whether the lease involved is still in effect during the year covered by the return, and, if not still in effect, when it was terminated and for what reason and whether the lessor has repossessed the property.

ART. 219. Discovery of mines.-(a) To entitle a taxpayer to a valuation of his property for the purpose of depletion allowances, by reason of the discovery of a mine on or after March 1, 1913, the discovery must be made by the taxpayer after that date, and must result in the fair market value of the property becoming disproportionate to the cost. The fair market value of the property will be deemed to have become disproportionate to the cost when the newly-discovered mine contains mineral in such quantity and of such quality as to afford a reasonable expectation of return to the taxpayer of an amount materially in excess of the capital expended in making such discovery, plus the cost of future development, equipment and exploration.

(b) For the purpose of these sections of the act a mine may be said to be discovered when (1) there is found a natural deposit of mineral, or (2) there is disclosed by drilling or exploration, conducted above or below ground, a mineral deposit not previously known to exist, and so improbable that it had not been, and could not have been, included in any previous valuation for the purpose of depletion, and which in either case exists in quantity and grade sufficient to justify commercial exploitation. The discovery must add a new mine to those previously known to exist and cannot be made within a proven tract or lease as defined in paragraph (f) infra.

(c) In determining whether a discovery entitling the taxpayer to a valuation has been made the commissioner will take into account the peculiar conditions of each case; but no discovery, for the purposes of valuation, can be allowed, as to ores or minerals, such as extensions of known ore bodies, that have been or should have been included in "probable" or "prospective" ore or mineral, or in any other way comprehended in a prior valuation, nor as of a date subsequent to that when, in fact, discovery was evident, when delay by the taxpayer in making claim there for has resulted or will result in excessive allowances for depletion.

(d) The value of the property claimed as a result of a discovery must be the fair market value, as defined in article 206, based on what is evident within 30 days after the commercially valuable character and extent of the discovered deposits of ore or mineral have with reasonable certainty been established, determined or proved.

(e) After a bona fide discovery the taxpayer shall adjust his capital and depletion accounts in accordance with articles 206, 208 and 210, and shall submit such evidence as to establish his right to a revaluation, covering the conditions and circumstances of the discovery and the size, character and location of the discovered deposit of mineral, the value of the property at the prior basic date, the cost of discovery, and its development, equipment and exploitation, its value, and the particular method used in the determination.

(f) In the case of a mine, a "proven tract or lease" includes, but is not necessarily limited to, the mineral deposits known to exist in any known mine at the date as of which such mine was valued for purposes of depletion, and all extensions thereof, including "probable" and "prospective" ores considered as a factor in the determination of their value or cost.

ART. 222. Allowable capital additions in case of mines.-(a) All expenditures for development, rent and royalty in excess of receipts from minerals sold shall be charged to capital account recoverable through depletion, while the mine is in the development stage. Thereafter any development which adds value to the mineral deposit beyond the current year shall be carried as a deferred charge and apportioned and deducted as operating expense in the years to which it is applicable.

(b) All expenditures for plant and equipment shall be charged to capital account recoverable through depreciation, while the mine is in the

development stage. Thereafter the cost of major items of plant and equipment shall be capitalized, but the cost of minor items of equipment and plant necessary to maintain the normal output and the cost of replacement may be charged to current expense of operation.

ART. 224. Depreciation in the case of mines.—(a) The act provides that deductions for depreciation of improvements "according to the peculiar conditions in each case" may be taken by a taxpayer owning or leasing mining property. This is deemed to include exhaustion and wear and tear of the property used in mining of deposits, comprising a reasonable allowance for obsolescence. (See arts. 161-171.)

(b) It shall be optional with the taxpayer, subject to the approval of the commissioner (1) whether the value of the mining property plus allowable capital additions but minus estimated salvage value shall be recovered at a rate established by current exhaustion of mineral, or (2) whether the value of the mineral deposit on the basic date plus allowable capital additions shall be recovered through depletion and the cost of plant and equipment less the estimated salvage value shall be recovered by reasonable charges for depreciation (see art. 161) at the rate determined by its physical life or its economic life or, according to the peculiar conditions of the case, by a method satisfactory to the commissioner.

(c) The estimated physical life of a plant or unit thereof (including buildings, machinery, apparatus, roads, railroads and other equipment and improvements whose principal use is in connection with the mining or treatment or other necessary handling of mineral products) may be defined as the estimated time such plant, or unit, when given proper care and repair, can be continued in use despite physical deterioration, decay, wear and tear.

(d) The estimated economic life of a plant or unit thereof is the estimated time during which the plant or unit may be utilized effectively and economically for its intended purposes, and may be limited by the life of the property or of that portion of the mineral deposits which it serves, but can never exceed the physical life.

(e) Any difference between the salvage value of plant and equipment and the sum remaining to be recovered through depreciation at the termination of mining operations shall be returned as profit or loss in the year in which it is realized.

(f) Nothing in these regulations shall be interpreted as meaning that the value of a mining plant and equipment may be reduced by depreciation deductions to a sum below the value of the salvage when the property shall have become obsolete or shall have been abandoned for the purpose of mining. In estimating the salvave value of the equipment at the end of its estimated economic life due consideration may be given to its specialized character and the cost of dismounting and dismantling and transporting it to market.

(g) Nothing in these regulations shall be interpreted to permit expenditures charged to expense in any taxable year or any part of the value of land for purposes other than mining to be recovered through depletion or depreciation.

(T. D. 3108, December 30, 1920)
Income tax

Inventories-Article 1582, regulations No. 45, amended

Article 1582, regulations No. 45, is hereby amended to read as follows: ART. 1582. Valuation of inventories.-Inventories must be valued at (a) cost or (b) cost or market, as defined in article 1584 as amended, whichever is lower. (See art. 1585 for inventories by dealers in securities.) Whichever basis is adopted must be applied consistently to the entire inventory. A taxpayer may, regardless of his past practice, adopt the basis of "cost or market, whichever is lower," for his 1920 inventory, provided

a disclosure of the fact and that it represents a change is made in the return. Thereafter changes can be made only after permission is secured from the commissioner. Inventories should be recorded in a legible manner, properly computed and summarized, and should be preserved as a part of the accounting records of the taxpayer. Goods taken in the inventory which have been so intermingled that they cannot be identified with specific invoices will be deemed to be the goods most recently purchased.

(T. D. 3109, December 30, 1920)

Income tax

Inventories-Article 1584, regulations No. 45, as amended by T. D. 3047, amended

Article 1584, regulations No. 45, as amended by T. D. 3047, is hereby amended to read as follows:

ART. 1584. Inventories at market.-Under ordinary circumstances, "market" means the current bid price prevailing at the date of the inventory for the particular merchandise in the volume in which ordinarily purchased by the taxpayer. This method of valuation is applicable in the cases (a) of goods purchased and on hand, (b) of basic elements of cost (materials, labor and burden) in goods in process of manufacture, and (c) of finished goods on hand; exclusive, however, of goods on hand or in process of manufacture for delivery upon firm sales, contracts at fixed prices entered into before the date of the inventory, which goods must be inventoried at cost. Where no open market quotations are available, the taxpayer must use such evidence of a fair market price at the date or dates nearest the inventory as may be available, such as specific transactions in reasonable volume entered into in good faith, or compensation paid for cancellation of contracts for purchase commitments. Where, owing to abnormal conditions, the taxpayer has regularly sold such merchandise at prices lower than the current bid price as above defined, the inventory may be valued at such prices, and the correctness of such prices will be determined by reference to the actual sales of the taxpayer for a reasonable period before and after the date of the inventory. Prices which vary materially from the actual prices so ascertained will not be accepted as reflecting the market, and the penalties prescribed for filing false and fraudulent returns may be asserted. Goods in process of manufacture may be valued for purposes of the inventory on the lowest of the following bases: (1) The replacement or reproduction cost prevailing at the date of the inventory; or (2) the proper proportionate part of the actual finished cost; or under abnormal conditions (3) the proper proportionate part of the sales price of the finished product, account being taken in all cases of the proportionate part of the total cost of basic elements (materials, labor and burden) represented in such goods in process of manufacture at the stages at which they are found on the date of the inventory. The inventories of taxpayers on whatever basis taken will be subject to investigation by the commissioner, and the taxpayer must satisfy the commissioner of the correctness of the prices adopted. He must be prepared to show both the cost and the market price of each article included in the inventory. It is recognized that in the latter part of 1918, by reason among other things of governmental control not having been relinquished, conditions were abnormal, and in many commodities there was no such scale of trading as to establish a free market. In such a case, when a market was established during the succeeding year, a claim may be filed for any loss sustained in accordance with the provisions of section 214 (a) 12 or section 234 (a) 14 of the statute. (See arts. 261-268.)

(T. D. 3110, December 31, 1920)

Income tax-Revenue act of 1918

Article 403 of regulations No. 45 modified

In order to clear away the misunderstanding which exists with respect to the proper treatment under section 223 of the revenue act of 1918 of the earnings of minors, but not for the purpose of stating a different rule from that originally intended, article 403 of regulations No. 45 is modified to read as follows:

ART. 403. Return of income of minor.-An individual under 21 years of age or under the statutory age of majority where he lives, whatever it may be, is required to render a return of income if he has a net income of his own of $1,000 or over for the taxable year. If he is married, see article 401. [If a minor has been emancipated by his parent his earnings are his own income, and such earnings, regardless of amount, are not required to be included in the return of the parent.] If the aggregate of the net income of a minor from any property which he possesses, and from any funds held in trust for him by a trustee or guardian, and from his earnings [in case he has been emancipated], is at least $1,000, a return as in the case of any other individual must be made by him or by his guardian or some other person charged with the care of his person or property for him. (See art. 422.) [If, however, a minor has not been emancipated by his parent], who appropriates or may appropriate his earnings, such earnings, regardless of amount, are income of the parent and not of the minor for the purpose of the normal tax and surtax. In the absence of proof to the contrary, a parent will be assumed not to have emancipated his minor child, and must include in his return any earnings of the minor.

(T. D. 3111)

Income tax-Opinion of the attorney general

Income from sources within the United States defined

I. There is no income from sources within the United States from goods manufactured there unless there is, in the language of section 233 (b), both "manufacture and disposition of goods within the United States." The act taxes only income that accrues within the United States.

2. The mere buying of goods within the United States, with capital furnished from abroad, to be sold abroad, is not a trade or business exercised in the United States so as to subject the purchaser of the goods to income tax. A merchant exercises his trade where he has his principal place of business, viz.: where his profits come home to him.

3. If income be taxed the recipent thereof must have a domicile within the jurisdiction imposing the tax, or the property or business out of which the income issues must be situate within such jurisdiction, so that the income may be said to have a situs therein.

4. Where a corporation purchases goods abroad and sells them within the United States, the profits accruing from such transactions are profits derived from business carried on within the United States and the gross income from such business is income from sources within the United States. 5. In the case of a partnership organized abroad, one of whose members is a resident citizen of the United States, and whose business consists in selling abroad goods consigned to it from various parts of the world, including the United States, upon commission, title to the goods never vesting in the firm but passing directly from the consignors to the purchasers, the business of the United States member consisting of soliciting consignments of goods, disbursing proceeds of sales made abroad in payment of consignors in the United States, attending to the shipment of goods, and making advances to consignors on security of bills of lading and express receipts, the funds for the use of the branch office in the United States being ob

tained by selling drafts on a foreign city, only the income of the partner resident within the United States is income from sources within the United States and subject to income tax.

6. A foreign corporation, having its home office abroad, which operates a line of steamships between the United States and foreign ports, consigns its steamships to an American firm, who handle them as agents and brokers, seeing to the entry and clearance of each steamer, the discharge and loading of cargo and supplies, collecting such part of the freight as is prepayable in this country, deducting the amount of its disbursements and charges and remitting the balance to the foreign corporation, derives income from sources within the United States to the extent that it derives income from traffic originating within the United States and is taxable upon such income. (T. D. 3112, January 10, 1921)

Income tax

Concerning federal taxation as income of amounts withheld from the salaries of government employees, and of annuities paid to retired employees

The amounts deducted and withheld from the basic salary, pay or compensation paid to employees in the civil service of the United States, in accordance with the provisions of the act approved May 22, 1920, should be reported by such employees for income-tax purposes. The total compensation of the employees should be reported in gross income, and no corresponding deduction can be taken for the amounts withheld, inasmuch as such amounts are payments made toward the purchase of annuities provided for in the act and are not allowable deductions for income-tax purposes.

The annuities paid to retired employees are subject to tax to the extent that the aggregate amount of the payments exceeds the amounts withheld from the compensation of the employee.

Wallace A. Salmon announces the removal of his office to 412 Native Sons building, Sacramento, California.

David Levin announces the opening of an office in North American building, Philadelphia, Pennsylvania.

Arthur F. Thayer announces the removal of his office to 821 Smith building, Detroit, Michigan.

Lewis Wintermute announces the removal of his office to 325 Guardian building, Cleveland, Ohio.

Arthur P. Monk & Co. announce the removal of their offices to 16 Exchange place, New York.

Marwick, Mitchell & Co. announce that Thomas Ritchie has retired from partnership in the firm.