to the items of income from which a tax of only 5 percent was withheld from Canadian addressees. (C) Section 19.144-1, as amended by T. D. 4979, is further amended (a) by inserting in the third paragraph thereof after "(See paragraph 106 of the Appendix to these Regulations.)": On or after April 30, 1941, no such treaty is in effect. (b) by striking out the last paragraph thereof and substituting therefor the following paragraph: With respect to income paid on or after June 26, 1940, and prior to January 1, 1945, the rate of withholding (except with respect to dividends paid prior to April 30, 1941 to corporations organized under the laws of Canada and dividends paid to corporations or other entities created or organized under the laws of Sweden) is 161⁄2 percent instead of 15 percent. (D) Section 19.144-2, as amended by T. D. 4979, is further amended (a) by striking out footnote 2 in the second table appearing therein. and substituting therefor: 2. In the case of dividends paid to a corporation organized under the laws of Canada, the rate is 5 percent with respect to dividends paid prior to April 30, 1941. (b) By adding below footnote 4 in the second table appearing therein the following: Note: The rate of 5 percent appearing in line 5 is applicable only with respect to income paid prior to April 30, 1941. Income paid on or after such date is subject to withholding at the rate of 161⁄2 percent. (E) Section 19.262-4, as amended by T. D. 4979, is further amended by striking out the last paragraph thereof and substituting therefor the following paragraph: With respect to income paid on or after June 26, 1940, and prior to January 1, 1945, the rate of withholding (except with respect to dividends paid prior to April 30, 1941 to residents of, or corporations organized under the laws of, Canada or dividends paid to residents of, or to corporations or other entities created or organized under the laws of, Sweden) is 161⁄2 percent instead of 15 percent. Par. 2. By virtue of the amendments made by this Treasury decision, fixed or determinable annual or periodical income paid on or after April 30, 1941, to nonresident alien individuals, residents of Canada, or to corporations organized under the laws of Canada is subject to the rates of withholding at the source applicable generally to nonresident aliens and foreign corporations. See section 19.144-2, Regulations 103, as amended by T. D. 4979, approved July 1, 1940. In the case of income paid subsequent to April 29, 1941, and prior to May 15, 1941, the withholding of the tax in the case of nonresident alien individuals, residents of Canada, or corporations organized under the laws of Canada at the rates applicable under Regulations 103 prior to their amendment by this Treasury decision shall be considered as sufficient compliance with the provisions of law and regulations relating to withholding of the tax at the source. Par. 3. T. D. 4883, approved January 16, 1939 [part 14, title 26, Code of Federal Regulations, 1939 Sup.], and that Treasury decision as made applicable to the Internal Revenue Code by T. D. 4885, approved February 11, 1939 [part 465, subpart B, of such title 26, 1939 Sup.] are revoked effective April 30, 1941, insofar as concerns income paid on or after such latter date to persons whose addresses are in Canada. (This Treasury decision is issued under the authority contained in section 62 of the Internal Revenue Code, 53 Stat. 32 (26 U. S. C., Sup. V, 62) and the Reciprocal Tax Convention between the United States and Canada, 50 Stat. 1399.) Approved May 8, 1941: JOHN L. SULLIVAN, GUY T. HELVERING, Commissioner of Internal Revenue. Acting Secretary of the Treasury. [Filed with the Division of the Federal Register May 9, 1941, 2:00 p. m.] (T. D. 5047) Articles 11 and 13, Regulations 80 (1937 edition) amended-Optional valuation of gross estate TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C. To Collectors of Internal Revenue and Others Concerned: Article 11, and article 13 (as amended by T. D. 5042, approved March 1, 1941) of Regulations 80, 1937 edition [sections 80.11 and 80.13, title 26, Code of Federal Regulations], and those articles as made applicable to the Internal Revenue Code (53 Stat., part 1) by T. D. 4885, approved February 11, 1939 [chapter I, note, of such title 26], are amended as herein indicated. In lieu of the 6th, 7th, 8th, 9th, 10th, and 11th paragraphs of article 11, the following is substituted: In valuing the gross estate under the optional valuation method, all of the property interests existing at the date of death which are a part of the gross estate as determined under the subdivisions of section 302, as amended, constitute the property to be valued as of one year after the date of the decedent's death, or as of the date of the decedent's death, or as of some intermediate date. Such property is hereinafter referred to as "included property". "Included property" as of the date of the decedent's death remains "included property" for the purpose of valuing the gross estate under the optional valuation method even though it is changed in form during the optional valuation period by being actually received, or disposed of, in whole or in part, by the estate. However, property earned or accrued (whether received or not) after the decedent's death and during the optional valuation period with respect to any property interests existing at the date of death, which does not represent a form of "included property" itself or the receipt thereof, is to be excluded in valuing the gross estate at the subsequent valuation date and is hereinafter referred to as "excluded property". Among the items of "included property" to be valued in accordance with these principles are the following: 1. Interest-bearing obligations. Interest-bearing obligations, such as bonds and notes, may, at the date of death, comprise two elements of "included property", the principal of the obligation itself and interest accrued to the date of death, and each is to be separately valued as of the applicable valuation date. The bond or note is to be valued as of the applicable valuation date without regard to accrued interest. Interest accrued after the date of death and prior to the subsequent valuation date constitutes "excluded property." However, any part payment of principal made between the date of death and the subsequent valuation date, or any advance payment of interest for a period after the subsequent valuation date made during the optional valuation period which has the effect of reducing the value of the principal obligation as of the subsequent valuation date, will be included in the gross estate, and valued as of the date of such payment. 2. Leased property. The principles applicable with respect to interest-bearing obligations also apply to leased realty or personalty included in the gross estate with the obligation to pay rent reserved. Both the realty or personalty itself and the rents accrued to the date of death constitute "included property," and each is to be separately valued as of the applicable valuation date. Any rent accrued after the date of death and prior to the subsequent valuation date is "excluded property". The principle applicable with respect to interest paid in advance also applies to advance payments of rent. 3. Noninterest-bearing obligations. In the case of noninterest-bearing obligations sold at a discount, such as Treasury bills, the principal obligation and the discount amortized to the date of death are property interests existing at the date of death and constitute "included property." The obligation itself is to be valued thereafter at the subsequent valuation date without regard to any further increase in value due to amortized discount. The additional discount amortized after death and during the optional valuation period is the equivalent of interest accruing during that period and is, therefore, not to be included in the gross estate under the optional valuation method. 4. Stock of a corporation. Shares of stock in a corporation and dividends declared to stockholders of record on or before the date of the decedent's death and not collected at the date of death constitute "included property" of the estate. Ordinary dividends out of earnings and profits, whether in cash or in shares of the corporation or in other property, declared to stockholders of record after the date of the decedent's death are "excluded property" and are not to be valued under the optional valuation method. If, however, dividends are declared to stockholders of record after the date of the decedent's death with the effect that the shares of stock at the subsequent valuation date do not reasonably represent the same "included property" of the gross estate as existed at the date of the decedent's death, such dividends are "included property" except to the extent that such dividends are out of earnings of the corporation after the date of the decedent's death. For example, if a corporation makes a distribution in complete or partial liquidation to stockholders of record during the optional valuation period, the amount of such distribution received on stock included in the gross estate is itself "included property," except to the extent that the distribution was out of earnings and profits since the date of the decedent's death. Another example is where a corporation, in which the decedent owned 50 per cent of the shares and which possessed at the date of the decedent's death accumulated earnings and profits equal to its paid-in capital, distributed all of its accumulated earnings and profits as a cash dividend to shareholders of record during the optional valuation period. In such a case the amount of the dividends received on stock includible in the gross estate will be included in the gross estate under the optional valuation method. The operation of this article may be further illustrated by the following example in which the death of the decedent will be taken to have occurred on January 1, 1940: Description Subsequent Value under Value at date Bond, par value $1,000, bearing interest at 4% payable quarterly on February 1, May 1, August 1 and November 1. Bond distributed to legatee on March 1, 1940. Interest coupon of $10 attached to bond and not cashed at date of death although due and payable November 1, 1939. Cashed by executor on February 1, 1940___ Interest accrued from November 1, 1939, to January 1, 1940_ - . Real estate. Not disposed of within year Rent due for quarter ending November Rent accrued for November and December, 1939. Common stock, X Corporation, 500 shares, not disposed of within year following decedent's death_. Dividend of $2 per share declared December 10, 1939, payable on January 10, 1940, to holders of record on December 30, 1939_ In lieu of the second sentence of the last paragraph of article 11, the following is substituted: Interest and rents accrued at the date of the decedent's death and dividends declared to stockholders of record on or before the date of the decedent's death and not collected at such date shall be separately shown. In lieu of the 6th, 7th, and 8th paragraphs of article 13, the following is substituted: Interest and rents accrued at the date of the decedent's death and dividends declared to stockholders of record on or before the date of the decedent's death and not collected at such date constitute part of the gross estate. (This Treasury decision is issued under the authority contained in the following sections of law: Sections 811, 937 and 3791 of the Inter nal Revenue Code (53 Stat. 120, 143 and 467, 26 U. S. C., Sup. V, 811, 937, 3791); section 302 of the Revenue Act of 1926 (44 Stat. 70, 26 U. S. C. 411) as amended by section 202 of the Revenue Act of 1935 (49 Stat. 1022, 26 U. S. C., Sup. V, 811); section 1101 of the Revenue Act of 1926 (44 Stat. 111, 26 U. S. C. 1691 (a) (1)); section 403 of the Revenue Act of 1932 (47 Stat. 245, 26 U. S. C. 537); and section 1108 (a) of the Revenue Act of 1926, as amended by section 605 of the Revenue Act of 1928 and by section 506 of the Revenue Act of 1934 (44 Stat. 114, 45 Stat. 874, 48 Stat. 757, 26 U. S. C. 1691 (b)).) GUY T. HELVEring, Approved May 22, 1941: JOHN L. SULLIVAN, Commissioner of Internal Revenue. Acting Secretary of the Treasury. [Filed with the Division of the Federal Register May 24, 1941, 12:17 p. m.] (T. D. 5048) Regulations 103, 101, 94, and 86, amended-Inventories of retail merchants TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C. To Collectors of Internal Revenue and Others Concerned: Section 19.22 (c)-8 of Regulations 103 [part 19, title 26, Code of Federal Regulations, 1940 Sup.], article 22 (c)-8 of Regulations 101 [part 9, title 26, Code of Federal Regulations, 1939 Sup.], article 22 (c)-8 of Regulations 94 [part 3, title 26, Code of Federal Regulations], and article 22 (c)-8 Regulations 86, are amended by adding at the end thereof the following: A taxpayer who previously has determined inventories in accordance with the foregoing, except that, to obtain a basis of approximate cost or market, whichever is lower, the practice has been followed, consistently and uniformly, of adjusting the retail selling prices of the goods included in the opening inventory and purchased during the year for mark-ups but not for mark-downs, may continue practice subject to the conditions herein prescribed. The adjustments must be bona fide and consistent and uniform. Where mark-downs are not included in the adjustments, mark-ups made to cancel or correct mark-downs shall not be included; and the mark-ups included must be reduced by the mark-downs made to cancel or correct such mark-ups. In no event shall mark-downs not based on actual reduction of retail sales prices, such as mark-downs based on depreciation and obsolescence, be recognized in determining the retail selling prices of the goods on hand at the end of the year. Section 19.22 (c)-8 of Regulations 103 is further amended by inserting, immediately following the concluding paragraph of the |