ADJUSTED DECLARED VALUE

FOREIGN CORPORATIONS

SECTION 701 (f) OF THE REVENUE ACT OF 1934

(f) For the first year ending June 30 in respect of which a tax is Imposed by this section upon any corporation, the adjusted declared value shall be the value, as declared by the corporation in its first return under this section ( (which declaration of value cannot be amended), as of the close of its last income-tax taxable year ending at or prior to the close of the year for which the tax is imposed by this section (or as of the date of organization in the case of a corporation having no income-tax taxable year ending at or prior to the close of the year for which the tax is imposed by this section). For any subsequent year ending June 30, the adjusted declared value in the case of a foreign corporation shall be the original declared value adjusted (for the same income-tax taxable years as in the case of a domestic corporation), in accordance with regulations prescribed by the Commissioner with the approval of the Secretary, to reflect increases or decreases in the capital employed in the transaction of its business in the United States.

ART. 61. Definitions.-As used in this chapter the term(a) First return, taxable year, or income-tax taxable year, has, respectively, the same meaning assigned to such term in article 41.

(b) Original declared value means the value first declared in its first return by a foreign corporation of the capital employed by it in the United States.

ART. 62. Original declared value. In its first return (see article 41) a foreign corporation subject to the tax must declare a definite value for the capital employed by such corporation in the transaction of its business in the United States. The same rules and suggestions relative to original declared value of capital stock of domestic corporations (see article 42) are applicable to the original declared value of capital of a foreign corporation, employed in the transaction of its business in the United States.

ART. 63. Adjusted declared value.-(a) First taxable year.-The adjusted declared value for the first taxable year is the original declared value.

If a foreign corporation was in existence during the entire taxable year ended June 30, 1934, the adjusted declared value shall be as of

the close of its last income-tax taxable year ended prior to July 1, 1934. If a corporation makes its return for Federal income tax purposes on a calendar year basis, the value declared must be as of the close of December 31, 1933. If a corporation makes its income tax return on a fiscal year basis, the value must be declared as of the close of such fiscal year.

If a corporation was organized during the taxable year ended June 30, 1934, and established an accounting period (for Federal income tax purposes) ended on or prior to June 30, 1934, the value shall be declared as of the close of such period. If no such period was established, the value shall be declared as of the date of the organization of the corporation.

If a foreign corporation is organized after June 30, 1934, a similar rule to that stated in the last preceding paragraph shall be applied.

(b) Year subsequent to first taxable year.-The method of determining the adjusted declared value for any taxable year subsequent to the first taxable year will be covered by future regulations.

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EXEMPTIONS

SECTION 701 (c) OF THE REVENUE ACT OF 1934

(c) The taxes imposed by this section shall not apply— (1) to any corporation enumerated in section 101;

SECTION 101 OF THE REVENUE ACT OF 1934

The following organizations shall be exempt from taxation under this title

(1) Labor, agricultural, or horticultural organizations;

(2) Mutual savings banks not having a capital stock represented by shares;

(3) Fraternal beneficiary societies, orders, or associations, (A) operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating under the lodge system; and (B) providing for the payment of life, sick, accident, or other benefits to the members of such society, order, or association or their dependents;

(4) Domestic building and loan associations substantially all the business of which is confined to making loans to members; and cooperative banks without capital stock organized and operated for mutual purposes and without profit;

(5) Cemetery companies owned and operated exclusively for the benefit of their members or which are not operated for profit; and any corporation chartered solely for burial purposes as a cemetery corporation and not permitted by its charter to engage in any business not necessarily incident to that purpose, no part of the net earnings of which inures to the benefit of any private shareholder or individual;

(6) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation; (7) Business leagues, chambers of commerce, real-estate boards, or boards of trade, not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual;

(8) Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular

(18)

municipality, and the net earnings of which are devoted exclu sively to charitable, educational, or recreational purposes;

(9) Clubs organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, no part of the net earnings of which inures to the benefit of any private shareholder; (10) Benevolent life insurance associations of a purely local character, mutual ditch or irrigation companies, mutual or cooperative telephone companies, or like organizations; but only if 85 per centum or more of the income consists of amounts collected from members for the sole purpose of meeting losses and expenses;

(11) Farmers' or other mutual hail, cyclone, casualty, or fire insurance companies or associations (including interinsurers and reciprocal underwriters) the income of which is used or held for the purpose of paying losses or expenses;

(12) Farmers', fruit growers', or like associations organized and operated on a cooperative basis (a) for the purpose of marketing the products of members or other producers, and turning back to them the proceeds of sales, less the necessary marketing expenses, on the basis of either the quantity or the value of the products furnished by them, or (b) for the purpose of purchasing supplies and equipment for the use of members or other persons, and turning over such supplies and equipment to them at actual cost, plus necessary expenses. Exemption shall not be denied any such association because it has capital stock, if the dividend rate of such stock is fixed at not to exceed the legal rate of interest in the State of incorporation or 8 per centum per annum, whichever is greater, on the value of the consideration for which the stock was issued, and if substantially all such stock (other than nonvoting preferred stock, the owners of which are not entitled or permitted to participate, directly or indirectly, in the profits of the association, upon dissolution or otherwise, beyond the fixed dividends) is owned by producers who market their products or purchase their supplies and equipment through the association; nor shall exemption be denied any such association because there is accumulated and maintained by it a reserve required by State law or a reasonable reserve for any necessary purpose. Such an association may market the products of nonmembers in an amount the value of which does not exceed the value of the products mar keted for members, and may purchase supplies and equipment for nonmembers in an amount the value of which does not exceed the value of the supplies and equipment purchased for members, provided the value of the purchases made for persons who are neither members nor producers does not exceed 15 per centum of the value of all its purchases. Business done for the United States or any of its agencies shall be disregarded in determining the right to exemption under this paragraph;

(13) Corporations organized by an association exempt under the provisions of paragraph (12), or members thereof, for the purpose of financing the ordinary crop operations of such members or other producers, and operated in conjunction with such association. Exemption shall not be denied any such corporation because it has capital stock, if the dividend rate of such stock is fixed at not to exceed the legal rate of interest in the State of

incorporation or 8 per centum per annum, whichever is greater, on the value of the consideration for which the stock was issued, and if substantially all such stock (other than nonvoting preferred stock, the owners of which are not entitled or permitted to participate, directly or indirectly, in the profits of the corporation, upon dissolution or otherwise, beyond the fixed dividends) is owned by such association, or members thereof; nor shall exemp tion be denied any such corporation because there is accumulated and maintained by it a reserve required by State law or a reasonable reserve for any necessary purpose;

(14) Corporations organized for the exclusive purpose of holding title to property, collecting income therefrom, and turning over the entire amount thereof, less expenses, to an organization which itself is exempt from the tax imposed by this title;

(15) Corporations organized under Act of Congress, if such corporations are instrumentalities of the United States and if, under such Act, as amended and supplemented, such corporations are exempt from Federal income taxes;

(16) Voluntary employees' beneficiary associations providing for the payment of life, sick, accident, or other benefits to the members of such association or their dependents, if (A) no part of their net earnings inures (other than through such payments) to the benefit of any private shareholder or individual, and (B) 85 per centum or more of the income consists of amounts collected from members for the sole purpose of making such payments and meeting expenses;

(17) Teachers' retirement fund associations of a purely local character, if (A) no part of their net earnings inures (other than through payment of retirement benefits) to the benefit of any private shareholder or individual, and (B) the income consists solely of amounts received from public taxation, amounts received from assessments upon the teaching salaries of members, and income in respect of investments.

ART. 71. Proof of exemption.-Any corporation, joint stock company, or association, no matter how created or organized, or what the purpose of its organization may be, is subject to the tax unless it comes clearly within the class of organizations specifically enumerated in the Act as exempt. A corporation is not exempt merely because it is not organized and operated for profit.

If a corporation claims exemption on the ground that it falls within one of the classes enumerated in section 101 of the Act, it shall submit evidence satisfactory to the Commissioner that it is in fact within one of those classes. When an organization has established its right to exemption, under section 701 (c) (1), it need not thereafter make a capital stock tax return or furnish any further proof with respect to its status under the law, unless it changes the character of its organization or operations or the purpose for which it was originally created. Collectors will keep a list of all corporations exempt under this section, to the end that they may occasionally