spective of whether the corporation had any income, during such year, subject to Federal income tax.

(d) First return means the first capital stock tax return filed by a corporation for its first taxable year.

ART. 42. Original declared value. (a) In its first return (see article 41 (d)) a corporation subject to the tax must declare a definite value for its capital stock. Extreme care should be exercised by the corporation in making this original declared value, for the reason that when the value has been declared such value can not be changed, amended, or corrected, either by the corporation or by the Commissioner; when the right to declare such original declared value has been exercised, the right does not recur. The importance of the original declared value may be seen from the fact that such original declared value forms the basis for the computation of the tax on capital stock in years subsequent to the first taxable year, and constitutes a prime factor in determining the amount of tax imposed on excess profits under section 702 of the Revenue Act of 1934.

(b) In the making of its original declared value a corporation is not bound by any declaration of value made by it in a return filed under the provisions of section 215 of the National Industrial Recovery Act. The corporation may exercise unrestricted judgment and discretion in determining the value to be declared for its capital stock in its first return.

ART. 43. Adjusted declared value.-(a) First taxable year. The adjusted declared value for the first taxable year is the original declared value. See articles 41 (a) and 42.

If a corporation was in existence during the entire taxable year ended June 30, 1934, the adjusted declared value shall be as of the close of its last income-tax taxable year which ended prior to July 1, 1934. If a corporation makes its return for Federal income tax purposes on a calendar year basis, the value declared must be as of the close of December 31, 1933. If a corporation makes its income tax return on a fiscal year basis, the value must be declared as of the close of such fiscal year.

If a corporation was organized during the taxable year ended June 30, 1934, and established an accounting period (for Federal income tax purposes) ended on or prior to June 30, 1934, the value shall be declared as of the close of such period. If no such period was established, the value shall be declared as of the date of the organization of the corporation.

If a corporation is organized after June 30, 1934, a similar rule to that stated in the last preceding paragraph shall be applied.

(b) Year subsequent to first taxable year.-For any taxable year subsequent to the first taxable year the adjusted declared value for purposes of this tax shall be ascertained as follows:

To the adjusted declared value applicable to the last preceding taxable year shall be added the sum of the following:

(1) Cash received for stock issued, or, if such stock was issued for property, the fair market value of such property as of the date paid in.

(2) All cash paid in and the fair market value of all property received (whether paid in by, or received from, stockholders or others) constituting paid-in surplus or contributions to capital. The fair market value of the property shall be determined as of the date of such payment or contribution.

(3) Net income. The term "net income means (1) in the case of an income-tax taxable year governed by the Revenue Act of 1932, as amended by section 218 of the National Industrial Recovery Act, "net income" within the contemplation of section 21 of the Revenue Act of 1932, and (2) in the case of an income-tax taxable year governed by the Revenue Act of 1934, "net income" within the contemplation of section 21 of the Revenue Act of 1934. The credits allowed corporations against net income (for example, the credit allowed by section 26 of the Revenue Act of 1934) are not applicable.

(4) The entire amount of the corporate income wholly exempt from the tax imposed by Title I of the Revenue Act of 1934 (including all amounts excluded from gross income by section 22 of that title and all income of whatever nature and from whatever source, which though not specified in section 22 is nevertheless wholly exempt from the tax imposed by that title) less the amount disallowed as a deduction by section 24 (a) (5) of that title. For example, the income from leases of State school lands must be included.

(5) The aggregate amount of such dividends as are allowable as deductions for Federal income tax purposes.

From the foregoing shall be deducted the sum of the following: (A) The value of any property distributed to shareholders in liquidation or partial liquidation. The value of such property shall be determined as of the date of such distribution. The term 66 liquidation or partial liquidation" shall have the same meaning as in the provisions of the applicable income tax law respecting distributions by corporations.

(B) Distributions (other than liquidating) made from earnings or profits. The term "earnings or profits" shall have the same meaning as in the provisions of the applicable income tax law respecting distributions by corporations.

(C) The excess over gross income of the corporation of deductions allowable for Federal income tax purposes.

In every instance the adjustments for items (1), (2), (3), (4), and (5) and items (A), (B), and (C) are to be made for each incometax taxable year included in the period beginning at the close of the last income-tax taxable year ending at or prior to the close of the last preceding taxable year and extending to the close of the last income-tax taxable year ending at or prior to the close of the taxable year.

The following example illustrates how the above method of determining adjusted declared value should be used: A corporation which makes its Federal income tax returns on a calendar year basis filed a capital stock tax return for the taxable year ended June 30, 1934, in which the value of its capital stock was declared as of December 31, 1933. To this value as of December 31, 1933, must be added items (1) to (5), inclusive, and from the sum thereof must be deducted the total of items (A), (B), and (C), for the period from January 1, 1934, to December 31, 1934, the end of the income-tax taxable year. The net amount will constitute the adjusted declared value on which will be computed the capital stock tax for the taxable year ending June 30, 1935. This adjusted declared value, to the extent that it is true and correct, will constitute the base for computing the adjusted declared value as of December 31, 1935, for the taxable year ending June 30, 1936. To this base must be added the items (1) to (5), inclusive, and from that sum must be deducted items (A), (B), and (C), for the period from January 1, 1935, to December 31, 1935. Each subsequent year must be adjusted in like manner, the true and correct adjusted declared value for one taxable year constituting the base for computing the adjusted declared value for the next following taxable year.

FOREIGN CORPORATIONS

SECTION 701 (b) AND (c) (4) OF THE REVENUE ACT OF 1934

(b) For each year ending June 80, beginning with the year ending June 30, 1934, there is hereby imposed upon every foreign corporation with respect to carrying on or doing business in the United States for any part of such year an excise tax equivalent of $1 for each $1,000 of the adjusted declared value of capital employed in the transaction of its business in the United States.

(c) The taxes imposed by this section shall not apply

(4) to any foreign corporation in respect of the year ending June 80, 1934, if it did not carry on or do business in the United States during a part of the period from the date of the enactment of this Act to June 30, 1934, both dates inclusive.

ART. 51. Nature of the tax.-The tax is an excise tax imposed with respect to the carrying on or doing business within the United States during any part of a taxable year ending June 30. See articles 1, 82, and 33.

ART. 52. Rate of tax. The tax is imposed at the rate of $1 for each $1,000 of the adjusted declared value of capital employed by the foreign corporation in the transaction of its business in the United States.

ART. 53. Carrying on or doing business. In general, the same rules as to carrying on or doing business by a domestic corporation apply in the case of a foreign corporation which is doing business in the United States. See articles 32 and 33. A foreign corporation is carrying on or doing business in the United States if it maintains an agent, or office, or warehouse in the United States, or in any other way employs capital in the United States in the transaction of its business. The purchase or sale of commodities or other property in the United States in the furtherance of efforts in the pursuit of profit or gain is carrying on or doing business. Ordinarily if a foreign corporation is amenable to service of process in the United States, it is doing business in this country.

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ART. 54. Capital employed in the United States.-Examples: (a) The term capital employed in the transaction of its business in the United States" means the portion of the total capital of the foreign

corporation utilized in carrying on or doing business in the United States.

(b) A foreign corporation may employ capital in the transaction of its business in the United States in various ways. For example, property in the United States used in its business; bills, accounts receivable, and other obligations, representing business done in the United States; merchandise kept in the United States for sale; and funds on deposit in the United States for use in the corporation's business in the United States, are capital employed in the transaction of business in the United States.