from a source within the United States; and the proper apportionment and allocation of the deductions with respect to sources of income within and without the United States shall be determined under rules and regulations prescribed by the Commissioner with the approval of the Secretary.

ART. 271. Deductions allowed nonresident alien individuals.-In the se of a nonresident alien individual the deduction for interest paid accrued is proportionate to his income from sources within the nited States (see paragraph (2) of subdivision (a) of section 214 of e statute); for losses incurred in any transaction entered into for rofit, or arising from casualty or theft, is confined to transactions and roperty within the United States (5), (6); for charitable contribuons excludes gifts to foreign corporations (11); and for business xpenses, taxes imposed by a foreign country, losses. in trade, bad ebts, depreciation, amortization, depletion, and loss in inventory 1), (3), (4), (7), (8), (9), (10) and (12), is allowed only if and the extent that it is connected with income arising from a source ithin the United States. See articles 91 and 311-316. As to deducons allowed foreign corporations, see section 234 (b) of the statute d article 573.

ITEMS NOT DEDUCTIBLE.

SEC. 215. That in computing net income no deduction shall in any case be allowed in respect of—

(a) Personal, living, or family expenses;

(b) Any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate;

(c) Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made; or (d) Premiums paid on any life insurance policy covering the life of any officer or employee, or of any person financially interested in any trade or business carried on by the taxpayer, when the taxpayer is directly or indirectly a beneficiary under such policy.

ART. 291. Personal and family expenses.-Insurance paid on a dwellg owned and occupied by a taxpayer is a personal expense. Preiums paid for life insurance by the insured are not deductible. In he case of a professional man who rents a property for residential urposes, but incidentally receives there clients, patients or callers in onnection with his professional work (his place of business being sewhere), no part of the rent is deductible as a business expense. f, however, he uses part of the house for his office, such portion f the rent as is properly attributable to such office is deductible. "he father is legally entitled to the services of his minor children, and lowances which he gives them, whether said to be in consideration f services or otherwise, are not allowable deductions in his return of come. Alimony and an allowance paid under a separation agree

ment are not deductible from gross income. See article 73. TI cost of the equipment of an army officer to the extent only that it specially required by his profession and does not merely take th place of articles required in civilian life is deductible. According the cost of a sword is an allowable deduction, but the cost of uniform is not.

ART. 292. Traveling expenses.-Traveling expenses, as ordinaril understood, include railroad fares and meals and lodging. If th trip is undertaken for other than business purposes, such railroa fares are personal expenses and such meals and lodging are livi expenses. If the trip is on business, the railroad fares become br ness instead of personal expenses, but the meals and lodging contin to be living expenses and are not deductible in computing net incom (a) If, then, an individual whose business requires him to trav receives a salary as full compensation for his services, without re bursement of traveling expenses, his expenses for railroad fares, E not for meals and lodging, are deductible from gross income. ( If such an individual receives a salary and is also repaid his act. traveling expenses, no part of such expenses is deductible from gr income and no part of such repayment is returnable as income. If such an individual receives a salary and also an allowance f meals and lodging, as, for example, a per diem allowance in lieu subsistence, any excess of the cost of such meals and lodging o the allowance is not deductible, but any excess of the allowance o the actual expenses is taxable income. Congressmen and others w receive a mileage allowance for railroad fares should return as i come any excess of such allowance over their actual expenses such fares. A payment for the use of a sample room at a hotel i the display of goods is a business expense.

ART. 293. Capital expenditures.-Amounts paid for increasing capital value or for restoring the depreciated value of property : not deductible from gross income. See section 214 (a) (8) of: statute and article 161. Amounts expended for securing a copyrig and plates, which remain the property of the person making : payments, are investments of capital. The cost of defending or p fecting title to property constitutes a part of the cost of the pr erty and is not a deductible expense. The amount expended f architect's services is part of the cost of the building. Commission paid in purchasing securities are a part of the cost price of st securities. Commissions paid in selling securities are an offagainst the selling price. Expenses of the administration of estate, such as court costs, attorney's fees and executor's comm sions, are chargeable against the corpus of the estate and are 1 allowable deductions. Amounts to be assessed and paid under a

1

greement between bondholders or stockholders of a corporation, to e used in a reorganization of the corporation, are investments of apital and not deductible for any purpose in returns of income. See rticle 543. An assessment paid by a stockholder of a national bank n account of his statutory liability is similarly not deductible. As o items not deductible by corporations, see section 235 and articles 81 and 582.

ART. 294. Premiums on business insurance.-Where the taxpayer pays remiums on an insurance policy on the life of an officer, employee r individual financially interested in the taxpayer's business, for he purpose of protecting himself from loss in the event of the death f any such person, such premiums are not deductible from his gross ncome. But if the taxpayer is in no sense a beneficiary under such policy, except as he may derive advantage from the increased fficiency of the employee, and pays the premiums purely as reaonable additional compensation of such employee, they are allowable eductions. See articles 33 and 105-108. In either case whether the proceeds of such policies paid upon the death of the insured may e excluded from gross income or must be included therein depends pon whether the beneficiary is an individual or a corporation. See ection 213 (b) (1) and articles 72 and 541.

CREDITS ALLOWED.

SEC. 216. That for the purpose of the normal tax only there shall be allowed the following credits:

(a) The amount received as dividends from a corporation which is taxable under this title upon its net income, and amounts received as dividends from a personal service corporation out of earnings or profits upon which income tax has been imposed by Act of Congress; (b) The amount received as interest upon obligations of the United States and bonds issued by the War Finance Corporation, which is included in gross income under section 213;

(c) In the case of a single person, a personal exemption of $1,000, or in the case of the head of a family or a married person living with husband or wife, a personal exemption of $2,000. A husband and wife living together shall receive but one personal exemption of $2,000 against their aggregate net income; and in case they make separate returns, the personal exemption of $2,000 may be taken by either or divided between them;

(d) $200 for each person (other than husband or wife) dependent upon and receiving his chief support from the taxpayer, if such dependent person is under eighteen years of age or is incapable of selfsupport because mentally or physically defective.

(e) In the case of a nonresident alien individual who is a citizen or subject of a country which imposes an income tax, the credits allowed in subdivisions (c) and (d) shall be allowed only if such country allows a similar credit to citizens of the United States not residing in such country.

ART. 301. Credits against net income.-For the purpose of impos the normal tax the taxpayer's net income as computed pursuant section 212 of the statute and articles 21-26 is first reduced the sum of the allowable credits. These include dividends (as) fined in section 201 and articles 1541-1549) received other than fr foreign corporations having no income from sources within t United States; interest not entirely exempt from tax received up obligations of the United States and bonds of the War Finance C poration; a personal exemption; and a credit for dependents. C sequently, the normal tax does not apply to dividends from domes corporations or from foreign corporations deriving income fr sources within the United States, or to interest on any obligations the United States. See section 213 (b) of the statute and arti 77-82 and 1131. For the purpose of imposing the surtax the ta payer's net income is entitled to none of these credits. As to cre allowed corporations, see section 236 and article 591.

ART. 302. Personal exemption of head of family.—A head of a fam is a person who actually supports and maintains in one houseb one or more individuals who are closely connected with him blood relationship, relationship by marriage, or by adoption, whose right to exercise family control and provide for these depe: ent individuals is based upon some moral or legal obligation. the absence of continuous actual residence together, whether or a person with dependent relatives is a head of a family within t meaning of the statute must depend on the character of the separ tion. If a father is absent on business or at war, or a child or ot dependent is away at school or on a visit, the common home be still maintained, the additional exemption applies. If, moreo through force of circumstances a parent is obliged to maintain! dependent children with relatives or in a boarding house while lives elsewhere, the additional exemption may still apply. If, h ever, without necessity the dependent continuously makes his he elsewhere, his benefactor is not the head of a family, irrespective the question of support. A resident alien with children abroad not the head of a family.

ART. 303. Personal exemption of married person. In the case a married man or married woman the joint exemption replaces individual exemption only if the man lives with his wife or woman lives with her husband. In the absence of continuous act residence together, whether or not a man or woman has a wife husband living with him or her within the meaning of the stat must depend on the character of the separation. If merely occasic ally and temporarily a wife is away on a visit or a husband is awa on business, the joint home being maintained, the additional exer

tion applies. The unavoidable absence of a wife or husband at a sanatorium or asylum on account of illness does not preclude claiming the exemption. If, however, the husband voluntarily and continuously makes his home at one place and the wife hers at another, they are not living together for the purpose of the statute, irrespective of their personal relations. A resident alien with a wife residing abroad is not entitled to the joint exemption.

ART. 304. Credit for dependents.-A taxpayer receives a credit of $200 for each person (other than husband or wife), whether related to him or not and whether living with him or not, dependent upon and receiving his chief support from the taxpayer, provided the dependent is either (a) under eighteen or (b) incapable of self-support because defective. The credit is based upon actual financial dependency and not mere legal dependency. It may accrue to a taxpayer who is not the head of a family. But a father whose children receive half or more of their support from a trust fund or other separate source is not entitled to the credit.

ART. 305. Date determining exemption.-The status of the taxpayer on the last day of his taxable year determines his right to an additional exemption and to a credit for dependents. If then he is the head of a family, the personal exemption of $2,000 may be taken. If then he is the chief support of a dependent who is under eighteen years of age or incapable of self-support because mentally or physically defective, the credit of $200 may be taken. But an unmarried individual or a married individual not living with husband or wife, who during the taxable year has ceased to be the head of a family or to have dependents, is entitled only to the personal exemption of $1,000 allowed a single person. A husband and wife living together at the end of the taxable year may receive but one personal exemption of $2,000, divisible as they please, against their aggregate net income. If an individual dies during the taxable year, his executor or administrator in making a return for him is entitled to claim his full personal exemption according to his status at the time of his death. See also section 219 (c) of the statute and articles 346 and 421. If a husband or wife so dies and the joint personal exemption is used by the executor or administrator in making a return for the decedent, an undiminished personal exemption according to the status of the survivor at the end of the taxable year may be claimed in the survivor's return. If a taxpayer makes a return for a period other than a taxable year, the last day of such period shall be treated as the last day of the taxable year for the purpose of this article. See section 226 and articles 431 and 1013.

ART. 306. Credits to nonresident alien individual.-A nonresident alien individual, similarly to a citizen or resident, is entitled for the purpose of the normal tax to credit dividends from domestic or