 
6335(c). _ . 
6335(d)._. 
6335(e)(1). 
6335(e)(2). 
6335(e)(2) 
(A). 
6335(e)(2). 
(B). 
6335(e)(2). 
(C). 
6335(e)(2). 
(D). 
6335(e)(2). 
(E). 
6335(e)(2). 
(F). 
6335(e)(3). 
6336 
6337(a)._. 
6337(b)(1). 
6337(b)(2). 
6337(c).--
6 3 3 8 ( a ) . . -
6338(b)_--
6338(c) _ _ . 
6339(a)(1). 
6339(a)(2)-
6339(a)(3). 
6339(a)(4)-
6339(a)(5)-
6339(b)(1)-
6339(b)(2). 
6 3 4 0 ( a ) - . . 
6340(b)..-
6341 
6 3 4 2 ( a ) . . . 
6342(b).._ 
6343 
6344 
6401(a)---
6401(b)-.. 
6 4 0 1 ( c ) . . . 
6402(a)--_ 
6402(b)-_. 
6403 
6404 ( a ) . - _ 
6 4 0 4 ( b ) . . . 
6404 ( c ) _ . . 
6405(a)-.. 
6405(b)._-
6405(c)..-
6406 
6407 
6411(a)---
6411(b)--. 
6411(c)-_-
6412(a)__-
1939 Code 
section number 
3691(b). 
3692. 
3693(a), 3701(a). 
3693(b), 3701(b). 
3712. 
3693(c), 3701(c). 
3695(a), 3701(d), (e). 
3695(b). 
3695(a), 3701(d). 
3701(d). 
3701(f). 
3693, 3701. 
3693(d), 3701(f). 
3701(f). 
3696, 3702. 
^ ' : 
3702(b)(1). 
3702(b)(2). 
_. 
3702(c). 
3703(b). 
. 
3704(b). 
3703(a), 3704(a). 
3697(a)(1). 
3697(b). 
3697(c). 
3697(d). 
: 
^ 
• 
'' 
. 
• 
3704(c)(1). 
3704(c)(2). 
3706(a), (b). 
3706(f), 
3716. 
3694. 
3712. 
3770(a)(2). 
322(a)(2). 
3770(c). 
1027(a), 3770(a)(1), (4), 
(5). 
322(a)(3). 
321. 
3770(a)(1), (5). 
273 (j), 873, 1014. 
3777(a). 
3777(b). 
3777(c). 
3790. 
3770(a)(3). 
•• 
::^^ 
3780(a). 
3780(b). 
3781. 
: 
{ 
i 
APPENDIX—TABLE II 
TABLE II—Continued 
965 
1954 Code 
section 
number 
6412(b)(1)-
6412(b)(2). 
6412(c) _._ 
6412(d)-__ 
6412(e) _ . -
6413(a)(1)-
6413(a)(2). 
6413(b)_-_ 
6413(c)(1). 
6413(c)(2). 
6413(d)___ 
6414 
6415(a) _._ 
6415(b).__ 
6415(c). _ . 
6415(d)._. 
6416(a). __ 
6416(b)(1)-
6416(b)(2)-
(A). 
6416(b)(2)-
(B). 
6416(b)(2). 
(C). 
6416(b)(2)-
(D). 
6416(b)(2). 
(E). 
6416(b)(2). 
(F). 
6416(b)(2)-
(G). 
6416(b)(2)-
(H). 
6416(b)(3)-
6416(c)__. 
6 4 1 6 ( d ) . . . 
6416(e)_-. 
6416(f).... 
6417(a) __. 
6417(b) . . . 
6418(a) __. 
6418(b)_-_ 
6419 
6420 
6501(a) __. 
6501(b)(1)-
6501(b)(2)-
6501(b)(3)-
6601(c)(l)_ 
6501(c)(2). 
6501(c) (3). 
6501(c)(4). 
6501(c) (5). 
1939 Code 
section number 
3412(g)(1). 
3412(g)(2). 
3508. 
1401(c), 1411, 1501(c), 
1521. 
1411. 
1421, 1502, 1522. 
1401(d)(3). 
1401(d)(4). 
1601(d). 
143(f), 1622(f)(1). 
1854(a), 3471(a). 
1715(d)(1), (2); 1854(b), 
(c); 3471(b), (c). 
1715(d)(2). 
1715(d)(1), 1854(c), 
3471(c). 
1715(d), 2407(b), 2452(b), 
3443(a)(3)(B), (b), (d). 
2407(a), 3443(a)(2). 
3443(a) (3) (A) (i). 
3443(a) (3) (A) (ii). 
3443 (a) (3) (A) (iu). 
2452(a). 
3443 (a) (3) (A) (iv). 
3443 (a) (3) (A) (v). 
3443 (a) (3) (A) (vi). 
3443(a) (3) (A) (vii). 
3443(a)(1). 
3403(e). 
3408(b). 
2705. 
2703(a), 3471(b). 
2473. 
2474. 
3494(a). 
3493(a). 
3286. 
275(a), 874(a), 1016(a), 
1636(a), 3312(a). 
275(f). 
1635(e). 
276(a), 874(b)(1), 
1016(b)(1), 1635(b), 
3312(b). 
1635(c)i 3312(c). 
276(a), 874(b)(1), 1016(b) 
(1), 1635(b), 3312(b). 
276(b). 
1954 Code 
section 
number 
6501(d)_._ 
650Ue)(l). 
(A). 
6501(e) (1). 
(B). 
6501(e)(2). 
6501(f) 
6 5 0 1 ( g ) . . . 
6502(a) __. 
6502(b).._ 
6503(a)(1)-
6503(a)(2)-
6503(b)._. 
6503(c)___ 
6 5 0 3 ( d ) . . . 
6503(e) _._ 
6504 
6511(a) __. 
6511(b)(1)-
6511(b)(2). 
6511(c).._ 
6511(d)(1)-
6511(d)(2)-
(A). 
6511(d)(2) 
(B). 
6511(d)(3)-
6511(e)(1). 
6511(e)(2). 
6511(f)-___ 
6 5 1 2 ( a ) . . . 
6512(b).._ 
6 5 1 3 ( a ) . . . 
6 5 1 3 ( b ) . . . 
6 5 1 3 ( c ) . . . 
6 5 1 3 ( d ) . . . 
6 5 1 4 ( a ) . . . 
6514(b)___ 
6515 
6521 
6531 
6532(a)(1)-
6532(a)(2)-
6532(a)(3)-
6532(a)(4)-
6 5 3 2 ( b ) . . . 
6533 
6 6 0 1 ( a ) . . . 
1939 Code 
section number 
275(b). 
275(c). 
275(d)(1). 
i - . 
' 
276(c), 874(b)(2), 
1016(b)(2), 1635(d), 
3312(d). 
3714(b). 
277, 875, 1017. 
141(h). 
• 
274(b), 1015(b). 
822(a)(2), 871(h). 
322(b)(1), 910,1027(b)(1), 
1636(a)(1), 3313. 
322(b)(1), 910, 1027(b)(1), 
1636(a)(1), 3313. 
322(b)(2), 910, 1027(b)(2), 
1636(a)(2), 3313. 
322(b)(3). 
322(b)(5). 
322(b)(6). 
; 
322(g). 
j 
3494(b). 
^ 
3493(b). 
322(c), 911, 1027(c). 
' 
322(d), 912, 1027(d). 
' 
322(b)(4). 
•} 
322(e). 
-> 
1636(c). 
.) 
3774. 
'^ . 
<< »
•
•
' 
3775. 
'• '•''• 
s 
3812. 
3748(a). 
^> 
3772(a)(2). 
3774(b). 
1 
3772(a)(3). 
3746(a), (b), (c). 
146(f), 292(a), (c), (d); 
294(a)(1), (2), (b), (c); 
295, 296, 297, 298, 
890(a), (b), 891, 892, 
' 
893(a)(1), (2); (b)(1), ^ 
(2), (3), (4); 925, 
1020(a), (b), 1021, 
1022, 1023(a)(1), (2); 
(b)(1), (2), (3), (4), (5), 
1420(b), 1530(c), 
966 
INTERNAL REVENUE CODE OF 1954 
TABLE II—Continued 
1954 Code 
section 
number 
6601(a)... 
6601(b)... 
6601(c)(1). 
6601(c)(2). 
6601(c)(3). 
6601(c)(4). 
6601(d)... 
6601(e)... 
6601(f)(1). 
6601(f)(2). 
6601(f)(3). 
6601(g)... 
6601(h)... 
6602 
6611(a)... 
6611(b)(1). 
6611(b)(2). 
6611(c)-_. 
6611(d)... 
6611(e)-_. 
6611(f).._. 
6611(g)_.. 
6612 
6651(a)... 
6651(b)... 
6651(c)... 
6652 
6653(a)-.. 
6653(b)... 
6653(c)(1) 
6653(c)(2) 
6653(d)__ 
6653 
(e)_-
6654 
6656 
6656 
6657 
6658 
6659 
1939 Code 
section number 
1605(b), 1717, 
1853(c), 
2403(b), 2451(b), 
2475, 
2706, 3310(c), 3448(b), 
3470, 
3495, 
3655(b), 
3779 
(i), 
3794. 
890(a), 925. 
294(a)(2), 296, 893(a)(2), 
(b)(3); 
1023(a)(2), 
(b)(3). 
56(b), 
272(i), 
1605(c). 
297, 892, 1022. 
3310(a), 
(b), 3311. 
292(a), 
891, 1021. 
292(c), 
3779 
(i). 
292(a), 
294(b), 
295, 296, 
298, 
890(a), 
(b), 891, 
893(a), 
(b), 
1020(a), 
(b), 
1021, 
1023(a), (b), 
1420(b), 
1530(c), 
1605(b), 1717, 
1853(c), 
2403(b), 2451(b), 
2475, 
2706, 
3310(c), (d), 
3448(b), 
3470, 
3495, 
3655(b), 
3779(i). 
59(d). 
3746(d). 
3443(c), 
3771(a). 
3771(b)(1). 
3771(b)(2). 
3771(c). 
322(b)(4), (e); 
1636. 
3771(b)(2). 
3771(e). 
3790. 
291, 
894(a), 1631, 
3612(d)(1). 
294(d)(1)(A). 
51(g)(6)(A), 
293(a),894(a) 
1019(a). 
51(g)(6)(B), 293(b), 
871(i), 
1019(b), 
3612(d)(2). 
271, 870, 1011. 
1821(a)(3). 
294(d)(1)(B). 
146(f). 
51(g)(6), 
291, 
293, 
871 
(i), 
1019, 1117(g), 1634(b), 
1718(c), 1821(a)(3), 
3310(a)-(e), 
3311, 
3655(a) 
(b). 
1954 Code 
section 
number 
6671(a) 
_. 
6671(b).. 
6672 
6673 
6674 
6801(a)-. 
6801(b)... 
6802(1)... 
6802(2)--. 
6802(3)-.. 
6803(a)(1). 
6803(a)(2) 
6803(b)(1) 
6803(b)(2) 
6804 
6805(a)--. 
6805(b)--. 
6805(c)--. 
6805(d)--. 
6806(a)--. 
6806(b)_.. 
6806(c)_-. 
6807 
6808 
6851(a)(1). 
6851(a)(2). 
6851(b).-. 
6851(c)---
6851(d)--. 
6851(e)-_. 
6861(a)--. 
6861(b)_-. 
6861 
(c)-_. 
6861(d)--. 
6861(e)--. 
6861(f)—. 
6861(g)-_. 
6861(h)._. 
6862(a) 
__. 
6862(b)--. 
6863(a)... 
6863(b)(1). 
6863(b)(2) 
6864 
6871(a).-. 
6871(b)..-
6872 
6873(a)... 
6873(b)... 
6901(a)--. 
6901(b)-.. 
6901(c)-.. 
6901(d)-.. 
6901(e).-. 
6901(f)_-.. 
1939 Code 
section number 
1718(c), 1821(a)(3), 
2557(b)(4), 
2707(a). 
1718(d), 1821(a)(4), 
2557(b)(8), 
2707(d). 
1718(c), 1821(a)(3), 
2557(b)(4), 
2707(a). 
ni7(g). 
1634(b). 
1809(b)(1), 
2652(a), 
3273(a), 
3300(a), 
3901(a)(2). 
1809(b)(1), 
3301(a). 
1423(a), 
1817(a). 
1817(b). 
1817(c). 
1423(b). 
1423(c). 
r 
1818(a). 
1818(b). 
1815, 
1920(c), 
3301(a). 
3304(a). 
3304(b). 
3304(c). 
3304(d). 
3273(b). 
3293. .•.>•,;.' 
•• 
3725. 
1 
146(a)(1). " 
.'-
146(a)(2). ; .
.
• ,
. .
J 
146(d). 
146(e). 
146(b). 
273(a), 
872(a), 
1013(a). 
273(b), 
872(b), 
1013(b). 
273(c), 
872(c), 
1013(c). 
273(d), 
872(d), 
1013(d). 
273(e), 
872(e), 
1013(e). 
273 
(i), 872(i), 1013(i). 
273(k), 
872(j), 
1013(j). 
3660(a). 
273(f), 
(h); 
872(f), (h); 
1013(f), 
(h); 
3660(b). 
273(g), 
872(g), 
1013(g). 
273(f), 
(h); 
872(f). 
(hi; 
1013(f), (h). 
274(a), 
1015(a). 
274(a), 
1015(a). 
274(a). 
274(b), 
1015(b). 
311(a), 
900(a), 
1025(a). 
311(a), 
900(a), 
1025(a). 
311(b), 
900(b), 
1025(b). 
311(b)(4). 
311(c), 
1025(e). 
311(d), 
900(c), 
1025(d). 
i ti *
; ' 
APPENDIX—TABLE II 
TABLE II—Continued 
967 
1954 Code 
section 
number 
6901 ( g ) . _ . 
6901(h).__ 
6901(i) 
6902 (a) _,_ 
6902(b)_-_ 
6903(a) ___ 
6903(b)_-. 
6904 
7001 (a) __-
7001(b).._ 
7011(a)-._ 
7011(b).__ 
7012 
7101 
7102 
7103 
7121(a).__ 
7121(b).__ 
7122(a). _. 
7122(b)_.. 
7123 
7201 
7202 
7203 
7204 
7205 
7206(1). __ 
7206(2) ___ 
7 2 0 6 ( 3 ) . . . 
7206(4) ___ 
7206(5)-.. 
7207 
7208 
7208(1)--. 
7208(2)--. 
7208(3)-.. 
7 2 0 8 ( 4 ) . . . 
7 2 0 8 ( 5 ) . . . 
1939 Code 
section number 
311(e), 1025(g). 
311(f), 900(e), 1025(f). 
1119(a). 
1119(b). 
312(a), 901(a), 1026(a). 
312(c), 901(c), 1026(c). 
150. 
3270(a). 
3280(a). 
44(d), 56(c)(2), 
112(b)(6)(D), 131(c), 
146(b), 272(j), 273(f), 
822(a)(2), 871(h), 872(f), 
926, 1012(i), 1013(f), 
1145, 1818(a), 2302(e), 
2322(e), 2352(e), 2474, 
2569(b), 2653(d), 
3360(d)(2)(B), 3412(d), 
3413, 3660(b), 3722(c), 
3724(c), 3943, 3992, 
4010, and 6 U.S.C. 15. 
3676. 
3760. 
3760. 
3761. 
3761. 
145(a), (b), 153(d), 
340, 894(b)(2)(B), (C); 
937, 1024(a), (b); 
1718(a), (b); 1821 (a)(1), 
(2), (b)(4); 2557(b)(2). 
(b)(3); 2656(f), 2707(b), 
2707(c), 3604(c). 
145(b), 894(b)(2)(C), 
1718(b), 1821(a)(2), 
2557(b)(3), 2707(c). 
145(a), 153(d), 340, 
894(b)(2)(B), 937, 
1024(a), 1718(a), 
1821(a)(1), 2557(b)(2), 
2707(b), 3604(c). 
1634(a). 
1626(d). 
3809(a). 
3793(b). 
3793(a). 
2656(a), 3321. 
3762. 
894(b)(2), 3616(a), 3672, 
3793(b). 
3300(b). 
1425(b). 
1823(a). 
1822, 1823(b). 
1823(c). 
3323(a)(3). 
1954 Code 
section 
number 
7209 
7210 
7211 
7212(a)..-
7212(b)---
7213(a)(1)-
7213(a)(2)-
7213(a)(3)-
7213(b).--
7213(c)---
7214(a) _ - . 
7214(b).--
7214(c).. _ 
7231 
7232 
7233(1)---
7233(2)-.. 
7 2 3 4 ( a ) . . . 
7234(b).--
7234(c)--_ 
7234(d)(1)-
7234(d) (2) 
(A). 
7234(d) (2) 
(B). 
7234(d) (3). 
7234(d)(4). 
7 2 3 5 ( a ) . - . 
7235(b)---
7235(c). - -
7 2 3 5 ( d ) . . . 
7 2 3 5 ( e ) . . . 
7236 
7 2 3 7 ( a ) . . . 
7 2 3 7 ( b ) . . . 
7238 
7 2 3 9 ( a ) . . . 
7 2 3 9 ( b ) . . . 
7240 
7261 
7262 
7 2 6 3 ( a ) . . . 
7 2 6 3 ( b ) . . . 
7264 
7265(a)(1)-
7265(a)(2). 
7 2 6 5 ( b ) . . . 
7265(c)-.-
7266(a)(1)-
7266(a)(2)-
7266(a)(3)-
7266(b)_.. 
7266(c)--. 
7266(d)-.. 
7266(e).-_ 
7266(f) 
7 2 6 7 ( a ) - . . 
7 2 6 7 ( b ) . . . 
7267(c)--. 
7267(d).._ 
7268 
1939 Code 
section number 
1425(a). 
3616(b). 
3325. 
3601(c). 
3601(c)(2). 
55(f)(1). 
55(f)(2). 
55(f)(3). 
4047(a)(1). 
4047(e). 
4047. 
— 
U - / -- • 
150. 
3412(d). 
1929(a)(1). 
1929(a)(2). 
2308(a). 
2308(c). 
2308(h). 
2308(i)(l). 
2308(g)(1). 
2308(g)(2). 
2308(i)(2). 
2308(d). 
2326(a). 
2326(b). 
2326(c). 
3207(b). 
2327. 
2357(b). 
2557(b)(1), 2596, 3225, 
3235. 
2557(a). 
2570. 
2656(b). 
2656(d). 
3506. 
2409. 
3294(a). 
1929(c). 
1929(b). 
3207(a). 
2308(b). 
2326(a)(2). 
<
•
•
' 
2308(e), 2327(a). 
2308(j), 2327(a). 
3211(a). 
3211(b). 
3211(c). 
2357(a). 
2357(c). 
2357(d). 
2357(e). 
2357(f). 
2656(j). 
2656(k). 
2656(i). 
2656(h). 
3320(a). 
l_ 
\ 
'\ 
. % 
"Si V 
\ 
' 
-
.
, 
•
s 
* 
'. 
i 
_
' 
• 
> 
I 
'\ 
i 
i . 
.1 
l> ,t' 
) 
\\ 
'' 
• 
> 
I 
968 
INTERNAL REVENUE CODE OF 1954 
TABLE II—Continued 
1954 Code 
section 
number 
7269 
7270 
7271(1)---
7271 (2) _ . _ 
7271(3)---
7271 (4)__-
7272(a)---
7272(b)--_ 
7273 (a)-_-
7273(b)-_. 
7274 
7276 
7301(a)---
7301(b)_._ 
7301(c)---
7301(d)_.-
7301(e)-__ 
7302 
7303(1)---
7303(2)---
7303(3)-.-
7303(4).--
7303(5)..-
7303 (6)(A)-
7303 (6)(B). 
7303(7)---
7303(8)-.-
7304 
7321 
7322 
7323(a)---
7323(b)-.. 
7323(c).--
7324 
7 3 2 5 — - - -
7326 
7327 
7328 
7329 
7341(a) -__ 
7341(b)---
7341(c). _-
7342 
7343 
7344 
7401 
7402(a)---
7402(b).--
7402(c)..-
7402(d).--
7402(e)_--
7403(a).--
7403(b)-_. 
7403(c)---
7403(d)---
1939 Code 
section number 
894(b)(1). 
1821(b)(3). 
1822, 2656(c). 
1820(b). 
1820(a). 
3323(a)(1), (2). 
1831(c), 2656(g), 3475(e). 
3274. 
3294(b). 
2656. 
2558(a), (b);2571, 
2598(a), (b), (c);3253, 
3321(b)(1), 3720(a)(1). 
3321(b)(1), 3720(a)(2). 
2657(e), 3321(b)(1), 
3720(a)(3). 
3321(b)(2), 3322. 
3321(b)(3). 
3116. 
1823. 
2309(b), 2358(b). 
2309(d). 
2358(a). 
2309(b), 2358(b). 
2657(c). 
2656(c), 2657(a)(b). (f). 
3323(b). 
3793(a)(2). 
3326. 
3720(b). 
3721. 
3723(a). 
3723(b). 
3723(c). 
3722. 
3724. 
3726. 
2657. 
3324(a). 
3324(b). 
3324(c). 
3601(b). 
145(d), 894(b)(2)(D), 
1718(d), 1821(a)(4), 
2557(b)(8), 2707(d), 
3228, 3710(c), 
3793(b)(2). 
4048. 
3740. 
3800. 
3633. 
4042. 
3992, 3995(c). 
3678(a). 
3678(b). 
3678(c). 
3678(d). 
1954 Code 
section 
number 
7404 
7 4 0 5 ( a ) . . . 
7405(b).-. 
7405 (c)_--
7405(d)._-
7406 
7407 
7421(a)..-
7421(b)-.. 
7422(a)---
7422(b)-.. 
7422(c).--
7422(d)--. 
7422(e)---
7422(f)—_ 
7423(1)..-
7423 (2) _ _-
7424(a)(1)-
7424(a)(2). 
7424(a)(3). 
7424(b)___ 
7424(c)_-_ 
7425 
7441 
7442 
7443(a)---
7443(b)... 
7443(c)-.. 
7443(d)-.-
7443(e)---
7443(f).... 
7 4 4 3 ( g ) - -
7444(a).--
7444(b)_-. 
7444(c)._-
7444(d)--_ 
7445 
7446 
7447 (a).— 
7447(b)..-
7447 (c)__. 
7 4 4 7 ( d ) - -
7447(e) _ . -
7447 (f)_.-. 
7447(g)-.. 
7451 
7452 
7453 
7 4 5 4 ( a ) . . . 
7 4 5 4 ( b ) . . . 
7455 
7456(a)---
7456(b)... 
7 4 5 6 ( c ) . . . 
7 4 5 7 ( a ) - -
7457(b)---
7458 
7459(a)--. 
7459(b)-.. 
7 4 5 9 ( c ) . . . 
7459(d)-.. 
7 4 5 9 ( e ) . . . 
1939 Code 
section number 
826(a). 
3746(a). 
3746(b). 
3747. 
3653(a). 
3653(b). 
3772(a)(1). 
3772(b). 
3772(d). 
3772(e). 
3770(b)(1). 
i 
3770(b)(2). 
3679(a) (i). 
3679(a)(2). 
3679(a)(3). 
3679(c). 
3679(d). 
1100. 
i 
1101. 
1102(a). 
— 
1102(b). 
'':: ^ 
1102(c). 
. 
' 
1102(d). 
1102(e). 
1102(f). 
1102(g). 
f 
^ 
•
= . 
1103(a). 
i 
1103(b). 
1103(c). 
1103(d). 
; 
1104. 
1 
1105. 
1 
1106(a). 
1106(b). 
f ; 
1106(c). 
1106(d). 
1106(e). 
r ^ 
1106(f), 
1106(g). 
1110. 
504(b), R.A. 1942. 
1111. 
1112. 
1113. 
1114. 
1114(b). 
1115(a). 
1115(b). 
1116. 
! 
1117(a). 
. ; 
; ;. 
1117(b). 
^
v • 
1117(c). 
1117(d). 
1117(e). 
- 
/ ^ ' 
APPENDIX—TABLE II 
TABLE II—Continued 
969 
1954 Code 
section 
number 
7459(f).__. 
7459 (g)__ 
7 4 6 0 ( a ) . . . 
7460(b)___ 
7461 
7462 
7463 
7471(a) _._ 
7471(b) ___ 
7471(c) __. 
7472 
7473 
7474 
7481 
- . 
7 4 8 2 ( a ) . . . 
7482(b) _._ 
7482(c) - - . 
7483 
7484 
7485(a) __. 
7 4 8 5 ( b ) . . . 
7486 
7487 
7491 
7492 
7493 
7 5 0 1 ( a ) . . . 
7 5 0 1 ( b ) . . . 
7502 
7503 
7504 
7505 (a) _._ 
7505(b).._ 
7506(a) ___ 
7506(b).__ 
7506(c).. _ 
7506(d).__ 
7507(a) __. 
7 5 0 7 ( b ) . . . 
7507(c).._ 
7 5 0 7 ( d ) . . . 
7508(a) _._ 
7508(b).._ 
7509 
7510 
7511 
7 6 0 1 ( a ) . . . 
7601(b)._-
7602 
7603 
7 6 0 4 ( a ) . . . 
7604 ( b ) „ . 
7604(c)_._ 
7605 ( a ) . . _ 
7605(b) ___ 
7606 ( a ) . . _ 
7606(b).__ 
7606 ( c ) . _ . 
7607 
7621 
7 6 2 2 ( a ) . . . 
1939 Code 
section number 
1117(f). 
1118(a). 
1118(b). 
1120. 
1121. 
1130(a). 
1130(b). 
1131. 
1132. 
1133. 
1140. 
1141(a). 
1141(b). 
1141(c). 
1142. 
1143. 
1145. 
1146. 
2597. 
1925(b). 
1930. 
3661. 
" 
:~ 
' 
3695(b). 
3695(c). 
3795(a). 
3795(b). 
3795(c). 
3795(d). 
3798(a). 
3798(b). 
3798(c). 
3798(d). 
. 
3804(a). 
3804(d). 
1424. 
3331. 
3802. 
3600. 
3614, 3615(a), (b), (c); 
3632(a)(1). 
3615(d). 
3633(a). 
3615(e). 
3614, 3615. 
3631. 
3601(a)(1). 
3601(a)(2). 
• ;, 
3650. 
3632(a). 
1954 Code 
section 
number 
7622(b).__ 
7623 
7641 
7651 (2) (A). 
7652(a)(1). 
7652(a)(2). 
7652(a)(3). 
7652(b)(1). 
7652(b)(2). 
7653(a)(1). 
7653(a)(2)-
7653(b)-__ 
7653(c) _._ 
7653(d).--
7654 
7655 
7701(a)(1)-
7701(a)(2)-
7701(a)(3). 
7701(a)(4). 
7701(a)(5). 
7701(a)(6). 
7701(a)(7)-
7701(a)(8)-
7701(a)(9). 
7701(a) 
(10). 
7701(a) 
(11). 
7701(a) 
(12). 
7701(a) 
(13). 
7701(a) 
(14). 
7701(a) 
(15). 
7701(a) 
(16). 
7701(a) 
(17). 
7701(a) 
(18). 
7701(a) 
(19). 
7701(a) 
(20). 
7701(a) 
(21). 
7701(a) 
(22). 
7701(a) 
(23). 
7701(a) 
(24). 
7701(a) 
(25). 
1939 Code 
section number 
3632(b). 
3792. 
2302(c), 2322(c), 2352(c), 
2569(d)(4), 2653(b). 
3811. 
3360(a). 
3360(b). 
3360(c). 
3350(a). 
3350(b). 
3361(a). 
3351(a). 
3351(b), 3361(b). 
3351(c), 3361(c). 
2483. 
1426(f), 1532 (i), 
1805, 1931(b), 
1607 (k), 
2733 (i). 
3228(a), 3238(a), 3607(a), 
3797(a)(1). 
3797(a)(2). 
3797(a)(3). 
3797(a)(4). 
3797(a)(5). 
3797(a)(6). 
3797(a)(7). 
3797(a)(8). 
3797(a)(9). 
3797(a) (10). 
3797(a) (11). 
3797(a) (12). 
3797(a) (14). 
3797(a) (15). 
. 
3797(a) (16). 
3797(a) (17). 
3797(a) (18). 
3797(a) (19). 
3797(a) (20). 
48(a). 
48(b). 
48(c). 
--, 
49012°—54-
-64 
970 
INTERNAL REVENUE CODE OF 
1954 
TABLE II—Continued 
1954 Code 
section 
number 
7701(a) 
(26). 
7701(a) 
(27). 
7701(a) 
(28). 
7701(b)___ 
7701(c)(1)-
7701 (c)(2) _ 
7801 (a) _ . -
7801(b)___ 
7801 ( c ) . _ . 
7802 
7803(a)___ 
7803(b)(1). 
7803(b)(2). 
7803(c)-.-
7803(d)-.-
7804(a)---
7804(b)_--
7805(a)_--
7805(b)_.-
7805(c)---
7 8 0 6 ( a ) . . . 
7806(b)-.-
1939 Code 
section number 
48(d). 
3797(b). 
3797(c). 
Reorg. Plan No. 26 of 
1950. 
3930(a), 3931. 
3932. 
3900. 
3920. 3921, 4000, 4041(a). 
4040. 
3901(b). 
3360(b)(2)(B), 3943, 
3992, 4010. 
3975, 3976, 3977, 3978. 
616 R. A. 1951. 
3, P. L. 567 (82d Cong.). 
62, 3791(a). 
3791(b). 
3901(a)(2). 
2. 
Ch. 1, Sec. 6, P. L. 1. 
1954 Code 
section 
number 
7807(a) - - -
7807(b)_--
7808 
7809(a)---
7809(b)-._ 
7809(b)(1)-
7809(b)(2)-
7809(b)(3). 
7 8 5 1 ( a ) . . -
7851(b)..-
7851(c)..-
7851(d)__-
7852 ( a ) . . _ 
7852(b).--
7852(c)..-
7852(d)---
8001 
8002 
8003 
8004 
8005 
8021 
8022 
8023 
1939 Code 
section number 
• i -
3970. 
' 
2480, 3971(a). 
3971(b). 
3971(b)(1). 
- 
-
3971(b)(2). 
'- 
^-'^1 V 
3971(b)(3). 
See 26 U. S. C. 3, 4. 
See 26 U. S. C. 4(b). 
See 26 U. S. C. 4(c). 
See 26 U. S. C. 4(d). 
3803. 
See 26 U. S. C. 4(a), 5, 7. 
108 R. A. 1941; 109 R. A. 
1942; 136 R. A. 1943; 
214 R. A. 1950; 615 
R. A. 1951; See 22 (b)(7). 
5000. 
5001. 
5002. 
-^; 
. . . . ! - , 
5003. 
' 
: 
^ - •• 
5004. 
' 
5010. 
--
5011. 
5012. 
.{U){i>.)\^(\Z \ 
,((\\7^m\\\ 
.(TnaOTlKS , 
.•(OSX^nOAg 
.(JB)8I' 
.(ti)?!l-
.fTt; 
*:£) 
'I 
'i-U(/'T 
i(o) ,/d) 
f 
'(.IT. 
' , ^ ( > " ' 
.1'.:'' 
I 
r; ;.o 
.£()<(• 
.o<t;)C 
-iG-^^ilLO&h 
APPENDIX—TABLE III 
971 
TABLE III 
Cross references VBithin the Internal Revenue Code of 1954 
Section 
number-
Subtitle A. 
Is referred to 
ill sections— 
Chapter 1. 
1_ 
2_ 
3_ 
4_ 
11 
21 
Chapter 1, Sub-
chapter A, 
Part IV. 
31._ 
32 
33 
34 
35 
_-. 
36 
37 
Chapter 1, Sub 
chapter B. 
61 
63 
Subchapter 
B, 
Part 
II. 
71 
3502, 6012, 6013, 
6031, 6032, 6033, 
6081, 6201, 6211, 
6212, 6213, 6214, 
6315, 6404, 
6501, 
6511, 6601, 6611, 
6653, 6871, 
6901, 
7001, 7701, 7851. 
1501, 6015, 6016, 
6051, 6103, 6152, 
6161, 6162, 6201, 
6211, 6212, 6401, 
6501, 6654, 6655, 
7851. 
3, 
4, 
142, 
152, 213, 
511, 632, 871, 876, 
891, 1201, 
1347, 
6014, 6015. 
213, 6014, 6015. 
2, 4, 
36, 144, 891, 
1211, 
1222, 6014. 
144. 
12, 244, 247, 
511, 
522, 594, 802, 831, 
852, 881, 882, 
891, 
922, 941, 1201, 
1361, 1503, 1551, 
6016, 
6655. 
441, 
1201, 6013. 
6015, 6016, 6664, 
6655. 
874, 6211, 6401, 
6413, 6513, 
6654. 
36, 37, 874, 6211. 
34, 35, 36, 37, 691. 
35, 37, 584, 642, 702, 
854, 6014. 
36, 37, 171, 584, 551, 
642, 
702, 1402. 
4, 145. 
6014. 
832. 
305, 351, 
356, 671, 
707. 
1
, 
4, 
141, 
161, 211, 
270, 1034. 
61. 
72, 101, 152, 
215, 
682, 7701. 
Section 
number— 
72 
73__ 
75 
77 
Subchapter B, 
Part III. 
101 
103 
104 
105 
106 
108 
109 
111 
112 
116..._ 
117 
Subchapter B, 
Part IV. 
141 
142__ 
143__ 
__ 
144 
151 
152 
Subchapter B, 
Part VI. 
162 
163 
164 
165_ 
Is referred to 
in sections— 
6, 
37, 
101, 
402, 403, 
691, 1014, 
1232, 
1241. 
6201. 
171,1016. 
1016. 
61. 
'Yi 
37, 7701. 
643, 803, 
821, 822, 
832, 1232. 
37, 
105, 7701. 
37, 7701. 
104, 7701. 
1017. 
1019. 
381, 1333. 
692, 1034, 2201, 
3401, 4253, 7508. 
34, 301, 584, 
642, 
643, 702, 854. 
74. 
63. 
684, 703. 
144, 
642, 
873, 7851. 
4. 
4, 36, 63, 
6212, 6504. 
1, 2, 4, 63, 
117, 152, 
154, 
170, 
172, 213, 
214, 443, 642, 
703, 
873, 874, 891, 904, 
911, 931, 933, 
1211, 1222, 1402, 
1451, 3402, 
6015, 
6664. 
2, 105, 151, 154, 
213, 
214, 7701. 
62, 241, 832. 
114, 164, 
263, 267, 
404, 421, 542, 
543, 
545, 556, 691, 707, 
832, 1402. 
216, 267, 691, 832. 
216, 434, 
535, 545, 
556, 691, 703, 832, 
853, 901, 903, 905, 
1001, 1012. 
166, 172, 
270, 271, 
272, 
682, 873, 
1091, 1236, 
6511. 
972 
INTERNAL REVENUE CODE OF 
1954 
TABLE III—Continued 
Cross references within the Internal Revenue Code of 1954—Continued 
Section 
number— 
166. 
167. 
168 
169__ 
170 
171 
172 
173 
174 
175 
Subchapter B, 
Part VII. 
212 
213 
214 
215 
216 
Subchapter B, 
Part VIII. 
242___ 
243 
244 
245 
246 
247 
248 
Subchapter B, 
Part IX. 
263 
264 
265 
266 
267 
268 
269 
Is referred to 
in sections— 
271, 462, 
582, 593, 
6511 
62, 168, 
169. 172, 
174, 
175, 381, 545, 
556, 611, 615, 616, 
642, 803, 822, 832, 
1016, 1071, 1082, 
1221, 1231, 1239. 
169, 642, 
1082, 1238. 
642, 1082. 
162, 381, 503, 512, 
535, 
545, 
556, 584, 
642, 
673, 
674, 677, 
681, 
702, 
703, 832, 
873, 882. 
35, 75, 242, 551, 584, 
642, 
702, 1016. 
170, 246, 
270, 381, 
382, 512, 535, 545, 
556, 
584, 
642, 703, 
852, 1235, 1314, 
1402, 6164, 6411. 
1016. 
263, 1016. 
263. 
62, 703. 
62, 164, 
265, 267, 
404, 691. 
104, 105. 
213. 
71, 7701. 
1034. 
170, 535, 545, 556, 
601, 
702, 
803, 822, 
832, 852, 891. 
11, 171, 
172. 551, 
556, 584, 702, 802, 
803, 804, 821, 
822, 
832, 852, 1503. 
172, 
245, 
246, 854. 
172, 243, 
246, 247. 
172, 
246, 861, 
172. 
172, 
244, 246. 
170, 535, 545, 556, 
601, 
803, 
822, 852. 
161, 
211. 
173. 
163. 
163, 643. 
163, 1016. 
163, 503, 514, 681, 
707, 1235, 1237, 
1361. 
1016. 
1551. 
Section 
number— 
270..-
271 
272 
Chapter 1, Sub-
chapter C. 
Subchapter C, 
Part I. 
301 
. 
302 
303-
304 
305 
306 
307 
311 
312 
316 
317 
318 
Subchapter C, 
Part II. 
331 
332 
333 
334 
337 
341 
342 
346 
Subchapter C, 
Part 
III. 
351 
354 
355 
356 
357 
358 
361 
362 
368 
Subchapter C, 
Part 
IV. 
371 
372 
373 
Is referred to 
in sections— 
6504. 
165, 166. 
631, 1016. 
1011, 1012, 
1016, 
1081, 1361. 
368, 391, 1361. 
302, 305, 
306, 316, 
331, 341, 356, 902, 
1022. 
301, 304, 306, 312, 
318, 346. 
302, 
304, 
312, 382. 
318 
306^ 
307, 
312, 421. 
302, 
318, 
356, 391. 
312, 1223. 
301, 
312. 
' 
338, 363. 
245, 
301, 
562, 565. 
301, 
302, 306. 
302, 304, 306, 334, 
382. 
301, 306, 368, 392, 
1361. 
302, 6162. 
334, 337, 
367, 381, 
453. 
334, 337. 
318, 
337, 381, 615. 
392, 453. 
333, 
337, 392. 
551, 6162. 
331. 
301*, 
305, 306, 393, 
1361. 
334, 357, 358, 362, 
367, 393. 
332, 356, 358, 367, 
368, 
381, 421. 
306, 312, 
354, 356, 
358, 367, 368, 393, 
421, 1223. 
306, 312, 354, 355, 
358, 367, 368, 393, 
421, 1223. 
351, 371. 
351, 372. 
332, 357, 
358, 367, 
381 
118, 
351, 
615, 1032. 
247, 306, 351, 354, 
355, 
357, 381, 402, 
6901. 
393, 1361. 
247, 
357, 
358, 372. 
615. 
615. 
APPENDIX—TABLE III 
973 
TABIJE III—Continued 
Cross references within the Internal 
Revenue Code of 
1954—Continued 
Section 
number-
SSI 
382 
Chapter 1, Sub-
chapter D. 
401 
402 
403 
404 
421 
441 
443 
446 
451 
452 
453 
454 
461 
471 
472 
482 
Chapter 1, Sub-
chapter F. 
501 
502 
.__ 
503 
504 
Subchapter 
F, 
Part II. 
511 
512 
613 
514 
Subchapter 
F, 
Part III. 
521 
522 
Chapter 1, Sub-
chapter G. 
Subchapter 
G, 
Part I. 
Is referred to 
in sections— 
172, 363, 
382, 394, 
615. 
172, 318, 394. 
72. 
101, 318, 402, 403, 
404, 501, 503, 511. 
513, 514, 
1361, 
1492, 2039, 3121, 
3306, 3401, 
6033, 
6324. 
37, 
101, 871, 1441. 
37. 
381, 401, 403, 556. 
402, 691, 1014. 
442. 
4, 142, 441, 536, 546, 
557, 
852, 6013. 
452. 
452. 
381, 462. 
311, 336, 381, 392, 
481, 691. 
1232. 
164. 
311, 472. 
311. 
1505. 
532, 
542, 
552, 1492. 
34, 101, 
116, 117, 
246, 267, 318, 401, 
402, 403, 404, 502, 
503, 504, 511, 513, 
514, 681, 
1504, 
3306, 4233, 4421, 
6033, 6044. 
501. 
170, 403, 501, 504, 
542, 681. 
403, 
501, 
2055, 2106, 
2522. 
501. 
12, 512, 
513, 515, 
1201, 1443. 
511, 513, 514, 681, 
877, 884, 1443. 
512. 
512. 
501. 
34, 116, 
246, 522, 
3121, 3306, 
4382, 
4421. 
521, 6072. 
631. 
12. 
Section 
number— 
631. 
532 
536 
536 
Subchapter 
Part II. 
541 
G, 
542. 
543. 
644. 
545. 
546. 
547. 
551. 
552. 
553. 
555. 
556. 
557. 
561. 
562. 
563. 
564. 
565. 
581. 
582. 
584. 
591_ 
593. 
594. 
601. 
611. 
613. 
614. 
615. 
616. 
631. 
632 
Chapter 1, Sub-
chapter J. 
Subchapter 
J, 
Part I, Sub-
part A. 
Is referred to 
in sections— 
111, 532, 534, 535, 
536, 545, 556, 563, 
901, 1361. 
531, 533. 
531, 
601, 631, 1551. 
443. 
12, 554. 
Ill, 535, 545, 546, 
547, 556, 563, 901. 
316, 532, 
541, 544, 
851. 
642, 
544, 
553, 1361, 
6501. 
341, 
542, 
554, 1551, 
6035, 6501. 
312, 316, 381, 503, 
541, 564, 601, 631, 
681. 
443. 
316, 
381, 
6420, 6503, 
6515. 
1016, 6501. 
171, 342, 
532, 
542, 
551, 553, 555, 
6035. 
552. 
551, 552, 556. 
557. 
443. 
535, 545, 
547, 666, 
564, 565, 583, 852. 
346, 561, 
563, 565, 
852. 
316, 
535, 547, 561. 
381, 561. 
561. 
271, 
542, 6032. 
165, 166, 581, 1236. 
34, 170, 
171, 581, 
851, 4303. 
34, 
116, 243. 
166. 
11. 
535, 545. 
62, 167, 
174, 613, 
615, 616, 642, 691, 
1082. 
381, 611, 631, 1082. 
613, 1016. 
381, 1016. 
263, 381, 1016. 
272, 512, 
871, 881, 
1231, 
1402, 1441. 
5. 
102, 511. 
543, 671, 1312. 
974 
INTERNAL REVENUE CODE OF 1954 
TABLE III—Continued 
Cross references within the Internal Revenue Code of 1954—Continued 
Section 
number— 
642 
Subchapter 
J, 
Part I, Sub-
part B. 
651 
652 
Subchapter 
J, 
Part I, Sub-
part C. 
661 
662 
Subchapter 
J, 
Part I, Sub-
part D. 
665 
666 
667 
668 
Subchapter 
J, 
Part I, Sub-
part E. 
671 
672 
673 
674 
675 
676 
677__.. 
.
_ 
681 
682. 
683 
Subchapter 
J, 
Part II. 
691 
__. 
692 
Chapter 1, Sub-
chapter K. 
702 
703 
704 
705 
706 
707 
708 
722 
723 
731 
732 
733 
Is referred to 
in sections— 
34, 154, 170, 503, 
542, 
643, 
651, 661, 
662, 
663. 
681, 901, 
904, 6034. 
642, 643, 661, 665, 
671. 
643, 
652, 663. 
642, 1202. 
643, 
665, 
666, 671. 
643, 662, 663, 665, 
666, 
677, 678. 
642, 663, 668, 677, 
678, 1202. 
643, 
663, 671. 
668. 
665, 
667, 668. 
665. 
665, 667. 
318. 
678. 
170, 678. 
674, 676, 677, 678. 
672, 
677, 678. 
672, 678. 
678. 
674, 678. 
504, 513, 642, 663, 
2055, 
2106, 
2522. 
71, 72, 
101, 152, 215, 
7701. 
691. 
' 
" 
642. 
217, 421, 453, 753, 
1014. 
5. 
1011, 1012, 1016. 
34, 
170, 703, 704, 
706, 1402. 
705, 901. 
743. 
771. 
771. 
706, 736. 
771. 
705. 
615. 
734, 771. 
615, 731, 733, 734, 
743, 754, 771. 
705,771. 
, i 
'.A }'f/K; 
Section 
number— 
734 
735 
736 
742 
743 
751 
752 
753 
754 
755 
761 
Chapter 1, Sub-
chapter L. 
Subchapter L, 
Part I. 
801 
802 
803 
804 
805 
806 
807 
Subchapter L, 
Part II. 
821 
823 
831 
832 
Chapter 1, Sub-
chapter M. 
851 
852 
853 
854 
855 
Chapter 1, Sub 
chapter N 
Subchapter N, 
Part I. 
861 
862 
871 
873 
874 
Subchapter N, 
P a r t 
I I , 
Subpart B. 
881 
882 
891 
Is referred to 
in sections— 
754, 
755. 
]
.
- '
. 
771, 
1223. 
731, 
751, 753. 
705. 
754, 755. 
731, 732, 735, 736, 
741, 771. 
771. 
691, 771. 
734, 743. 
734, 743. 
771, 6031. 
11, 594, 
884, 
951, 
6016, 6044, 6655. 
34, 
116. 
807, 
832, 
1035. 
801, 805, 
841, 842, 
891, 1504. 
316, 594, 80], 802, 
805, 806, 841. 
802. 
802. 
802, 804, 
805, 
832.. 
i 
4371. 
34, 
116. ,
. 
_r 
316, 801, 822, 841, 
891, 
1201, 
1504. 
316. 
801, 821, 822, 832, 
841,842,891,1201, 
1503. 
316, 
543, 841. 
11, 
1504. 
853. 
443, 853, 854, 891. 
855. 
,,ii 
34, 116, 243. 
852. 
aCG 
512, 555. 
306, 842, 871, 873, 
882, 
905, 
94], 
1441. 
542, 
862, 
863. 
v 
i 
-
863. 
5, 
34, 116, 
306, 
884, 
891, 
1235, 6012. 
154, 
170, 871, 931. 
1441, 
1451. 
822, 
832. 
11, 306, 
871, 891, 
6012. 
871, 931. 
5, 12, 871, 881. 
•^,~ 
APPENDIX 
TABLE III 
.,.^j 
9 7 5 
TABLE III—Continued 
Cross references within the Internal 
Revenue Code of 
1954—Continued 
Section 
number— 
Subchapter 
N, 
P a r t 
I I I , 
Subpart A. 
901 
902 
904 
905 
911 
921 
922 
931 
933 
941 
1001 
1002 
Subchapter 
O, 
Part II. 
1011 
1012 
1014 
1015 
1016-_ 
--
1017.._ 
1020 
1021 
1031 
1033 
1034 
1035.__ 
__ 
1036 
1051 
1052 
Subchapter 
O, 
Part VI 
1081 
1082 
1083 
1091 
Chapter 1, Sub-
chapter P, 
1201-__ 
— 
1202-__ 
1211 
_. 
Is referred to 
in sections— 
853, 861. 
33, 164, 
615, 642, 
702, 703, 841, 853, 
874, 882, 905, 931, 
942, 6511. 
901. 
841, 901. 
6037, 6213, 6420, 
6501, 6504, 
7103. 
37, 3401. 
1503. 
170, 172. 
4, 34, 
116, 
142, 154, 
246, 861, 901, 
1504. 
876, 
1402, 7655. 
34, 116, 
246, 901. 
331, 1002. 
331, 342, 1001. 
742. 
165, 166, 167, 612, 
1001. 
1011, 1033. 
334, 551. 
1312. 
75, 169, 
171, 174, 
312, 615, 616, 
1011, 1015, 1020, 
1034, 1053. 
108, 372. 
1016. 
72. 
421, 
1035, 1036. 
381,1034,1071,1223, 
1332, 1333, 1336, 
6212, 6504. 
1016, 1223, 6212, 
6504. 
1031. 
421. 
615. 
307, 1223. 
247. 
1082, 1223. 
615, 1081. 
4382. 
267, 312, 1223. 
822, 
832, 
871, 1011, 
1012, 1016. 
5, 
12, 
522, 
594, 821, 
831, 871, 
1361, 
6016, 
6655. 
62, 172, 217, 642, 
643, 871. 
165, 535, 822, 832, 
1222, 1231. 
Section 
number— 
1212 
1221 
1223 
1231 
1233 
1234 
1235 
1238 
1301 
1302 
1303 
1311 
1312 
__. 
1313 
1314 
1321 
1332 
1333__ 
1335 
1336 
1341. 
1346 
1347 
1361 
Chapter 
2 
1402 
Chapter 
3 
Chapter 
3, 
Sub 
chapter 
A. 
1441 
1442 
1443 
Chapter 
3, Sub 
chapter 
B. 
1451 
1461 
Chapter 
4 
1481 
Chapter 
5 
1491 
1494 
Chapter 
6 
1501 
1502 
1503 
Is referred to 
in sections— 
165, 381, 
481, 535, 
642, 871, 
1222, 
1314. 
341, 
707, 
751, 1223, 
1231. 
341, 735, 1033, 1034, 
1233. 
268, 272, 
341, 702, 
751, 755, 
1033, 
1223, 1238, 1240. 
1234. 
1233. 
871, 
1441. . fOOS 
168. 
5, 1304. 
5. 
5. 
270,1312,1314,1481. 
1311, 1333. 
1311, 
1314, 1315. 
270, 481, 1311, 1333, 
6164, 6411. 
472, 6420, 6504, 
6515. 
1331, 1336. 
901, 1331, 1334, 
1335, 1336. 
1331, 1333, 
1336, 
6212, 6504, 6515. 
1335. 
5. 
6504. 
5. 
1504. 
170, 1016, 1304, 
1361, 6017, 6103, 
6521, 7651, 
7655, 
7851. 
6521. 
871, 1443, 6103, 
6414, 7851. 
32. 
5, 
565, 
1442, 7701. 
12, 
565, 
884, 
7701. 
7701. 
32, 164. 
12, 
164, 
1441, 1442, 
6211, 
7701. 
7701. 
7851. 
6420, 6515. 
6103,7851. 
1492, 1494, 
6420. 
6103. 
542. 
1051, 
1501, 1503. 
12, 
1341, 1552. 
.^.......mm 
976 
INTERNAL REVENUE CODE OF 1954 
TABLE III—Continued 
Cross references within the Internal Revenue Code of 1954—Continued 
Section 
n u m b e r — 
1504 
1551 
Subtitle 
B 
Chapter 
11 
2001 
2011 
2012 
2013 
2014 
2015 
2016 
2031 
2032.. 
2034 
2035 
2036 
2037 
2038 
2039 
2040 
2041 
2042 
2043 
2051 
2052 
2053 
2054._ 
2055 
2056__. 
Chapter 
11, 
sub-
chapter 
B. 
2101 
2103 
Is 
referred 
to 
in 
sections— 
404, 
514, 
1313, 
1503. 
12, 535. 
6018, 6019, 6211, 
6212, 6213, 6214, 
6404, 6871, 6901, 
7851. 
1014, 6103, 
6161, 
6163, 6212, 6314, 
6324, 6325, 6501, 
6503, 6601, 6901, 
7269, 7404, 7851. 
691, 2011, 
2012, 
2013, 2014, 2015, 
2051, 2052, 2053, 
2054, 2055, 2056, 
2101. 
2012, 2013, 2014, 
2015, 2016, 2102, 
2201, 6511, 6612. 
2013, 
2014, 2102. 
2102. 
2013, 2015, 
2016, 
6511, 6612. 
6511. 
6037, 
6213, 
6501. 
2103, 
2106. 
1014, 
2055, 
2106. 
2044, 
6324. 
2041, 
2043, 
2044, 
2104, 
6324. 
2041, 
2043, 
2044, 
2104, 
6324. 
2041, 
2043, 
2044, 
2104, 
6324. 
2035, 
2041, 
2043, 
2044, 
2104, 
6324. 
2044, 
6324. 
2044, 
6324. 
2013, 2035, 2037, 
2043, 2044, 2055, 
2106, 2207, 6324. 
2044, 
6324. 
2053. 
2001, 
2206. 
2013, 
2207. 
213, 
303, 
642, 2013, 
2056, 
2106. 
642, 
2013, 2053, 
2056, 
2106. 
503, 
681, 
2012, 
2013, 
2014, 2032, 2053. 
2012, 2013, 2014, 
2032, 2206, 2207. 
2014. 
691, 2011, 2013, 
2014, 2015, 2102, 
2103, 2106. 
2106. 
Section 
n u m b e r — 
2106 
2203 
2204 
Chapter 
12 
2501 
2502 
2503 
2511 
2513 
2514 
2515 
Chapter 
12, 
sub-
chapter 
C. 
2521 
2522 
2523 
Subtitle 
C 
Chapter 
21 
3101 -
_ 
3111 
3121 
3122___..__ 
Chapter 
22._---
3201 
3211 
3221 
3231 
Chapter 
23 
3301 
3302.._ . _ 
_
_ 
3303 
3304 
3305 
3306 
Chapter 
24 
3401 
3402 
Subtitle 
D 
Chapter 
31 
Is 
referred 
to 
in 
sections— 
303, 503, 
681, 
2012, 
2013, 2032, 2101, 
2207. 
6036. 
6037, 6314, 6324, 
6504. 
2012, 
6103, 
6161, 
6212, 
6324, 6325, 6501, 
6653, 6901, 7851. 
305, 
351, 
356, 
2502, 
2511. 
2501, 
2504. 
2012, 
2515, 
6019. 
2501. 
2012. 
2503, 
2513. 
6019. 
2503. 
2504. 
503, 
681, 
2012, 
2524. 
2012, 
2524. 
1314, 
7508, 
7851. 
3503, 6011, 6302, 
6501, 6513, 7507, 
7509, 7651, 7655, 
7701. 
3102, 3121, 3306, 
3502, 6051, 6205, 
6413, 6521. 
3112, 3121, 3122, 
6205, 
6413, 
6674. 
401, 1402, 3101, 
3111, 3122, 3124, 
3401, 6051, 6413. 
6205, 
6413. 
3503, 
7851. 
3202, 3231, 3502, 
6205, 6413. 
3502. 
3231, 
6205, 
6413. 
1402, 
3121, 
3212. 
6106 7507, 
7213. 
3302, 3305, 3306, 
6152. 
3303, 
6413. 
3302. 
3302, 
3303, 
3305. 
3304, 
3306. 
3301. 
3502, 6011, 
6015, 
6401, 6414, 6501, 
6513. 
6014, 6015, 6051, 
6331. 
31, 
3401, 
6037, 
6051, 
6205, 6413, 7205. 
6107, 
7851. 
4293, 6302, 6416, 
7261. 
APPENDIX—TABLE III 
mf 
TABLte III—Continued 
Cross references within the Internal Revenue Code of 1954—Continued 
Section 
number— 
4001 
4002 
4011 
4012 
4021 
Chapter 
31, 
sub-
chapter 
E. 
4041 
Chapter 
32 
4061 
4071 
4081 
4082 
409r__ 
4093 
4101 
4102. 
4111 
4113___ 
__ 
4141 
4142 
4143 
4151 
4171 
4181 
__ 
4182.__ 
4191 
4201 
4218 
— 
4220 
-
4222 
4224 
Chapter 
33 
4231 
4234 
4241 
Chapter 
33, 
sub 
chapter 
B. 
4251 
4252 
4253 
Chapter 
33 Sub 
chapter 
C. 
4261 
4271 
4273 
4281 
-
Chapter 33 Sub 
chapter D. 
4286 
Is referred to 
in sections— 
4002, 
4003, 
4221, 
6416. 
4003. 
4012, 4013. 
4013. 
4022. 
6416. 
4055, 4082, 4222, 
6416. 
4293, 6103, 6302, 
6416, 7103. 
4062, 4063, 4218, 
6412, 
6416. 
4073, 
6416. 
4041, 4083, 4101, 
6412. 
7851. 
4101. 
4092. 
7012, 7103, 7232, 
7272. 
6109. 
4112, 4113. 
4112. 
4142, 4143, 4218, 
4220, 6416. 
6416. 
6416. 
4152, 
6416. 
4172. 
4182, 
5811, 6831. 
5812. 
4192. 
6416. 
05. 
6416. 
4218, 
6416. 
4042, 
6416. 
4218, 
6416. 
6302. 
4232, 4233, 6415, 
6416. 
6037, 
7275. 
4243, 
4291, 
6415. 
4293, 
6103. 
4252, 
4253, 
4254, 
4292, 
6415. 
4253. 
4252. 
4293, 
6103. 
4262, 4291, 4292, 
6415. 
4272, 
4292, 
6415. 
7012, 
7272. 
4282, 
4283, 
6416. 
6103. 
4287, 6415. 
Section 
number— 
4293 
Chapter 
34 
4301 
4311 
4321 
_. 
4322 
4331.__ 
4332. 
4341 
4342 
4343 
4344. 
_. 
4351 
4352 
4353 
4361.__ 
_. 
4371 
4372 
4374 
4381 
4382__ 
4383 
Chapter 
35 
4401 
Chapter 
35, 
Sub-
chapter 
B. 
4411 
4412 
4421 
4422 
4423 
Chapter 36, Sub-
chapter A. 
4455 
4461 
4462 
4463 
4471 
Chapter 37, Sub-
chapter A. 
4501 
4504 
Chapter 37, Sub-
chapter B. 
Is referred to 
in sections— 
4057,4226. 
6808. 
4302, 4303, 4304, 
4381, 4382, 6802. 
4312, 4314, 4315, 
4381, 
4382. 
4322, 4323, 4341, 
4342, 4343, 4352, 
4353, 
4382. 
4344, 
4345. 
4332, 4341, 4342, 
4343, 4352, 4353, 
4381, 
4382. 
4344, 
4345. 
4322, 
4332, 
4344. 
4322, 
4332, 
4344. 
4322, 
4332, 
4344. 
4324, 
4333. 
4324, 
4333. 
4324, 
4333. 
4323, 
4333. 
4362, 
4382. 
4372, 
4373, 
4374. 
4371. 
7270. 
4305, 4312, 4324, 
4333. 
4315, 4322, 4332, 
4345, 
4362. 
4305, 4316, 4324, 
4333, 4354, 4363, 
4375. 
6419. 
4411. 
7262. 
; 
,
r 
4901, 4903, 4907, 
6806. 
4905, 
7012, 
7272. 
4401, 
4405, 
4414. 
4405, 
4414. 
4405, 
4414, 
7607. 
6808. 
4905, 
7012, 
7272. 
4402, 4462, 4901, 
6806. 
4461. 
4462. 
4472, 
4473. 
7240, 
7655. 
. 
4502, 4503, 4504, 
4603, 6156, 6206, 
6302, 6304, 6412, 
6418. 
6156, 6206, 6304, 
6418. 
6103, 6417, 7103, 
7654. 
978 
INTERNAL REVENUE CODE OF 1954 
TABLE III—Continued 
Cross references within the Internal Revenue Code of 1954—Continued 
Section 
number— 
4511 
— . 
4513 
Chapter 
38, 
Sub-
chapter 
A. 
Chapter 
38, 
Sub-
chapter 
B. 
4531 
Chapter 
38, 
Sub-
chapter 
C. 
4541 
-
Chapter 
38 Sub-
chapter 
D. 
4551 
-
Chapter 
38 Sub-
chapter 
E. 
4561 
4571 
4581_-_ 
_ 
4582 
Chapter 
38, 
Sub-
chapter 
F. 
4591- 
---
4593__ 
--
4594__ 
_ 
4596 
4597 
4601—- 
--
Chapter 
39, 
Sub-
chapter 
A. 
Chapter 
39, 
Sub-
chapter A, 
Part 
I. 
4701 
4702 
4703-
4704 
4705 
4706-
4707 
, __ 
Is 
referred 
to 
in 
sections— 
4513, 4581, 6302, 
6417. 
7103. 
4222, 4601, 
6156, 
6206, 
6304. 
4222, 4601, 
6156, 
6206, 
6304. 
4532 
4222; 4601, 
6156, 
6206, 
6304. 
4542. 
4222, 4601, 
6156, 
6206, 
6304. 
4553. 
4513", 4601, 4602, 
6156, 6206, 6304. 
4562, 
4581, 
4582. 
4572, 
4581, 
4582. 
4582. 
4601. 
4601, 4603, 6808, 
7234, 7265, 7303. 
4592, 
4593, 
7234. 
7103. 
7234, 
7265. 
7103. 
7234, 
7607. 
4222, 6156, 6206, 
6304. 
6808. 
7655. 
4724,4731,4734,4735, 
4736, 
4756, 
4771, 
4774, 
5846, 
6302. 
4721, 4724, 
4731, 
4734, 
4735, 
4736, 
4771, 
4774, 
4775, 
7607. 
4724, 4731, 
4734, 
4735, 
4736, 
4771, 
4774. 
4724, 4731, 
4734, 
4735, 
4736, 
4771, 
4774. 
4724, 4731, 
4734, 
4735, 
4736, 
4771, 
4773, 
4774, 
7237, 
7607, 
7651. 
4724, 4731, 
4734, 
4735, 
4736, 
4771, 
4774. 
4724, 4731, 
4734, 
4735, 
4736, 
4771, 
4774. 
Section 
number-
Chapter 39, Sub-
chapter A, 
Part I, Sub-
part 
B. 
4711 
4712 
4713 
:
.
-
4714 
4715 
Chapter 
39, 
Sub-
chapter A, 
Part I, Sub-
part 
C. 
4721 
4722 
_
_ 
4723 __-
4724 
4725— 
4726 
4731 
4732 
4733 
4734 
4735. 
-
4736 
Chapter 
39, 
Sub-
chapter A, 
Part 
II. 
4741 
•
_
-
4742 
Is 
referred 
to 
in 
sections— 
7238. 
- 
H)iM-
4731. 
4731. 
4731, 
7103. 
4731, 
7326. 
4731. 
7237. 
4702, 4705, 4706, 
4722, 
4723, 
4724, 
4731, 
4734, 
4735, 
4736, 
4756, 
4772, 
4774, 
4775, 
4901, 
5846, 
6302, 
7607. 
4702, 4704, 4705, 
4706, 
4723, 
4724, 
4731, 
4732, 
4734, 
4735, 
4736, 
4772, 
4774, 
4775, 
4905, 
7012, 
7272. 
4702, 4706, 
4731, 
4734, 
4735, 
4772, 
4774, 
4775. 
4702, 4706, 
4731, 
4734, 
4735, 
4736, 
4772, 
4774, 
4775. 
4702, 4706, 4734, 
4735, 
4772, 
4774, 
4775. 
4702, 4706, 
4731, 
4734, 
4735, 
4772, 
4774, 
4775. 
4707, 4715, 
4726, 
4774. 
4707, 4715, 
4726, 
4773, 
4774, 
7237. 
4706, 4707, 
4715, 
4726, 
4774, 
7326. 
4707, 4715, 
4726, 
4774. 
4705, 4707, 
4715, 
4721, 
4726, 
4772, 
4774, 
7651, 
7809. 
4707 4715 4726 
4774. 
7237, 
7491, 
7655. 
4744, 4771, 
4772, 
4774. 
4741, 4744, 4762, 
4771, 
4773, 
4774, 
7491, 
7607. 
X>v* * 
.iosn 
.Gfi-a ,T>^St. 
!• nv 
APPENDIX—TABLE III 
979 
TABIJE III—Continued 
Cross references within the Internal 
Revenue Code of 
1954—Continued 
Section 
number— 
4743 
4744.__ 
_ 
4745 
4746 
4751 
4752 
4753 
4754 
4755 
4756.__ 
_ 
4757 
4761 
4762 
Chapter 39, Sub-
c h a p t e r 
A, 
Part III. 
4771 
4772 
4773 
4 7 7 4 „ - 
-
4775 
\ 
4776 
Chapter 39, Sub-
chapter B. 
4801 
4804 
4805 
Chapter 39, Sub-
chapter C. 
4811 
4814 
4815 
4817 
4818 
4821 
4826 
Chapter 39, Sub-
c h a p t e r 
C, 
Part II. 
4831 
Is referred to 
in sections— 
4771, 
4774. 
4771, 
4774. 
4771, 
4774, 
7326. 
4771, 
4774. 
4741, 4742, 4752, 
4753, 
4755, 
4772, 
4774, 
4775, 
4901. 
4741, 4742, 4755. 
4772, 
4774, 
4775. 
4741. 4742, 4754, 
4755, 
4772, 4774, 
4905, 
7012, 
7272, 
7491, 
7607. 
4772, 
4773, 
4774. 
4772, 4774. 
4772, 4774. 
4772, 4774. 
4746, 
4757, 4774. 
4746, 4757, 4772, 
4774, 7651, 
7809. 
7655. 
4703, 4707, 
4715, 
4726, 
4743, 
4746, 
4757, 4774. 
4702, 4707, 
4715, 
4726, 
4736, 
4746, 
4757, 4774. 
4702, 4705, 4707, 
4715, 
4726, 
4742, 
4746, 
4767, 
4774, 
6109, 
7237, 7607. 
4705, 4707, 
4715, 
4726, 
4746, 
4757. 
4707, 4715, 
4726, 
4746, 
4757, 4774, 
6109. 
4707, 4715, 
4726, 
4746, 
4757, 4774. 
6808, 7239, 7267, 
7303. 
4803. 
4905, 7012, 7103, 
7239, 
7267, 
7272, 
7274. 
7267. 
6808, 7234, 7265, 
7303. 
4813. 
7103, 
7265. 
7235, 
7607. 
4814, 
7235, 
7303. 
7303. 
7303. 
4819, 
4822. 
7303. 
4832. 
Section 
number— 
4833 
4834 
4835 
4841 
4846 
Chapter 39, Sub-
chapter t). 
4851 
4853 
4862 
4863 
4864 
4871 
..-. 
4876 
4881 
4884 
4885 
4886 
C h a p t e r 
3 9 , 
S u b c h a p t e r 
F. 
4891 
4894 
Chapter 40 
4901 
4902 
4903 
4904 
4905 
4906 
4907 
Subtitle E 
Chapter 51 
C h a p t e r 
5 1 , 
S u b c h a p t e r 
A. 
5001. 
5002 
5004 
5005 
--
5006 
5007 
5008 
5010 
5011 
Chapter 51, Sub-
c h a p t e r A, 
Part I, Sub-
part B. 
Is referred to 
in sections— 
7103, 
7266. 
, 
.
f
i
r 
7236, 
7266. 
7303. 
7266, 
7303. 
4836, 
4842. 
6808, 7233, 7263, 
7493. 
4853, 4863, 4864, 
4865, 
4871, 
4872, 
7492. 
4863, 
7492. 
7263. 
4862, 
4864, 
4865. 
4865. 
4853, 
7492. 
6109. 
4883, 
4884. 
4883,4885. 
4883. 
4883. 
6808. 
4894, 
4895. 
6420. 
4463. 
4413, 6071. 
4413. 
4413. 
4413. 
4413,7011 
4413 
4413. 
6107, 6652, 7103, 
7851. 
6808, 
7329, 
7655. 
6651. 
5004, 5005, 5007, 
5311, 5318, 5319, 
5334, 
5391, 
5512. 
5001, 5024, 5213, 
5214. 
5318, 
5320, 
6326. 
5318, 
5320. 
5007, 5011, 5242, 
5250, 
6206. 
5179, 
5318, 
6206. 
5002, 5027, 5243, 
5642, 
5643, 
5644. 
5636. 
5006, 5023, 5217, 
5243, 5247, 5312, 
5318, 5373, 5522, 
6420. 
5281, 
5804. 
980 
INTERNAL REVENUE CODE OF 1954 
TABLS; III—Continued 
Cross references within the Internal Revenue Code of 195If.—Continued 
Section 
number— 
5021 
5022 
5023 
5025 
Chapter 51, Sub-
c h a p t e r A, 
Part I, Sub-
part C. 
5041 
5042 
5044_. 
5051 
5053 
5054 
5055 
5057 
5061 
5062 
5063 
Chapter 51, Sub-
c h a p t e r A, 
Part II. 
5081 
5082 
5091 
5092 
5101 
5105 
5111 
5113 
5114 
5115 
5116 
5121 
5123 
5124 
5131 
5132 
5133 
5134 
5144 
5171 
5172 
5173 
5174 
5175 
5176 
6177 
Is referred to 
in sections— 
5022, 5023, 5025, 
5026, 5083, 5084, 
5217, 5281, 5391, 
6628. 
5026, 
5281, 
6628. 
5011, 5026, 5083, 
5251. 
5083, 
5281, 
5363. 
5661. 
5370. 
6041, 5351. 
6420. 
5064, 6066, 5057, 
6671. 
5401. 
5061. 
5057, 5413, 6674, 
6676. 
6420. 
5007, 6026, 5043, 
6056, 
6689. 
6012. 
6412, 
6420. 
6025, 
6306. 
5023, 6026, 6083, 
6217, 
5275. 
6002, 5021, 
6023, 
5024, 5025, 5081, 
5171, 
5306. 
• 
5671. 
5062, 
5402. 
6103, 5104. 
5275, 
6602. 
6113, 
5123, 
5276. 
6093, 
6123. 
6621. 
5212, 
6630. 
5306, 
5681. 
5122, 
5275. 
5093, 
5113. 
5692. 
6012. 
5012. 
5012. 
5012. 
6093. 
5216, 6306, 
5511, 
5607. 
5306. 
5306, 
5511, 
5618. 
5276, 5306, 
5511, 
5601. 
5306, 
5603 
5306, 
5604. 
5004, 
6605. 
Section 
number— 
5178 
5179 
5180 
5191 
6192 
5193 
5194 
5195 
6196 
5197 
6213 
5214. 
5216 
6216 
5217 
5231 
5232 
5233 
5241 
5242 
5243 
5244 
5246 
5246 
5247 
6248 
6249 
5250 
5251 
5262 
Chapter 61, 
Subchapter 
D. 
5271 
5272 
5273 
5274 
5281 
5282 
5285 
C h a p t e r 
5 1 , 
Subchapter 
E. 
Subchapter E, 
Part 1. 
5304 
Is referred to 
in sections— 
5306. 
5007, 5176, 5191, 
5306. 
6306, 
5681. 
6179, 
5306, 
5660. 
5306, 
5612. 
5003, 5009, 
5212, 
5242, 
5306. 
5003, 5004, 6006, 
6006, 5010, 5026, 
6212, 
5242, 
5246. 
5217, 5249, 5284. 
5306, 5613, 5614. 
5216, 5283, 5306, 
6511, 6615, 5616, 
5617, 5619. 
5114, 6306, 5610, 
5620, 
5621. 
5609. 
5641. 
5373. 
5003^ 6195, 5501, 
5608. 
5004, 5005, 5006, 
6011, 6026, 5083, 
6195, 5242, 6246. 
5306, 
6631. 
6005, 
6306, 
6631. 
5631 
6306, 
5631. 
5306,6631. 
6003, 6008, 5233, 
5241, 
6643, 
6644. 
5306, 
5631. 
5250, 
5631. 
5242, 
5631. 
5003, 5006, 5009, 
5631. 
6631. 
6631. 
5010, 6212, 
6241, 
5306, 
5631. 
6631. 
.ii^^ 
5631. 
6084. 
5306, 
5603. 
5628. 
6281, 
5627. 
5306, 
5681. 
5628. 
5027, 
6212, 
5630. 
5114, 6621. 
5217. 
6217, 
5686, 5688. 
6310. 
APPENDIX—TABLE IH 
mi 
TABLIE III—Continued 
Cross references within the Internal Revenue Code of 1954—Continued 
Section 
number— 
5306 
.-_ 
5309 
__ 
5310 
__ 
6311 
5314_ 
5318 
5331_ 
__ 
5332 
5333-- 
__-
C h a p t e r 5 1 , 
S u b c h a p t e r 
F, 
5351 
6352 
6354 
5361 
5362_ 
6370_ 
5372 
5373 
5381__ 
5382 
5383 
5384_ 
5385 
5386 
5387 
5391 
5392 
C h a p t e r 5 1 , 
Subchapter 
G. 
5411 
5412 
5413 
5414 
5416 
5511 
6522 
6623 
5561 
6562 
5554 
Chapter 61, Sub-
chapter J. 
Subchapter J, 
Part I. 
5601 
5602 
5603 
6604... 
._. 
5605 
6606 
Is referred to 
in sections— 
5025, 6083, 5103, 
5195. 
5412. 
5003. 
5001, 5003, 6007, 
5011. 
7607. 
5001, 
7652. 
5003, 5248, 5332, 
5647. 
6647. 
5688. 
6042, 5045, 
5661, 
6662. 
5361. 
5363. 
5355. 
5044, 
5364. 
5042, 
5043. 
6042. 
5042. 
5003, 5005, 5006, 
5194, 
6248. 
5392. 
5381, 6385, 6386, 
5387. 
6382, 
6384. 
5382. 
5392. 
5392. 
. 
V 
5392. . 
. 
5083. 
5025. 
6051, 
5672. 
7851. 
6675. 
5091, 5113. 
5401. 
5671, 
5672. 
5001, 
5003, 
5026. 
6003, 
5009, 
6248. 
5025, 
5083. 
5177, 5272, 6306, 
5355, 
5403. 
5173, 5273, 5403, 
6611. 
7851. 
5028, 5045, 5084, 
5320. 
6663. 
5105, 6174. 
6105. 
5176, 5271. 
5176. 
5177. 
5176. 
Section 
number— 
5607 
5608 
5609 
5610 
6612 
6613 
5614 
5615 
5616 
5617 
5618 
5619 
5620 
5621 
5625 
5627 
5628 
6630 
6631 
6632 
6640 
5642 
5644 
5646 
5647 
5661 
C h a p t e r 
5 1 , 
Subchapter 
J, Part IV. 
5681 
5686 
5688 
5689 
5691 
5692 
Chapter 52 
Chapter 52, Sub-
chapter A. 
5701 
6703 
5705 
6707 
5711 
6712 
5713 
6723 
Chapter 53 
Subchapter A__. 
5801 
5802 
5811 
5812 
5813 
5814 
5821 
Is referred to 
in sections— 
5171. 
5216. 
5213. 
5197 
: 
5192. 
'
.
'
-
-
-
. 
5195. 
' '
-
'
• 
5195. 
5196, 
5608. 
5196, 
6608. 
5196. 
5173. 
5196. 
6114, 5197. •
' 
---'^ 
5114, 
5197, 
5285. 
6306. 
5273, 
5628. 
5627, 
5684. 
5282. 
5115. 
7214, ... .^^.,...Mm 
5306. 
5214. 
5642. .
.
. .,„..• 
-
t
J
i
J
v 
5684. 
5334. .
,
.
.
.
.
.
.
„
„
. 
cUM 
5684. 
5663. 
5116, 
5180, 
5274. 
5313, 5315, 
5316, 
5317, 6318, 5319. 
5007, 
6807. 
5001. 
6142. 
6124. 
6808, 
7329. 
6651. 
5703, 
6707. 
6206. 
6420. 
6412, 
6420. 
5713 
5713 
5712 
5763 
5149, 6808, 7329, 
7851. 
6651. 
5811, 
6846, 
6864. 
5811, 5854, 
7012, 
7272. 
5813, 5814, 6821, 
5844, 5846, 6851. 
5803, 
5851. 
6851. 
6813, 
6861, 
5854. 
5814, 5846, 
6851, 
5864. 
982 
INTERNAL REVENUE CODE OF 1954 
TABLE III—Continued 
Cross references within the Internal Revenue Code of 1954—Continued 
Section 
number— 
5841 
5843 
5844 
5846 
5848 
5854 
5862 
Subtitle F 
Chapter 61 
Chapter 61, Sub-
chapter A. 
6001 
6012 
6013_ 
— . 
6014_ 
--. 
6015 
6016 
6017 
6018 
6019 
6020 
Chapter 
61, 
Sub-
chapter A, 
Part 
III. 
6031 
6033 
6034 
6036 
6041 
6042 
6043 
6044 
6045 
6051 
6062 
6063 
6065 
6071 
6073 
6075 
6081 
6103 
6106 
6107 
Chapter 
62 
6151 
Is referred to 
in sections— 
5854, 
7012, 
7272. 
5852. 
5851. 
5813, 5851. 
5686. 
7012. 
5685. 
7326. 
874, 
882, 
931, 
4057, 
4226, 4294, 4463, 
4514, 4706, 4707, 
4712, 4715, 
5065, 
5557, 7851. 
7502. 
6651. 
6033. 
882, 1333, 6011, 
6032, 6062, 6072, 
6513. 
2, 151, 
213, 6011, 
6017, 6072, 6501, 
6511. 
34, 37, 
6011, 6151, 
6211. 
6011, 6012, 6020, 
6073, 6153, 6651, 
7203. 
6011, 6020, 6074, 
6154, 6651, 
7203. 
1403, 
6011, 
6072. 
2011, 2106, 
6011, 
6075, 6091, 
7269. 
6011, 
6075. 
6501. 
6531. 
6063, 
6072. 
6104, 6501. 
6104. 
6872, 
7269. 
6652. 
6041, 
6652. 
346. 
6652. 
6041, 
6652. 
6037, 6314, 6652, 
6674, 
7204. 
6032, 6061. 
6061. 
6411. 
3302 
6015^ 
6153, 
6654. 
7269. 
5143, 6153. 
6106, 
7213, 8021. 
7213. 
5147. 
6601. 
1461. 
Section 
number— 
6152 
6153 
6154 
6155 
6161 
_ 
6163 
6164 
6165 
Chapter 
63, 
Sub 
chapter 
A. 
6201 
6203 
6205 
Chapter 
63, 
Sub. 
chapter 
B. 
6211 
6212 
6213 
6214 
Chapter 
64 
6302 
6311 
6321 
6323 
6324 
6325 
6331 
6332 
6334 
6335 
6336 
6337 
6338 
6340 
6342 
6343 
Chapter 
65 
6401 
6402 
6405 
6406 
6411 
6412 
Is referred to 
in sections— 
6081, 6164, 
6215, 
6601. 
6201, 
6601, 
6654. 
6201, 6601. 
5811. 
2011, 6215, 6503, 
6601, 
6873. 
2015, 6601. 
6037, 
6411, 
6864. 
6161, 6162, 6163, 
6325, 7103. 
7851. 
73, 
5007, 
5811, 6213. 
6303. 
6601, 
6653. 
6201, 
6601, 
6659. 
1314, 1481, 6213, 
6503, 6601, 6611, 
6653, 6861. 
1033, 1311, 
2513, 
6013, 6037, 6155, 
6213, 6503, 6512, 
6861, 6901, 7421. 
303, 2011, 6155, 
6204, 6212, 6512, 
6601, 6861, 
6863, 
6871, 7404, 7421, 
6212. 
7407, 
7803, 7851. 
6151, 6656, 6802, 
7652. 
6201. 
6322, 
6323. 
545, 
6324, 7424. 
6901. 
7103. 
6335, 6861, 6862, 
7206. 
6342. 
6331. 
6331, 6337, 6338, 
6339, 6340, 6502, 
7505. 
6335, 
6863, 7103. 
6338. 
6339. 
^ 
^ 
6337. 
6206. 
6602. 
1235, 1464, 7422, 
7851. 
38, 6514. 
6403, 
6513, 6861. 
7851, 
8022. 
6611. 
6037, 6164, 
6213, 
6405, 6511, 6515. 
6511, 6612. 
1-
APPENDIX—TABLE III 
TABLE III—Continued 
Cross references within the Internal Revenue Code of 
1954—Continued 
983 
Section 
number— 
6413 
6416 
6418 
6419 
Chapter 
66 
6501 
6502. 
6503. 
Subchapter B_ 
6511 
6512 
6513 
6514 
6531._ 
6532 
6601 
6602 
Chapter 
68. 
6651 
6652. 
6653-
6671 
6672 
6673 
6674 
Chapter 
69 
6801 
6802 
6803 
6804 
6805 
6806 
6807 
Chapter 
70 
Chapter 
70, 
Sub-
chapter 
A, 
6851 
6861. 
6862 
6863 
Chapter 70, Sub-
chapter B. 
6873 
Chapter 71 
6901. 
6902. 
6903. 
Is referred to 
in sections— 
31, 
6612, 
6653. 
4226, 
6612, 7851. 
6511, 
7655. 
6612. 
1335, 
6206, 
7422. 
302, 303, 547, 
551, 
1033, 1081, 1235, 
2016, 2053, 2204, 
5006, 5703, 6013, 
6503, 6511. 
302, 1081, 
6013, 
6344, 
6503. 
1505, 6161, 6344, 
6873. 
905, 6420. 
1235, 2011, 6013, 
6512. 6513, 6901. 
2011, 
6213, 6513. 
6511, 6531, 6611. 
7405. 
7851. 
6514, 
6515, 
7405. 
5811, 
6163, 
7404. 
7405. 
7265, 
7267. 
5143, 
5684, 
5761, 
6013, 6653, 6659. 
5761. 
5143, 
5684, 
5761, 
6659, 
6672. 
6653. 
7501. 
6215, 
7459. 
7204. 
6420. 
5010, 
6804. 
6803, 7103. 
7101, 
7103, 
7509. 
7271. 
6037. 
5146, 
7273. 
6344. 
6420, 
6601, 
7508. 
6155, 6216, 6331. 
443, 6658, 7103, 
7508. 
534, 
6152, 
6212, 
6213, 
6863. 
6863. 
6335, 
6861, 7103. 
6216, 
6503. 
6155. 
6216, 6503, 6504 
7421, 
7508. 
6037. 
7454, 
7463. 
6037, 
6212, 6901. 
Section 
number— 
7001 
7011 
Chapter 73. 
7101 
7102 
Chapter 74. 
7121 
7122 
Chapter 75. 
7202 
7203 
7204_ 
7206 
7207 
7208 
7210 
7212 
7213 
7214 
7231 
7233 
7262 
7271 
7272 
7273 
7301 
7302 
7323 
7324 
7325 
7342 
Chapter 76 
7402 
7403 
7405 
7421 
7422 
7424 
C h a p t e r 
7 6 , 
Subchapter C. 
7443 
7456 
7459 
7474 
C h a p t e r 
7 6 , 
Subchapter D. 
7481 
7482 
7483 
7485 
7486 
Chapter 77 
7502 
Is referred to 
in sections— 
7231. 
5141, 
5144, 
7272. 
6325, 
7851, 
7324. 
6325. 
7851. 
547, 1313, 
6013, 
7206, 
144, 270, 
1235, 1311, 
1335, 1481, 6013, 
6511, 6521, 
7206, 
7809. 
7851. 
7501. 
6046. 
6674. 
" 
"
'
^ 
6013, 6531, 7123. 
6013, 
6531, 
7303. 
7303. 
7604. 
6531, 7601. 
6106. 
6531. 
7001. 
7263. 
7012. 
7208, 
7303. 
7012. 
5146, 
5693. 
7324. 
5314, 5318, 5686, 
5763, 
7607. 
7324. 
7103, 
7323. 
7103. 
7606. 
" 
7851. 
7103, 
7604. 
6325, 
7424. 
6514, 
6532, 
6602. 
6206, 
6213, 
6904. 
6532. 
6325. 
6215, 
6406. 
7447. 
7457, 7471. 
6215. 
7487. 
6406. 
6214. 
7425, 
7483, 
7485. 
7482, 
7485. 
6215, 
7101, 7103. . 
6420. 
7851. 
7851. 
984 
INTERNAL REVENUE CODE OF 1954 
TABLE III—Continued 
Cross references within the Internal Revenue Code of 1954—Continued 
Section 
number— 
7503 
7506 
7507 
7508 
_ 
7510 
Chapter 78 
7602 
7603 
7604 
7606 
Is referred to 
ia sections— 
7851. 
6344, 7809. 
6206, 6504. 
6081, 
6504, 6515, 
6533, 6901. 
5003, 5248. 
7851. 
7210, 
7603, 
7604, 
7605. 
7210. 
7210. 
7342. 
Section 
number— 
7641 
7651 
7652 
_ _ 
7654 
Chapter 79 
7701 
Chapter 80 
7803 
7806 
7807 
7851 
Is referred to 
in sections— 
4596. 
1403, 7652, 7809. 
5001, 7809. 
7809. 
7851. 
71, 72, 101, 154, 215, 
682, 853, 1313. 
7851. 
6344, 7103, 7402. 
7701. 
481. 
6013. 
o 
'.A)i\ 
•v • : • 
' . T 
A'ii': 
:\ 
:i-
.w »» 
' i» 
.son / 
^ "• 
.£OGI 
M1 d 
.mc:c .JSM 
.1095 ': 
;