debtor and need not be included in the latter's gross income and may not be deducted by the creditor. If a corporation to which a stockholder is indebted forgives the debt, the transaction has the effect of the payment of a dividend.

ART. 44. When included in gross income.- Gains, profits and income are to be included in the gross income for the taxable year in which they are received by the taxpayer, unless they are included when they accrue to him in accordance with the approved method of accounting followed by him. (Articles 11-14.) Lands which are received as compensation for services in one year, the title to which is disputed and in a later year adjudged to be valid, constitute income to the grantee in the former year. On the other hand, a person may sue in one year on a pecuniary claim or for property, but money or property recovered on a judgment therefor rendered in a later year would be income in the year in which received assuming that it would have been income in the earlier year if then received. This is true of a recovery for patent infringement. Bad debts or accounts charged off because of the fact that they were determined to be worthless, which are subsequently recovered, whether or not by suit, constitute income for the year in which recovered, regardless of the date when the amounts were charged off. (Articles 123 and 161.)

ART. 45. Income not reduced to possession.- Income which is credited to the account of or set apart for a taxpayer and which may be drawn upon by him at any time is subject to tax for the year during which so credited or set apart (unless previously accrued by the taxpayer and included in his return of income), although not then actually reduced to possession. To constitute receipt in such a case the income must be credited to the taxpayer without any substantial limitation or restriction as to the time or manner of payment or condition upon which payment is to be made. A book entry, if made, should indicate an absolute transfer from one account to another. If the income is not credited, but is set apart, such income must be unqualifiedly subject to the demand of the taxpayer. For example, where a corporation contingently credits its employees with bonus stock, but the stock is not available to such employees until the termination of five years of employment, the mere crediting on the books of the corporation

does not constitute receipt. The distinction between receipt and accrual must be kept in mind. Income may accrue to the taxpayer and yet not be subject to his demand or capable of being drawn on or against by him.

ART. 46. Examples of constructive receipt. Where interest coupons have matured, but have not been cashed, such interest, though not collected when due and payable, is nevertheless available to the taxpayer and should therefore be included in his gross income for the year during which the coupons matured unless the debtor be in default. This is so although the coupons are exchanged for other property instead of eventually being cashed. Dividends on corporate stock are subject to tax in the year in which made payable, although not yet collected by the stockholder. (Tax Law, section 359 and articles 14 and 61.) The distributive share of the profits of a partner in a partnership is regarded as received at the close of the partnership's fiscal year. (Tax Law, section 364, and articles 229 and 230.) Interest credited on savings bank deposits, even though the bank nominally has a rule, seldom or never enforced, that it may require a stipulated number of days' notice in advance of cashing depositors' checks, is income to the depositor when credited. An amount credited to shareholders of a building and loan association, when such credit passes without restriction to the shareholder has a taxable status as income for the year of the credit. Where the amount of such accumulation does not become available to the shareholder until the maturity of a share, the amount of any share in excess of the aggregate amount paid in by the shareholder (or value on January 1, 1919, plus subsequent payments) is income for the year of the maturity of the share.

GROSS INCOME DEFINED: INCLUSIONS:

DIVIDENDS

ART. 61. Dividends.- Dividends for the purpose of the statute comprise any distribution in the ordinary course of business, even though extraordinary in amount, made by a domestic or foreign corporation to its shareholders out of its earnings or profits. The mere declaration of a dividend is not a distribution. Dividends are income for the year in which payable, regardless of when the earnings or profits out of which they were paid were accumulated, except that dividends declared payable to stockholders of record prior to January 1, 1919, are to be excluded from gross income even if received on or after January 1, 1919. (Article 79.) Although interest on United States bonds and certain other obligations is not taxable when received by a corporation, upon amalgamation with other funds of the corporation such income loses its identity and when distributed to stockholders in dividends is taxable to the same extent as other dividends. See further article 46.

ART. 62. Dividends paid in property.-.Dividends paid in securities or other property (other than its own stock), in which the earnings of a corporation have been invested, are income to the recipients to the amount of the fair market value of such property when receivable by the stockholders. A dividend paid in stock of another corporation is not a stock dividend. Where a corporation declares a dividend in stock of another corporation, setting aside the stock to be so distributed and notifying the stockholders of its action, the income arising to the recipients of such stock is its fair market value at the time the dividend becomes payable. Scrip dividends are subject to tax in the year in which the warrants are issuable to the stockholders.

ART. 63. Stock dividends.-A dividend paid in stock of the corporation is income to the amount of the fair market value of the stock received as a dividend. But stock distributions made out of surplus when there are no earnings or profits are free from tax as dividends. (See article 66.) Stock dividends paid from earnings or profits received by a fiduciary and retained as an

accretion to the estate under the terms of the will or trust are income to the estate.

ART. 64. Sale of stock received as a dividend. For the purpose of ascertaining the gain or loss derived from the sale of stock of a corporation received subsequent to December 31, 1918, as a dividend or from the sale of the stock in respect of which such dividend was paid, the cost of each share of new stock is the quotient of the sum of (a) the cost of the old stock or its value on January 1, 1919, if acquired prior thereto, plus (b) the valuation at which the new stock was returnable as income, divided by the number of old and new shares.

ART. 65. Distribution in liquidation.- So-called liquidation or dissolution dividends by corporations during dissolution are not dividends within the meaning of the statute, and amounts so distributed are to be regarded as payments for the stock of the dissolved corporation. Any excess so received over the cost of his stock to the stockholder, or over its fair market value as of January 1, 1919, if acquired prior thereto, is a taxable profit. A distribution in liquidation of the assets and business of a corporation, which is a return to the stockholder of the value of his stock upon a surrender of his interest in the corporation, is distinguishable from a dividend paid by a going corporation out of current earnings or accumulated surplus when declared by the directors in their discretion, which is in the nature of a recurrent return upon the stock.

ART. 66. Distribution from depletion or depreciation reserve.A reserve set up out of gross income by a corporation and maintained for the purpose of making good any loss of capital assets on account of depletion or depreciation is not a part of its surplus out of which ordinary dividends may be paid. A distribution made from such a reserve will be considered a liquidating dividend and will constitute taxable income to a stockholder only to the extent that the amount so received is in excess of the cost or fair market value as of January 1, 1919, of his shares of stock. No distribution, however, will be deemed to have been made from such a reserve except to the extent that the amount paid exceeds the surplus and undivided profits of the corporation. In general, any distribution made by a corporation other than out

of earnings or profits is to be regarded as a return to the stockholder of part of the capital represented by his shares of stock, and upon a subsequent sale of such stock his profit will be the excess of the selling price over the cost of the stock or its fair market value as of January 1, 1919, after applying on such cost or value the amount of any such capital distribution.