The assertion of specific penalty does not depend upon the fact of whether or not the 50 per cent addition to tax has been assessed. In some cases where the 50 per cent addition to tax must be assessed because the return was filed after notice from the collector, the specific penalty will not be asserted. It will not be asserted, regardless of whether the 50 per cent addition to tax has been assessed, in cases falling under any of the following designations:

1. Extension granted. Where a return is filed within the thirty-day period of extension granted by the collector or within a further period of extension granted by the Commissioner of Internal Revenue, as provided by Section 14 (c) of the act of September 8, 1916.

2. Return on time. Specific penalty will not be asserted upon an amended return provided the original return was filed within the prescribed time.

3. Mailed in time. Where an affidavit is filed satisfactorily establishing that the return was placed in the mails in ample time to reach the collector's office in ordinary course of mails before the close of business on the final day for filing.

4. Tentative return. Where an informal return was filed within the time prescribed. The return of a parent company including therein the income of a subsidiary company will be accepted as a tentative return of the subsidiary company, if the fact is stated that the tentative return includes the income of the subsidiary.

5. Filed in wrong district. Where the return was filed in some other collection district within the prescribed time.

6. Net income under $3,000. Where it develops that the net income of an individual for 1913, 1914, 1915 or 1916 was less than $3,000, or under the act of October 3, 1917, for 1917, etc., less than $1,000 or $2,000.

7. Erroneous information. Where the delinquency is alleged to be due to erroneous or misleading information given by officials or employees of the Internal Revenue Service and there is no evidence in conflict therewith.

8. Organization incomplete. Where it is established that the organization of a corporation, joint-stock company or association, or insurance company was not completed until after the expiration of the period for which the return should have been filed.

9. Death. Where by reason of the death of an individual his return for the year or portion of the year prior to his death is not filed within the time prescribed. The death of a delinquent abates liability to specific penalty. An administrator or executor is charged with the duty of rendering a return for the decedent, and if he is appointed in ample time to make the return prior to March 1 and fails to do so, he should be charged as delinquent and the specific penalty should be asserted against him. The administrator or executor will not be relieved from specific penalty unless the return is made within a reasonable time after his appointment.

10. Severe illness or unavoidable absence. Where it is clearly established that the delinquency in the filing of a return of an individual or of a corporation within the time prescribed was due to severe illness of the individual or of an officer of a corporation whose duty it was to prepare or sign the return, or to unavoidable absence from place of business or place of abode.

II. Absence from the United States. Where it appears that the filing

of a return within the time prescribed was rendered impossible by reason of absence from the United States. Delinquency beyond the period of extension which may be granted by the Commissioner of Internal Revenue will not be excused under this heading.

12. Military or naval service of United States. Where the delinquency of an individual was occasioned by service in the military or naval forces of the United States.

13. Not organized for profit. Comprehends numerous small corporations not organized primarily for profit, such as local telephone companies, co-operative purchasing societies, etc., concerning whose liability under the law to make a return there may have been a reasonable doubt. 14. Inactive corporations. Those which transacted no business and had no income during the return year.

15. Fiscal year. Corporations which have established a fiscal year in the manner prescribed by law which file a return on or before the first day of the third month following the close of the fiscal year.

16. Assigned. Where corporations have made an assignment on account of insolvency and do not intend again to engage in business.

17. Insolvent. Where the assets of a corporation are insufficient for the payment of its debts and the corporation has ceased to do business. 18. Charter forfeited. Where, prior to the date when the return was due, the charter of a corporation is forfeited on account of noncompliance with state laws. It must be clear, however, that business in the name of the corporation was suspended at the time of such forfeiture. If business was continued under the same name, the concern will be held to be an association and the same liabilities will attach as if the charter had not been forfeited.

19. Defunct. Where corporations are out of business; have no assets, maintain no organization, and the purpose for which organized has been abandoned.

20. Dissolved. Where all the assets of a corporation have been distributed.

21. Sale. Where corporations have disposed of all their assets and property by sale to other corporations, firms, or individuals and business is no longer carried on under their charters.

22. Consolidated, merged or succeeded. Where corporations have terminated their existence as represented by these terms and it appears that no assets or property remain in the name of the retiring corporation. 23. No assets. Includes all corporations having no assets from which to submit an offer in compromise.

In cases not included in any of the above classes, the specific penalty will be asserted, and if the delinquency was not due to an intention to delay the administration of the law the minimum amount which will be accepted in compromise is as follows:

$5 in the case of an individual or withholding agent.

$10 in the case of a corporation, joint-stock company or association, or insurance company.

These amounts will be considered insufficient and will not be accepted in any case where it appears that a taxpayer was intentionally violating the provisions of law, and purposely delaying the filing of the returns. In all cases where revenue agents or other examining officers discover that any individual has an appreciable taxable income and the examining officer is of the opinion that the individual knew or should have known

that he was required to make a return, he should make a recommendation as to the minimum amount which should be accepted as an offer in compromise, and where the intent to evade tax is plain he should recommend prosecution. Special attention should be called to cases of individuals having a taxable income who have failed to file returns for a number of years.

In all cases of delinquency discovered by revenue agents and other examining officers, if the delinquency falls within a period for which the penalty can be asserted, such officers should secure from the delinquent a sworn statement setting forth the reason for delinquency. This statement should be attached to the return forwarded to the collector. The examining officer should state in his report the alleged reason for delinquency and if he is of the opinion that the minimum amount should not be accepted as an offer in compromise of liability to specific penalty, he should make a recommendation as to the minimum amount which should be accepted. Consideration will be given such recommendation by this office in accepting an offer in compromise. In forwarding offers in compromise on form 656 collectors should call attention to revenue agents' reports, if any, in which the non-acceptance of the minimum amount as an offer in compromise is recommended. The statement or affidavit attached to the return setting forth the reason for delinquency is not in lieu of the affidavit required to be attached to form 656. (Mim. Letter to Collectors No. 1675, November 3, 1917.)

Suits for penalties barred after 5 years.-Section 1047. Revised Statutes, in part, is as follows:

LAW. Section 1047 [Rev. Stat.]. No suit or prosecution for any penalty or forfeiture, pecuniary or otherwise, accruing under the laws of the United States, shall be maintained, except in cases where it is otherwise specially provided, unless the same is commenced within five years from the time when the penalty or forfeiture accrued. . . . .

LAW. Section 1010. (a) The Act entitled "An Act to limit the time within which prosecutions may be instituted against persons charged with violating internal-revenue laws," approved July 5, 1884, as amended, is amended to read as follows:

"That no person shall be prosecuted, tried, or punished for any of the various offenses arising under the internal-revenue laws of the United States unless the indictment is found or the information instituted within three years next after the commission of the offense: Provided, That 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, the period of limitation shall be six years, but this proviso shall not apply to acts, offenses, or transactions which were barred by law at the time of the enactment of the Revenue Act of 1924: Provided further, That the time during which the person committing the offense is absent from the district wherein the same is committed shall not be taken as any part of the time limited by law for the commencement of such proceedings: Provided further, [Former Procedure] With the exception of this proviso extending the time limit to six years, section 1321 of the 1921 law contained practically the same language.

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That the provisions of this Act shall not apply to offenses committed prior to its passage: Provided further, That where a complaint shall be instituted before a commissioner of the United States within the period above limited, the time shall be extended until the discharge of the grand jury at its next session within the district: And provided further, That this Act shall not apply to offenses committed by officers of the United States."

(b) Any prosecution or proceeding under an indictment found or information instituted prior to the enactment of the Revenue Act of 1921 shall not be affected in any manner by this section, nor by the amendment by the Revenue Act of 1921 of such Act of July 5, 1884, but such prosecution or proceeding shall be subject to the limitations imposed by law prior to the enactment of the Revenue Act of 1921.

In the case U. S. v. Noveck & Co., Inc.,47 it was held that section 1321 of 1921 law, which is same as section 1010 of 1924 law except it provided for a three-year period, superseded the Act of November 17, 1921, which is a general statute providing for a longer period of limitation.

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Compromise of penalty a bar to prosecution.—In a case in which internal revenue officers, after defendant had admitted that he had not filed an income tax return as required by law, accepted not only the tax but the penalty, informing defendant that such payment would end the matter and there would be no indictment, it was held that such acceptance and statement was a "compromise" within section 3229, Revised Statutes, and was a bar to prosecution.

U. S. District Court, S. D. of New York, decided June 13, 1924, not yet reported (writ of error applied for).

"Rau v. U. S., 260 Fed. 131, 171 C. C. A. 167.

The federal income tax has been in force twelve years. In only four of these years have the rates stood without change.

The last change of rates affecting corporations was made in the 1921 law and became effective January 1, 1922. The 1924 law reduced the income taxes payable by individuals under the 1921 law for the year 1923 by a flat 25 per cent, and established new rates for individuals effective January 1, 1924. The rates applicable to corporations established by the 1921 law remain unchanged.

It is possible that Congress will, before March 4, 1925, reduce the rates for individuals applicable to the year 1924. If this action is taken the change will probably take the form of a flat reduction, as was the case for 1923.

Reduction of income tax payable for the year 1923.

METHOD OF ALLOWING REDUCTION.-When the 1924 law was passed taxpayers filing returns for the year 1923 had already paid the tax in whole or in part. The law 1 provided, therefore, that the amount of the 25 per cent reduction should be pro-rated to the four installments and that any portion of the reduction applicable to an installment which had already been paid should be credited against the next installment. If an amount had already been paid in excess 1 Section 1200.