person hiring a house and sub-letting a portion of it be allowed to deduct more than the excess of his payments over his receipts.

21. Among the national, State, county, and municipal taxes deductible from income are comprised such internal revenue taxes as have not been included in expenses of business, and such municipal taxes as are assessed ratably upon all the persons liable to such assessment. But assessments made by municipal authorities upon the inhabitants of a particular locality of a town or city on account of special improvements in or upon the streets adjoining the premises of such inhabitants, the same not being assessed ratably, are not considered as taxes deductible from income.

22. Marriage fees, gifts from members of a congregation to their pastor, &c., are taxable as income when the gifts or donations are in the nature of compensation for services rendered, whether in accordance with an understanding to that effect at the time of settlement, or with an annual custom.

23. Gifts of money, when clearly not in the nature of payment for services rendered, or other valuable consideration, are not liable to taxation as income. Amounts received on life insurance policies, and damages recovered in actions of tort, are exempt from income tax.

24. Lawyers and physicians may return either the actual fees received during the year, without regard to the time when they accrued, or the amounts due to the business of the year. But when the taxpayer has heretofore adopted one method, he cannot now be allowed to make use of the other.

25. If the manufacturer or dealer has been in the practice of estimating his annual profits by taking inventories of stock, he should take the cost value of such stock, unless he has taken the market value in making previous returns. Whichever method has been adopted by the tax-payer should be adhered to uniformly.

26. If interest accrued during the year on notes, bonds, &c., is good and collectible at the end of the year, it should be returned as income whether actually collected or not.

27. The fact that income is devoted to the payment of debts does not release the same from liability to income tax.

28. If an inventor sell his invention at once for a gross sum, he should return as income the whole amount, less the expenses actually incurred in perfecting the invention, or in procuring a patent right. But no allowance can be made for the labor or personal expenses of the inventor. If he sell only a portion of his right during the year, he may deduct a proportionate amount of such expense.

29. Wherever the salary or pay received by any person in government employ does not exceed $600 [$1,000] per annum, or is made up of fees, or is uncertain or irregular in the amount or time, and has not therefore been subjected to salary tax, it should be returned as income.

30. Incomes of persons who died after December 31 are taxable,

and should be returned by executors or administrators, and also all income which accrued in 1865 to persons who died within that year. Income which accrued from the estates of such persons in 1865 after the date of decease should be returned by the heirs or other persons who received the benefit of the same.

31. Residents should make return in the district where they reside at the time of making return. The residence required under section 116 for the purpose of taxing income is held to be a residence during the year for which income is "derived." If any person subject to income tax resides abroad, his return should be made in the district where he last resided.

A guardian residing abroad should return the income of his ward in the district where the ward resides.

32. Citizens of the United States residing abroad are subject to tax upon their entire incomes from all sources whatever; and the same is true of foreigners residing in this country.

33. The term "real estate" includes all lands, tenements, and hereditaments, corporeal and incorporeal. Profits on sales of real estate purchased in a previous year need not be returned as income, nor can losses on such sales be deducted therefrom.

34. A lease for years or for life is personal estate, and any profits on the sale of such lease are taxable as income for the year of sale.

35. Where any portion of a legacy has been transferred by the executor to the legatce, so that the executor in his capacity of guardian or trustee has no longer any control of the profits arising from such legacy, the return of such profits as income must be required of the legatee.

36. The payment of legacy or succession tax on the bequest of an annuity does not relieve the annuitant from liability to income tax on his annuity.

37. Where an income exceeds $5,000, $600 will be exempt, $4,400 subject to tax at five per cent., and the remainder at ten per cent.* 38. All expenses for insurance upon property and all actual losses in business may be deducted from the gross income of the business of the year. But losses sustained after December 31, 1865, cannot reduce the income for the year. Losses incurred in the prosecution of one kind of business may be deducted from gains in another, but not from those portions of income derived from fixed investments, such as bonds, mortgages, rents, and the like. Assessors should also be careful not to allow the deduction of amounts claimed to have been lost in business, when in reality they should be regarded as investments or expenditures, as when merchants expend money in farming or gardening for recreation or adornment rather than pecuniary profit.

39. Dividends from which the tax of five per cent. has been withheld should be returned as income, inclusive of the tax withheld, and

*Repealed Stat., 1867.

after the total tax has been assessed, the amount of tax withheld may be deducted therefrom.

40. Coupons on railroad bonds should be returned as income for the year in which they mature, if they are good and collectible.

41. Scrip dividends of companies named in sections 120 and 122 are taxable as income at their nominal value; scrip dividends of other companies should be returned at their market value at the time when received.

Appendix.

DECISIONS, RULINGS, ETC.,

MADE BY

COMMISSIONER AND SECRETARY OF TREASURY,

Under the Amendments of July 13, 1866.

SPECIAL TAXES.

1.

Special Tax on Agents of Foreign Insurance Companies in the United States.

The Liverpool and London and Globe Insurance Company is a foreign company, and its agents in this country are liable to a special tax of fifty dollars.

2.

Public Agents for Dispensing Liquors under Maine Liquor Law, Exempt from Special Tax under certain conditions.

No special tax as liquor dealers is required of a county, city, or town agent, appointed under what is popularly known as the "Maine Liquor Law," for sales made in strict accordance with the provisions of said law.

3.

Drawing and Preparation of Papers to be used in Government Claims, Subjects Parties to Special Tax as Conveyancers. A person who makes it his business or any part of his business to prepare papers to be used by another in the prosecution of claims before any of the executive departments of the federal government, is liable as a conveyancer, unless he have paid a special (formerly license) tax as a lawyer or as a claim agent.