equitable, they can scarcely be considered consistent with the rule under which persons owning their own houses are not taxable on the rental value. In other words, there is a discrimination between the man who pays no rent because he lives in the house he owns and the man who pays no rent because he lives in his employer's house, rent free, because of his services. In the latter case income tax is collected on the rental value. In the former case no income tax is assessed on the rental value.

Compensation received in the form of heat and light, telephone, automobile and other service.

REGULATION. Amounts received by, or paid for, an officer for heat and light shall be returned as income. (T. D. 2079, November 24, 1914.)

This applies to army officers who receive, in addition to their salaries and allowances for rent, a further allowance for heat and light.20 As the amounts paid are readily ascertain

Copy of Office Memorandum No. 17, issued by General Staff, U. S. A., March 3, 1919.

"1. The following letter from the office of the Commissioner of the Bureau of Internal Revenue is published for the information and guidance of all concerned:

'With a view to assisting persons in the military and naval forces of the United States in preparing their income tax returns for the year 1918, attention is called to the holdings of this office under previous income tax acts and to the provisions of the revenue bill as passed by Congress.

'It has been held that interest on deposits made with disbursing officers after September 1, 1917, under authority of section 1305 Rev. Stat., as amended by the act of July 1, 1906, on deposits made under authority of section 203 of the Act of October 6, 1917, and on amounts of compensation not drawn, represents taxable income; and that the following items represent compensation for services rendered and should be returned as income:

'Quarters furnished within the allowance provided by law; or a room
furnished as quarters only, that is, a room other than barracks
to which several men are assigned.

'Heat and light furnished within the allowance provided by law.
'Allowance drawn from the government as the equivalent of cloth-
ing not drawn.

'The commutation of rations.

'Markmanship pay or extra duty pay.

'Traveling pay to discharged officers or enlisted men.

'Mileage allowance, claiming as a deduction the actual necessary traveling expenses.

able, it may be assumed that all army officers whose aggregate incomes exceed the exemption pay the tax thereon. There are many other individuals who receive allowances of a similar nature and should be taxed thereon. For instance, many corporation officers, particularly those who live near industrial plants, receive or enjoy telephone service, fuel, use of automobiles and many other perquisites which under the ruling cited are taxable. It is usual for officers of automobile concerns, manufacturers and dealers to have the full use of motor cars for pleasure and business purposes. Officers of railroad companies receive passes good over their own and other lines. These are used for personal as well as business purposes. An individual, for instance, may use a pass to go to and from his golf club or on pleasure trips.

Should emoluments of this kind be reduced to their equivalent in money and be reported as taxable income? The point is really an important one, for the income tax to be successful must be administered impartially and equitably. If army officers, who are not overpaid, are required to pay the tax on the money equivalent of rent, light and heat, then other individuals, most of whom are better able to pay, ought to pay on similar income. "Compensation for personal service of

'Allowance in lieu of subsistence while traveling under orders, claiming as a deduction the actual necessary traveling expenses.

'On the other hand, it has been held that the following items are furnished by the government for its own purposes rather than as compensation to the officer or enlisted man and the money equivalent thereof should not be returned as income:

'Clothing and rations furnished in kind.

'Gratuitous medical and hospital treatment.
'Tent or other temporary shelter.

'Room furnished at a permanent military post used for sleeping
quarters and office combined.

"The family allowance provided for under article 2 of the War Risk Insurance Act was held to be subject to tax prior to the amendment of June 25, 1918. In view of this amendment, allotments, family allowances, compensation and death or disability insurance payable under the War Risk Insurance Act of September 12, 1914, as amended, were held to be exempt from tax and the former ruling was made to apply only in the case of assessments made prior to the date of the amendment, June 25, 1918.'"

whatever kind and in whatever form paid" is hardly subject to doubt as to its meaning.

One difficulty which will arise is that of drawing the distinction between compensation which takes the form of reduced living expenses (taxable because not allowable as deductions) and the receipt of similar privileges which do not reduce the living expenses of the recipient. For instance, automobiles are frequently furnished to salesmen exclusively for business use. Here, of course, no return would be made. If the salesman is permitted to employ a car for personal or family use should he ascertain the rental value for the time so used and include such amount as taxable income? The answer is "yes" only in case the salesman would purchase a car himself were this car not furnished free of charge. Only then would the item be the equivalent of a reduction of "personal, living or family expenses." Or, stated another way, return should be made of an amount representing the worth of the automobile service to him personally and individually. If, on the other hand, an officer of an automobile concern has the exclusive use of a car and does use it for other than business purposes, and if it is a fair assumption that he would own and operate a car even if he had to pay for it, then he should ascertain the total cost of operation for a year and prorate such cost equitably, reporting as taxable income the estimated saving of expense arising from the use of the car as additional compensation. Of course, he would report on the basis of what the actual cost to him would be, taking the benefit of manufacturers' or wholesale prices, rather than what he would have had to pay if he had not been in a position to secure such concessions.

There may be in some cases a question as to whether or not some items like those discussed above are compensation. or gifts. This probably depends legally upon the contractual relation between the one who pays and the recipient. If the rent, fuel, automobile and similar privileges are part of the employment contracts, express or implied, and thus show on

their face that more or less value attaches thereto, the cash equivalent of the items is taxable. If, however, the privileges are not part of a contract and are pure gifts, and if no diminution of cash compensation results there from, they do not constitute taxable income.

Compensation received in the form of per diem allowances and mileage.—

REGULATION. ... (c) If such an individual [one whose business requires him to travel] receives a salary and also an allowance for meals and lodging, as, for example, a per diem allowance in lieu of subsistence, any excess of the cost of such meals and lodging over the allowance is not deductible, but any excess of the allowance over the actual expenses is taxable income. Congressmen and others who receive a mileage allowance for railroad fares should return as income any excess of such allowance over their actual expenses for such fares. . . . . (Art. 292.)

RULING. An employee receives a per diem allowance for expenses in addition to his regular salary. Is this amount to be included as income in his return?

Yes. The entire amount of allowance received should be reported as income. The difference between the expenses incurred and paid while away from home and the ordinary expenses while at home may be claimed as a deduction. (Income Tax Primer, 1918, question 24.)

Congressmen, army officers and others receive stated allowances per mile or per diem to cover traveling or living expenses, and allowances for stationery, secretarial services, etc. In the case of liberal allowances such as congressmen receive, part of the allowance obviously is taxable and the regulation calls attention to this case specifically. In other cases, such as that of army officers, the allowance closely approximates the expenditure and it may not be worth while to attempt an exact accounting. There is, however, a definite obligation imposed upon the recipient to keep such a record as will indicate at the close of taxable periods whether or not return should be made. The record of deposits in one's cheque book usually is sufficient.

Commissions and similar compensation.

REGULATION.

Commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums . . . . are income to the recipients; . . . . (Art. 32.)

Compensation received in the form of deductions for pension funds, etc.-When deductions are made from the salaries or wages of employees (other than public) to cover compulsory or voluntary contributions to pension, sick or insurance funds, such payments or deductions should be added to the amounts received in reporting income which is subject to

tax.

REGULATION.

...

pensions or retiring allowances paid by . . private persons, are income to the recipients; . . . . (Art. 32.)

Proceeds of accident insurance and damages not taxable.— LAW. Section 213. That . "gross income"Does not include . .

(6)

(b)

Amounts received, through accident or health insurance or under workmen's compensation acts, as compensation for personal injuries or sickness, plus the amount of any damages received whether by suit or agreement on account of such injuries or sickness.21

Insurance proceeds, when taxable and not taxable.

REGULATION. (a) Upon the death of an insured the proceeds of his life insurance policies, whether paid to his estate or to individual beneficiaries, directly or in trust, are excluded from the gross income of the beneficiary. . . . . (b) During his life only so much of the amount received by an insured under life, endowment or annuity contracts as represents a return, without interest, of premiums paid by him therefor is excluded from his gross income. . . . . (c) Whether he be alive or dead, the amounts received by an insured or his estate or other beneficiaries through accident or health insurance or under workmen's compensation acts as compensation for personal injuries or sickness are excluded from the gross income of

[Former Procedure] Payments made to injured employees by corporations under the accident compensation laws of the several states constitute taxable income of the employees. (T. D. 2570, November 6, 1917.) This was reversed by T. D. 2747 (July 12, 1918), the principles of which are adopted in the present law.