shorter than the period specified in the local statute for the settlement of estates. Where an executor, who is also named as trustee, fails to obtain his discharge as executor, the period of administration continues up to the time when the duties of administration are complete and he actually assumes his duties as trustee, whether pursuant to an order of the court or not.

ART. 254. Deductions allowed estates and trusts.- Distinction is made between (1) expenses which are charges against the corpus of an estate or trust and (2) expenses which are incident to the business management of the estate or trust. Items falling under (1) are not proper deductions in computing net income, whereas items which fall under (2) are proper deductions in computing net income.

In accordance with the foregoing, executor's commissions, court costs and attorney's fees in connection with the settlement of an estate or the creation of a trust which are directly chargeable to the corpus of the estate or trust, are not proper deductions in determining net income. Likewise, expenses incurred by a fiduciary in litigation to sustain a will are not proper deductions in determining net income. On the other hand, if trustees' commissions are deducted from the income of the estate or trust distributable among the beneficiaries, the amount of such commission should be entered as legitimate and necessary expenses properly deductible by the fiduciary for income tax purposes.

Expenses necessary to carrying on the business of the trust or estate by the fiduciary are deductible in the same manner as similar expenses of an individual; likewise interest, taxes, losses, depreciation and depletion are subject to the same rules relating to these deductible items as apply to individuals.

ART. 255. Liability for payment of the tax.- Liability for payment of the tax attaches to the person of an executor or administrator up to and after his discharge, where prior to distribution and discharge he had notice of his tax obligation or failed to exercise due diligence in determining whether or not such obligation existed. Liability for the tax also follows the estate itself, and when by reason of the distribution of the estate and the discharge of the executor or administrator it appears that collection. of the tax cannot be made from the executor or administrator,

the legatees or distributees must account for their proportionate share of the tax due and unpaid. The same considerations apply to other trusts. Where the tax has been paid on the net income of an estate or trust by the fiduciary, such income is free from tax when distributed to the beneficiaries.

WITHHOLDING AT SOURCE

ART. 261. Deducting and withholding tax at source. Under the opinion of the Attorney-General (Income Tax Letter No. 1, May 29, 1919), deducting and withholding is required of one per cent (1%) on the first $10,000 and of two per cent (2%) on all sums in excess of $10,000 from all salaries, wages, commissions, gratuities, emoluments, perquisites and other fixed and determinable annual or periodical compensation earned for personal services in a business, trade, profession or occupation carried on within the State, if the aggregate amount thereof in any calendar year on account of any individual equals or exceeds $1,000, unless there shall be filed with the withholding agent a certificate of residence, on Form 101, to the effect that the recipient is a resident of the State and setting forth his residence address within the State.

ART. 262. Deducting and withholding in 1919.— Withholding agents shall deduct and withhold, as set forth in article 261, in respect of personal service compensation paid or credited to the payee at any time on or after January 1, 1919, except that if the employee left the service of the withholding agent prior to May 14, 1919 (the date of the enactment of chapter 627 of the Laws of 1919), and was fully paid prior to that date, no duty or obligation in respect to such payments rests on the withholding agent, unless the status of employer and employee is again created during 1919 and further payments of compensation for personal services are made or credited in 1919. In other words, the provisions for deducting and withholding are effective from January 1, 1919, except as stated in this article.

ART. 263. Fixed or determinable annual or periodical income.— Only income earned for personal services is subject to deducting and withholding. The statute specifies that every withholding agent shall deduct from all salaries, wages, commissions, gratuities, emoluments and perquisites. But other kinds of personal service income may be included if fixed or determinable, annual or periodical. Income is fixed when it is to be paid in amounts definitely predetermined. It is determinable whenever there is

a basis of calculation by which the amount to be paid may be ascertained. The income need not be paid annually or at an annual rate. It may be paid periodically. The word "periodical" is used in opposition to "annual" and means from time to time, whether or not at regular intervals. That the length of time during which the payments are to be made may be increased or diminished in accordance with someone's will or with the happening of an event, does not make the payments any the less determinable or periodical.

The following shall be deemed to be fixed and determinable annual or periodical compensation within the meaning of section 360 of the Tax Law:

Any payment made by way of salary, wage, commission, gratuity, emolument, perquisite or otherwise for personal services rendered, if the amount thereof shall be

(a) determined prior to, concurrent with or subsequent to the rendering of the service, and is

(b) based on personal services rendered by the hour, week, month, year or other period of time,

whether such personal service consists of

(c) the performance of specified or unspecified duties, or of (d) work done on or in connection with one or more of certain articles or parts thereof;

irrespective of whether payment be made

(e) in cash,

(f) in board or lodging, or both,

(g) in the stock of a corporation,

(h) by promissory note or other obligation, or

(i) in property, service or otherwise.

If payment shall be made otherwise than in cash, it shall be considered and treated as payment in cash to the fair market value (determinable usually by understanding or agreement existing between the payor and the payee) of such medium, other than cash, as may be employed.

Fees for professional services are not subject to withholding unless contracted for or paid on an annual or periodical basis. ART. 264. Year, for purposes of deducting and withholding. Deducting and withholding of personal service compensation by

withholding agents shall be on the basis of a calendar year, irrespective of the basis of reporting adopted by the payee-taxpayer. Personal service compensation shall be deemed to have been paid by the withholding agent and received by the payee-taxpayer only if and to the extent actually paid or credited to the payee and thus made reducible to possession by him. Commissions and all other forms of personal service compensation determined and paid or credited to a payee-taxpayer after the close of a calendar year, shall, for the purpose of deducting and withholding the tax and of returning information with respect thereto, be treated as payments made in the calendar year when paid or credited, but for such purposes only. The approved method of accounting employed by the payee-taxpayer shall govern in so far as he may be called upon to account for such payments for income tax purposes.

ART. 265. Income not subject to deducting and withholding.— Deducting and withholding from income is not required in the following cases:

(a) In respect of personal service compensation income when

there shall have been filed with the withholding agent a resident's certificate on Form 101, to the effect that the person receiving the compensation is a resident of this State and setting forth his residence address within the State.

(b) If of a character other than compensation for personal services.

(c) Where the personal services are rendered entirely without the State, by a nonresident, whether payment be made from within or without the State, irrespective of the status of the withholding agent. The occasional entry into the State of a nonresident employee who performs the duties for which he is employed entirely without the State, but enters the State for the purpose of reporting, receiving instructions, accounting, etc., incidental to his duties without the State, shall not be deemed to take such employee out of the class of those rendering their services entirely without the State.