whom returns are made by the collector or Commissioner, and (b) those who file tardy returns and are unable to show reasonable cause for the delay. A taxpayer who files a tardy return and wishes to avoid the penalty must make an affirmative showing of all facts alleged as a reasonable cause for failure to file the return on time in the form of an affidavit, which should be attached to the return. If such an affidavit is furnished with the return or upon the collector's demand, the collector unless otherwise directed by the Commissioner will forward the affidavit with the return, and if the Commissioner determines that the delinquency was due to a reasonable cause and not to willful neglect the 25 per cent penalty will not be assessed. If the taxpayer exercised ordinary business care and prudence and was nevertheless unable to file the return in the prescribed time, then the delay is due to "reasonable cause." Where the 25 per cent penalty for delinquency in filing the return has been added to the tax the amount so added shall be collected in the same manner as the tax.

The 50 per cent addition to tax, provided by section 3176 of the Revised Statutes as amended, in cases where the taxpayer willfully makes a false or fraudulent return does not apply in the case of income tax returns. See section 275 (b).

ART. 446. Place for filing return.-Returns of income must be delivered or mailed to the collector for the district of the legal residence or principal place of business of the person making the return. Persons having no domicile or place of business in the United States should file their returns of income with the collector at Baltimore.

PART II

INCOME TAX ON CORPORATIONS

TAX ON CORPORATIONS

SEC. 230. In lieu of the tax imposed by section 230 of the Revenue Act of 1921 there shall be levied, collected, and paid for each taxable year upon the net income of every corporation a tax of 12 per centum of the amount of the net income in excess of the credits provided in sections 236 and 263.

ART. 501. Income tax on corporations.-The statute imposes an income tax at a fixed rate on all corporations not expressly exempt. See section 231 of the statute. The tax is upon net income, as defined in the statute, after deducting from gross income, as defined in the statute, the allowable deductions. See sections 232-235. Certain credits are allowed against net income and against the amount of the tax. See sections 236, 238, and 263. The tax is payable upon the basis of returns rendered by the corporations liable thereto, except that in some cases it is to be paid at the source of the income. See also sections 237, 239, 240, and 241. For the income tax on individuals, for administrative provisions, and for definitions and general provisions, see Parts I, III, and IV of the regulations. For the income tax on life insurance companies, see sections 242–245 ; on insurance companies other than life or mutual, sections 246-247. Mutual insurance companies other than life are taxed under section 230. As to foreign corporations, see sections 233 (b), 234(b), and 241; as to domestic corporations deriving 80 per cent of their gross income from sources within possessions of the United States, see section 262; as to China Trade Act corporations, see section 263.

ART. 502. Rates of tax.-The income tax on corporations for 1924 and subsequent years is at the rate of 123 per cent of the net income subject to tax. In order to determine the amount subject to tax the net income, as defined in section 232 of the statute and article 531 of the regulations, may be reduced by the amount of any credits allowable under sections 236 and 263.

ART. 503. Corporations liable to tax.-Every corporation, domestic or foreign, not exempt under section 231 of the statute, is liable to the tax. It makes no difference that a domestic corporation (unless entitled to the benefits of section 262) may receive no income from sources within the United States. On the other hand, a foreign corporation is taxed only on its income from sources within the United States. See section 233(b) of the statute and article 550. For

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what the term "corporation "includes and for the difference between domestic and foreign corporations, see section 2 and articles 1501-1509.

CONDITIONAL AND OTHER EXEMPTIONS OF CORPORATIONS

SEC. 231. The following organizations shall be exempt from taxation under this title

(1) Labor, agricultural, or horticultural organizations;

(2) Mutual savings banks not having a capital stock represented by shares; (3) Fraternal beneficiary societies, orders, or associations, (a) operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating under the lodge system; and (b) providing for the payment of life, sick, accident, or other benefits to the members of such society, order, or association or their dependents;

*(4) Domestic building and loan associations substantially all the business of which is confined to making loans to members; and cooperative banks without capital stock organized and operated for mutual purposes and without profit ;

(5) Cemetery companies owned and operated exclusively for the benefit of their members or which are not operated for profit; and any corporation chartered solely for burial purposes as a cemetery corporation and not permitted by its charter to engage in any business not necessarily incident to that purpose, no part of the net earnings of which inures to the benefit of any private shareholder or individual;

(6) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual;

(7) Business leagues, chambers of commerce, or boards of trade, not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual;

(8) Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes;

(9) Clubs organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, no part of the net earnings of which inures to the benefit of any private shareholder;

(10) Benevolent life insurance associations of a purely local character, farmers' or other mutual hail, cyclone, casualty, or fire insurance companies, mutual ditch or irrigation companies, mutual or cooperative telephone companies, or like organizations; but only if 85 per centum or more of the income consists of amounts collected from members for the sole purpose of meeting losses and expenses;

(11) Farmers', fruit growers', or like associations, organized and operated as sales agents for the purpose of marketing the products of members and turning back to them the proceeds of sales, less the necessary selling expenses, on the basis of the quantity of produce furnished by them; or organized and operated as purchasing agents for the purpose of purchasing supplies

and equipment for the use of members and turning over such supplies and equipment to such members at actual cost, plus necessary expenses;

(12) Corporations organized for the exclusive purpose of holding title to property, collecting income therefrom, and turning over the entire amount thereof, less expenses, to an organization which itself is exempt from the tax imposed by this title; and

(13) Federal land banks, national farm-loan associations, and Federal intermediate credit banks, as provided in the Federal Farm Loan Act, as amended.

ART. 511. Proof of exemption.-In order to establish its exemption, and thus be relieved of the duty of filing returns of income and paying the tax, it is necessary that every organization claiming exemption file an affidavit with the collector of the district in which it is located, showing the character of the organization, the purpose for which it was organized, its actual activities, the sources of its income and its disposition, whether or not any of its income is credited to surplus or may inure to the benefit of any private shareholder or individual, and in general all facts relating to its operations which affect its right to exemption. To such affidavit should be attached (1) a copy of the charter or articles of incorporation, (2) the by-laws of the organization, and (3) the latest financial statement showing the assets, liabilities, receipts, and disbursements of the organization.

In the case of the particular classes of organizations listed below, the following additional information should be embodied in the affidavit referred to above:

(1) Fraternal beneficiary societies, orders or associations: (a) The number of subordinate lodges in active operation, (b) whether periodical meetings are actually held;

(2) Educational organizations: Whether any of the shareholders are paid by the organization, and if so, the reason for each such payment and the amount thereof;

(3) Hospitals: Whether nonpay patients are accepted;

(4) Business leagues: (a) A statement of the services performed for members, (b), a statement of the services performed for nonmembers:

(5) Clubs: The income received from the use of the facilities by the general public;

(6) Benevolent life insurance associations: (a) The number of counties in which the association accepts risks, (b) copies of the policies or certificates of membership;

(7) Mutual insurance companies: Copies of the policies or certificates of membership:

(8) Farmers and like cooperative associations: (a) Whether refunds are paid equally to both shareholders and nonshareholders based on the quantity of produce furnished or supplies purchased,

(b) whether the association accumulates and maintains a reserve required by State statute, and if so, the amount, and a reference to such statute, (c) whether the association has a sinking fund or surplus, and if so, the purpose for which it is so set aside, (d) whether the association pays a dividend on its capital stock, and if so, the rate, (e) whether any of the outstanding capital stock is owned by nonproducers, and if so, the total number of shares outstanding, the number of shares owned by nonproducers and the manner in which such shares were acquired by nonproducers;

(9) Holding companies: (a) The name of the organization for which it holds title; (b) the information necessary to establish the exemption, under section 231, of the organization for which title is held.

The collector, upon receipt of the affidavit and other papers, will forward them to the Commissioner for decision as to whether the organization is exempt.

When an organization has established its right to exemption, it need not thereafter make a return of income or any further showing with respect to its status under the law, unless it changes the character of its organization or operations or the purpose for which it was originally created. Collectors will keep a list of all exempt corporations, to the end that they may occasionally inquire into their status and ascertain whether or not they are observing the conditions upon which their exemption is predicated.

ART. 512. Labor, agricultural, and horticultural organizations.—The organizations contemplated by paragraph (1) of section 231 as entitled to exemption from income taxation are those which (1) have no net income inuring to the benefit of any member; (2) are educational or instructive in character; and (3) have as their objects the betterment of the conditions of those engaged in such pursuits, the improvement of the grade of their products, and the development of a higher degree of efficiency in their respective occupations. Organizations such as county fairs and like associations of a quasipublic character, which are designed to encourage the development of better agricultural and horticultural products through a system of awards, and whose income from gate receipts, entry fees, and donations is used exclusively to meet the necessary expenses of upkeep and operation, are thus exempt. On the other hand, associations which have for their purpose, for example, the holding of periodical race meets, the profits from which may inure to the benefit of their shareholders, are not exempt. Similarly, corporations engaged in growing agricultural or horticultural products for profit are not exempt from tax under this paragraph.

ART. 513. Mutual savings banks. In order that a corporation may be entitled to exemption as a mutual savings bank, it must appear