substantial payment type just mentioned, obligations of purchasers are to be regarded as the equivalent of cash, but a different rule applies to sales on the installment plan. Dealers in personal property who sell on the installment plan usually adopt one of four ways of protecting themselves in case of default: (a) through an agreement that title is to remain in the seller until the buyer has completely performed his part of the transaction; (b) by a form of contract in which title is conveyed to the purchaser immediately, but subject to a lien for the unpaid portion of the purchase price; (c) by a present transfer of title to the purchaser, who at the same time executes a reconveyance in the form of a chattel mortgage to the seller; or (d) by conveyance to a trustee pending performance of the contract and subject to its provisions. The general purpose and effect being the same in all of these plans, it is desirable that a uniformly applicable rule be established. The rule prescribed is that in the sale or contract for sale of personal property on the installment plan, whether or not title remains in the vendor until the property is fully paid for, the income to be returned by the vendor will be that proportion of each installment payment which the gross profit to be realized when the property is paid for bears to the gross contract price. Such income may be ascertained by taking that proportion of the total payments received in the taxable year from installment sales (always including payments received in the taxable year on account of sales effected in earlier years as well as those effected in the taxable year) which the gross profit to be realized on the total installment sales made during the taxable year bears to the gross contract price of all such sales made during the taxable year. Where a change is made to this method of computing net income the taxpayer's balance sheet should be adjusted conformably as of the date when the change is effected. If for any reason the vendee defaults in any of his installment payments and the vendor repossesses the property, the entire amount received on installment payments, less the profit already returned, will be income of the vendor for the year in which the property was repossessed, and the property repossessed must be included in the inventory at its original cost to himself, less proper allowance for damage and use, if any.

If the vendor chooses as a matter of consistent practice to treat the obligations of purchasers as the equivalent of cash, such a course is permissible. If sales during prior years contain a different percentage of profit than those of the taxable year, or if for any other reason corrections are required to produce a more accurate result, they can be made as of the end of the taxable year.

ART. 35. Sale of real estate in lots. Where a tract of land is purchased with a view to dividing it into lots or parcels of ground to be sold as such, the entire fair market value as of January 1, 1919, or the cost, if acquired subsequent to that date, shall be equitably apportioned to the several lots or parcels and made a matter of record in the books of the taxpayer, to the end that any gain derived from the sale of any such lots or parcels may be returned as income for the year in which the sale was made. This rule contemplates that there will be a measure of gain or loss in every lot or parcel sold, and not that the capital invested in the entire tract shall be extinguished before any taxable income shall be returned. The sale of each lot or parcel will be treated as a separate transaction and the gain or loss will be accounted for accordingly.

ART. 36. Sale of real estate involving deferred payments.— Deferred payment sales of real estate ordinarily fall into two classes when considered with respect to the terms of sale, as follows:

(1) Installment transactions, in which the initial payment is relatively small (generally less than one-fourth of the purchase price) and the deferred payments usually numerous and of small amount. They include (a) sales where there is immediate transfer of title when a small initial payment is made, the seller being protected by a mortgage or other lien as to deferred payments, and (b) agreements of purchase and sale which contemplate that a conveyance is not to be made at the outset, but only after all or a substantial portion of the agreed installments have been paid.

(2) Deferred payment sales not on the installment plan, in which there is a substantial initial payment (ordinarily not less

than one-fourth of the purchase price), deferred payments being secured by a mortgage or other lien. Such sales are distinguished from sales on the installment plan by the substantial character of the initial payment and also usually by a relatively small number of deferred payments.

In determining how these classes shall be treated in levying the income tax, the question in each case is whether the income to be reported for taxation shall be based only on amounts actually received in a taxable year, or on the entire consideration made up in part of agreements to pay in the future.

ART. 37. Sale of real estate on installment plan. In the two kinds of transactions included in class (1) in the foregoing article, installment obligations assumed by the buyer are not ordinarily to be regarded as the equivalent of cash, and the vendor may report as his income from such transactions in any year that proportion of each payment actually received in that year which the gross profit to be realized when the property is paid for bears to the gross contract price. If the return is made on this basis and the vendor repossesses the property after default by the buyer, retaining the previous payments, the entire amount of such payments, less the profit previously returned, will be income to the vendor and will be so returned for the year in which the property was repossessed, and the property repossessed must be included in the inventory at its original cost to himself (less any depreciation as defined in articles 171 and 172). If the taxpayer chooses as a matter of settled practice consistently followed to treat the obligations of the purchaser as equivalent to.cash and to report the profit derived from the entire consideration, cash and deferred payments, as income for the year when the sale is made, this is permissible. If so treated the rule prescribed in article 38 will apply.

ART. 38. Deferred payment sales of real estate not on installment plan. In class (2) in article 36 the obligations assumed by the buyer are much better secured because of the margin afforded by the substantial first payment, and experience shows that the greater number of such sales are eventually carried out according to their terms. These obligations for deferred payments are therefore to be regarded as equivalent to cash, and the profit

indicated by the entire consideration is taxable income for the year in which the initial payment was made and the obligations assumed. If the buyer defaults and the seller regains title to the land by agreement or process of law, retaining payments previously made, he may deduct from his gross income as a loss in the year of repossession any excess of the amount previously reported as income over the amount actually received, and must include such real estate in his inventory at its original cost to himself (less any depreciation as defined in articles 171 and 172).

ART. 39. Isolated installment transactions. The provisions of articles 34 to 38, both inclusive, are applicable only to transactions by taxpayers who regularly deal in personal or real property upon the installment or deferred payment plan. Isolated transactions are not within the scope of these provisions.

ART. 40. Annuities and insurance policies.-Annuities paid under an annuity contract are subject to tax to the extent that the aggregate amount of the payments to the annuitant exceeds any amounts paid by him as consideration for the contract. An annuity charged upon devised land is income taxable to the annuitant, whether paid by the devisee out of the rents of the land or from other sources. The devisee is not required to return as taxable income the amount of rent paid to the annuitant, and he is not entitled to deduct from his taxable income any sums paid to the annuitant. Where an insured receives under life insurance, endowment or annuity contracts sums in excess of the premiums paid therefor, such excess is income for the year of its receipt. (Article 72.) Distributions on paid-up policies which are made out of earnings of the insurance company are in the nature of corporate dividends and as such are income of an individual subject to the tax.

ART. 41. Pension receipts. Pensions are classified as follows: (1) Periodical payments made to persons retired from service (a) after reaching a specified age, or (b) after a stated period of employment, or (c) on account of disability.

(2) Compensation for personal injuries or sickness.

Both classes of pensions may be paid out of funds to which the recipient has contributed, or out of funds to which the recipient has made no contribution.

First.

When received by a nonresident, a pension of any kind is not taxable income, as it is an annuity and, therefore, exempt from taxation against a nonresident under section 359, subdivision 3 of the Tax Law.

Second. When received by a resident, a pension is not taxable (a) when received from the United States Government, or (b) if received as compensation for personal injuries or sickness, or for accident or health insurance, or under workmen's compensation acts, or through war risk insurance, or under any law for the benefit or relief of injured or disabled members of the military or naval forces of the United States. Pensions arising upon retirement for disability are not regarded as compensation for personal injuries within the meaning of this paragraph. Pensions received from the New York City Teachers' Retirement Fund are exempt from taxation. (New York City Charter, section 1092-W.) Third. All other pensions received by residents are taxable. Fourth.—If the recipient has contributed to the fund out of which the pension is paid, the pension receipts are taxable only when, and to the extent that, they exceed the aggregate amount of all payments or contributions made by him to the fund.

ART. 42. Rents and royalties. When improvements made by a lessee become part of the real estate, the value of such improvements upon the expiration of the existing term of the lease is income to the lessor. In general, sums paid by a tenant for the use of property, although to another than the landlord, are properly to be regarded as rent and constitute income of the landlord. See further article 120. Royalties on patents and copyrights are income.

ART. 43. Forgiveness of indebtedness. The cancellation and forgiveness of indebtedness is dependent upon the circumstances for its effect. It may amount to a payment of income or to a gift or to a capital transaction. If, for example, an individual performs services for a creditor, who in consideration thereof cancels the debt, income to that amount is realized by the debtor as compensation for his services and a corresponding amount is deductible by the creditor. If, however, a creditor merely desires to benefit a debtor and without any consideration therefor cancels the debt, the amount of the debt is a gift from the creditor to the