amount of such bequests, legacies, or devises reduced by the amount of such taxes.

(c) No deduction shall be allowed in the case of a nonresident unless the executor includes in the return required to be filed under section 304 the value at the time of his death of that part of the gross estate of the nonresident not situated in the United States.

Except for the 10 per cent limitation included in paragraph (1) above, the section quoted provides the same general deductions for non-residents as in the case of resident estates. The specific exemption of $50,000 does not, however, apply as far as non-resident estates are concerned.

DEDUCTION FOR CLAIMS AND EXPENSES OF NON-RESIDENTS.—

REGULATION. In estates of nonresidents, deduction from gross estate may be taken, subject to the limitations herein subsequently to be referred to, of disbursements for funeral expenses, administration expenses, claims against the estate, unpaid mortgages, losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, or from theft, when such losses are not compensated for by insurance or otherwise, amounts reasonably required and actually expended for the support during settlement of the estate of those dependent upon the decedent, as are allowed by the laws of the jurisdiction under which the estate is being administered. Treatment of the several deductions enumerated above will be found in Articles 32 to 43, inclusive. No deduction may be taken of any income taxes upon income received after the death of the decedent, or of any estate, succession, legacy, or inheritance taxes. It is immaterial whether the amounts to be deducted were incurred or expended within or without the United States, but certain limitations are imposed which do not apply to estates of resident decedents, namely: (1) Only that proportion of the aggregate thereof is deductible which the value of that part of the gross estate, which at the time of decedent's death was situated in the United States, bears to the value of the entire gross estate, wherever situated; and in no event may a sum be deducted in excess of 10 per centum of the value of that part of the gross estate which at the time of death was situated in the United States. (See Art. 58.) Such 10 per centum limitation does not apply to the deductions subsequently considered in Articles 56 and 57. (2) No deduction whatever may be taken unless the executor includes in the return the value at the date of the nonresident's death of that part of the gross estate not situated in the United States.

In order that the Commissioner may properly pass upon the items claimed as deductions, the executor should submit a certified copy of the schedule of liabilities, claims against the estate and expenses of administration filed under the foreign estate, succession, or death-duty act; or, if no such schedule was filed, a certified copy of the schedule of such liabilities, claims and expenses filed with the foreign court in which administration was had; or, if items of deduction allowable under section 403 (b) (1) [303 (b-1 of the 1924 law] were not included in either such schedule, or, if no such schedules were filed, then the affidavit of the foreign executor setting forth the facts relied upon as

entitling the estate to the benefit of the particular deduction or deductions. (Reg. 63, Art. 55.)

DEDUCTION FOR PROPERTY PREVIOUSLY TAXED.

REGULATION. The right to deduct the value of property received by a nonresident decedent from any person dying within five years prior to his death, or of the value of property acquired in exchange for property so received, is governed by the same rules as those which apply to estates of resident decedents, subject to the two following exceptions: (1) That such right is limited to the extent that the value of the property, or of that acquired in exchange therefor, is not deducted under paragraphs (1) or (3) of subdivision (b) of Section 403 [Section 303 of the 1924 law]; (2) That such right is not available to any extent unless the executor includes in the return the value at the time of the decedent's death of that part of the gross estate not situated in the United States. (See Arts. 44 to 46, inclusive.) (Reg. 63, Art. 56.)

DEDUCTIONS FOR PUBLIC, CHARITABLE, OR SIMILAR GIFTS BY NON

RESIDENTS.

REGULATION. The right to deduct the value of property transferred by nonresidents for public, religious, charitable, scientific, literary, or educational purposes is governed by the same rules as those applying to estates of resident decedents (Arts. 47 to 51, inclusive), subject, however, to the two following exceptions, namely: (1) That the right is limited to transfers to corporations and associations created or organized in the United States, or to trustees for use within the United States, and, (2) is then available only where the executor includes in the return the value at the time of the nonresident decedent's death of that part of the gross estate not situated in the United States. (Reg. 63, Art. 57.)

Two months' notice-non-resident estates.

REGULATION. In estates of nonresidents, notice on Form 705 should be filed with the Commissioner of Internal Revenue, Washington, D. C., by every duly qualified executor or administrator. The notice is necessary if any part of the decedent's gross estate was situated in the United States at the time of death, regardless of the value of that part or of the entire gross estate. If no executor or administrator has been appointed, notice must be filed within two months after the date of death by every person in either the actual or constructive possession of any property of the decedent within the United States at the time of his death. If such person has no knowledge of the decedent's death within two months following its occurrence, he should file the notice immediately upon obtaining such knowledge. If there is a delay of more than two months after the death in the appointment of an executor or administrator, persons so in possession should file notice. The term "person in actual or constructive possession of any property of the decedent" (Section 400) [Section 300 of the 1924 law] includes, among others, the decedent's agents and representatives; safedeposit companies, warehouse companies, and similar custodians of property in this country of a nonresident decedent; brokers holding as collateral securities belonging to the decedent or investment funds owned by the decedent, and debtors of the decedent in this country, but does not include

any person, corporation, or association carrying on the banking business with whom or with which money was deposited by or for the decedent, unless, however, the decedent was engaged in business in the United States at the time of his death. (Reg. 63, Art. 64.)

TRANSFER AGENTS' TWO MONTHS' NOTICE.-

REGULATION. A notice on Form 714 is required to be filed whenever a corporation, its transfer agent, registrar, or paying agent, is called upon to make a transfer of stock or bonds, or to pay dividends or interest, to any successor in interest of a nonresident stockholder or bondholder who died after September 8, 1916, unless the transfer is made upon the order of an executor or administrator appointed in the United States. The notice is required for dividends declared, and for interest which had accrued on bonds, prior to the death of the decedent, although payable thereafter. Notice should be filed with the Commissioner of Internal Revenue at Washington, D. C., within two months following the date of death, or immediately upon receipt of the request for transfer or payment. A transfer agent should be vigilant to report all cases in which the fact of the death of a nonresident appears. Where the securities are received without the personal assignment of the decedent, but with the transfer order of the foreign executor, it is clear that the case should be reported. Where the securities bear the personal assignment of the decedent. the transfer should be reported if made upon the order of a foreign executor, or if information is received in any other manner that the record owner has died a nonresident of the United States.

In order to prevent loss of the tax upon nonresident estates, it is essential that transfer agents exercise great care in reporting all transfers of the kind described. Their records will be examined from time to time by internal-revenue officers to determine whether this regulation is being strictly complied with. Failure to file notice in the manner prescribed will render the transfer agent liable to a fine. (Reg. 63, Art. 65.)

TRANSFER OF STOCKS OR BONDS OF NON-RESIDENT DECEDENT, HOW MADE?—

REGULATION. Wherever a transfer agent is required to file the notice as provided in Article 65, he shall not make transfer of any stocks or bonds standing in the name of a nonresident decedent until there has been delivered to such collector of internal revenue as inay be designated by the Commissioner the bond of the party to whom the stocks or bonds are to be transferred with corporate surety in an amount to be fixed by the Commissioner, not exceeding in amount the value of the stocks or bonds to be transferred, conditioned for the payment of the tax upon the transfer of the decedent's net estate. Upon receipt of such notice the Commissioner will at once, upon request, fix the amount for which the bond is to be given. In lieu of such bond a deposit, either of money or of bonds of the United States. of the amount so fixed may be made with such collector of internal revenue as the Commissioner may designate.

Where bonds of the United States or moneys are deposited in lieu of the delivery of such corporate bond, return will be made thereof

to the depositor after payment in full of the tax on the transfer of the decedent's net estate. If, however, the tax be not paid in full on or before the due date thereof, or within such period as payment may have been extended by the Commissioner, the collateral will be subjected to payment of the tax, or the then unpaid balance thereof, and the excess of the deposit, or of the proceeds thereof remaining, if any, will be returned to the depositor. In lieu of the provisions and restrictions hereinbefore set forth, transfer agents are authorized to make transfer of stocks and bonds standing in the name of a nonresident decedent to the duly qualified ancillary executor or administrator within the United States, provided that such transfer agent at the time of making such transfer gives notice thereof in writing to the Commissioner of Internal Revenue. (Reg. 63, Art. 66.)

Returns for non-resident estates.

Date of filING RETURNS—WHO SHALL MAKE RETURNS?—

REGULATION. A return on Form 706 must be filed in duplicate with the Commissioner of Internal Revenue, Washington, D. C., or with such collector of internal revenue as the Commissioner may designate, within one year after the date of death of every nonresident decedent, if any part of the gross estate of such decedent was situated in the United States at the time of his death. It is the duty of the duly qualified executor or administrator to file a return for the whole of that part of the gross estate situated in the United States, whatever its value. If the duly qualified executor or administrator is unable to make a complete return as to any part of the gross estate, he is required to give all the information available to him as to such part, including a description thereof and the name of every person holding a legal or beneficial interest therein. If deductions are claimed, see Articles 55, 56 and 57. If no executor or administrator has been appointed, all persons in actual or constructive possession of any property of the decedent situated in the United States are required to file a return for such portion of the gross estate as had its situs therein. (See Art. 53.) (Reg. 63, Art. 73.)

Supplemental data.

REGULATION. Pursuant to the provisions of Section 404 [Section 304 of the 1924 law] with respect to furnishing supplemental data, the duly qualified executor or administrator of a nonresident decedent is required to file with the return:

(1) Certified copy of will, or, if the decedent left several wills, to govern in different jurisdictions, certified copy of each will.

(2) Certified copy of inventory of property filed under a foreign estate, succession, or death-duty act; or, if no such inventory was filed, a certified copy of inventory filed with the foreign court of probate jurisdiction. ..

(Reg. 63, Art. 74.)

CHAPTER LI

GIFT TAX

Introduction

Part II of Title III of the Revenue Act of 1924 contains an innovation in federal taxation, and so far as the author has been able to ascertain in taxation elsewhere, in the form of a tax on transfers by gift. When the 1921 law was pending in the Senate, that body adopted an amendment taxing gifts, but it was discarded in the Conference Committee. In January, 1922, Congressman Frear of Wisconsin introduced a bill amending the 1921 law and imposing a gift tax, but the measure was never acted upon in committee.

Whatever may be said of its validity, the tax is unwise. Since its sponsors must have realized that the strict enforcement of the law would be extremely difficult, one is forced to the conclusion that it was intended to be "a means of preventing the concentration and perpetuation of large fortunes." 1 It seems strange that a tax should be used for such a purpose. The tax, while it may not prevent gifts, will certainly not encourage them.

It is urged that the gift tax will prevent the avoidance of surtaxes. Since surtaxes recur year by year and the gift tax is paid but once, it is not likely that many gifts will be prevented in cases where the donor wishes to reduce surtaxes.

The gift tax is not an income, war profits or excess profits tax. It is not a tax assessed against local benefits. It is not a tax on a shareholder's interest in a corporation. It is therefore deductible from gross income in determining taxable net income for the purposes of the normal income and surtax. Thus, instead of aiding the enforcement of the income tax law, it will in a measure defeat the purposes of the income tax law. If a taxpayer pays a gift tax of $1000 he thereby reduces his income subject to surtax rates by the same amount. If his net income is in excess of $500,000, the saving in surtaxes is $400, and the net amount actually paid to the government as a result of the gift is only $600.

1

Statement of Hon. C. William Ramseyer, a representative in Congress from the State of Iowa, Hearings before the Committee on Ways and Means of the House of Representatives, 1924, page 249.