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have been set aside and deducted in the current year and previous years from gross income on account of depreciation, and which has not been paid out in making good the depreciation sustained. A gift of real estate to a city to be maintained perpetually as a public park is not allowable deduction.) The proportionate share of contributions made by a partnership to corporations or associations of the kind included in (a) above and to the special fund for vocational rehabilitation specified in (b) may be claimed as deductions in the personal returns of the partners to an amount which, added to the amount of such contributions made by the partner individually, is not in excess of fifteen per cent. of the partner's net income computed without the benefit of the deduction for such contributions. However, the contributions made by the partnership shall not be deducted from its gross income in ascertaining the amount of its net income to be reported on Form 1065 (revised). See article 321. This article does not apply to gifts by estates and trusts or corporations. See Section 219 of the statute and Articles 561 and 562.

This decision supersedes Treasury Decisions 2966 and 2977. (Reg. 45, Art. 251, as amended by T. D. 2998, approved April 10, 1920.)

516

Carrying Charges as Part of the Cost of Property.-The cost of property acquired subsequently to the incidence of the tax will be the actual price paid for it, together with the expense incident to the procurement of the property in the first instance and its sale thereafter, and the cost of improvements or development if any. (T. D. 2005, July 22, 1919.) 517 T. D. 2005 is not intended to be so construed that carrying charges, if they consist of such expenditures as constitute allowable deductions from gross income, are to be added to the cost of the property if there is a gross income from which such charges as constitute allowable deductions may be deducted. It is intended, however, that in the case of a holding or a developing company which has not yet reached the stage of having any income of consequence resulting from its corporate operations, the carrying charges or other excess over the incidental income received may be added to and made part of the cost of the property. (T. D. 2137, Jan. 30, 1915.)

518

Cancellation of Lease. A business property was leased for a term of years, but prior to the termination of the lease the lessor paid a fixed sum to the lessee for its cancellation.

Held, that the amount so paid by the lessor constitutes a business expense and that he may deduct an aliquot part thereof in his return for the year in which the lease was canceled and for each succeeding year the lease had to run. (6—20— 727. O. D. 397.)

519 Bonus Paid for Lease.-The amount of a bonus paid by a corporation to secure immediate possession of a theater under a lease which was limited to the taxable period, and attorneys' fees in connection with the transaction, constitute necessary business expenses or costs of operation for such period and are not required to be capitalized. (28-20-1054. A. R. 178.) 520

Cost Connected with Title to Property Not Deductible.— The cost of defending or perfecting title to property constitutes a part of the cost of the property and is not a deductible expense.... . (Art. 293.)

521 Cost of Materials. Taxpayers carrying materials and supplies on hand should include in expenses the charges for materials and supplies only to the amount that they are actually consumed and used in operation during the year for which the return is made, provided that the cost of such material and supplies has not been taken into account in determining the net income for any previous year. If a taxpayer carries materials or supplies on hand for which physical inventories at the beginning and end of the year are not taken, it will be permissible for the taxpayer to include in his expense and deduct from gross income the total cost of such supplies and materials as were purchased during the year for which the return is made, provided the net income is clearly reflected by this method. (Reg. 45, Art. 102, 1919.)

522 Long Term Contracts.-Persons engaged in contracting operations, who have uncompleted contracts, in some cases perhaps running for periods of several years, will be allowed to prepare their returns so that the gross income will be arrived at on the basis of completed work; that is, on jobs which have been finally completed any and all moneys received in payment will be returned as income for the year in which the work was completed. If the gross income is arrived at by this method, the deduction from gross income should be limited to the expenditures made on account of such completed contracts. Or the percentage of profit from the contract may be estimated on the basis of percentage of completion, in which case the income to be returned each year during the performance of the contract will be computed upon the basis of the expenses incurred on such contract during the year; that is to say, if one-half of the estimated expenses necessary to the full performance of the contract are incurred during one year, onehalf of the gross contract price should be returned as income for that year. Upon the completion of a contract if it is found that as a result of such estimate or apportionment the income of any year or years has been overstated or understated, the taxpayer should file amended returns for such year or years. See section 212 of the statute and articles 22-24. (Reg. 45, Art. 36, 1919.)

INDEX

"All References Are to Paragraph Numbers in Part V”

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"All References Are to Paragraph Numbers in Part V”

Contract for Sale, When Consummated..

Cancelled

..225, 226, 227, 229

228, 233

Contract to sell, distinguished from sale, 213, 214, 225, 226, 229 Consolidated Returns

Corporations

.13, 103

9

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...202-206, 240

Determination of Gain or Loss from Sale or Exchange of

Replacement Fund

Property

512

.209, 211

506

.5, 12, 402-406

409

406

403

407

.403-405, 504

6

406

"All References Are to Paragraph Numbers in Part V”

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Fair Market Value, Ascertainment of..

Change in Method of Computing Depreciation.

Real Estate Sold in Lots....

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Gain or Loss, Sale or Exchange of Property......1, 4, 202-20

Condemnation Proceedings

Development Work after Sale.

Remainder Subject to Life Estate, Sale of.

Gifts to Charity, Deduction for..

Gift, Property Acquired by

Sale of

[blocks in formation]

231, 239-24

22

216, 22

10

51

20

20

10

..210, 21

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