vided, That no owner of such bonds shall be entitled to such exemption in respect to the interest on an aggregate principal amount of such bonds exceeding three. times the principal amount of notes of the Victory Liberty Loan originally subscribed for by such owner and still owned by him at the date of his tax return. Accordingly, with respect to the interest on Liberty bonds received after December 31, 1918, the exemption from surtaxes and war profits and excess profits taxes covers, and there may be excluded from gross income, in addition to the exemptions specified in articles 77, 78, and 79, (a) the interest received on and after January 1 1919, until the expiration of five years after the termination of the war, on not exceeding $30,000 principal amount in the aggregate of first Liberty loan converted 4 per cent bonds, first Liberty loan con verted 4 per cent bonds, first Liberty loan second converted 41 per cent bonds, second Liberty loan 4 per cent bonds, second Liberty loa: converted 41 per cent bonds, third Liberty loan 41 per cent bonds, and fourth Liberty loan 41 per cent bonds, apportioned as the taxpaye may choose; and in addition (b) the interest received on and afte January 1, 1919, during the life of the notes of the Victory Liberty loan, on an aggregate principal amount of the bonds described i subdivision (a) not exceeding $20,000 and not exceeding three time! the principal amount of notes of the Victory Liberty loan originally subscribed for by the taxpayer and still owned by him at the date of his return. The specific exemptions of notes of the Victory Liberty loan are those prescribed by the Secretary of the Treasury pursuant t the Victory Liberty Loan Act. The Victory Liberty loan 3 per cent convertible gold notes are exempt, both as to principal and interest, from all taxation except estate or inheritance taxes, now or hereafter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority The Victory Liberty loan 43 per cent convertible gold notes are exempt, both as to principal and interest, from all taxation now o hereafter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority except (a) estate or inheritance taxes, and (b) graduated additional income taxes, commonly known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States upon the income or profits of individuals, partnerships, associations. or corporations. For the purposes of the additional tax exemption for Liberty bond granted by section 2 (b) of the Victory Liberty Loan Act, approved March 3, 1919, Victory notes of either series issued upon conversion of Victory notes of the other series which were originally subscribed for by any taxpayer will be deemed to have been originally subscribed for by such taxpayer. All interest accrued on 43 per cent Victory notes at the date of any conversion by the taxpayer into 33 per cent Victory notes will, for the purposes of computing net income, be deemed to be interest upon 4 per cent Victory notes, and will be entitled only to the exemptions from taxation to which interest on 43 per cent Victory notes is entitled. Any and all amounts received by any taxpayer from the United States by way of adjustment of accrued interest upon conversion of 43 per cent Victory notes into 33 per cent Victory notes will be deemed to be interest upon 43 per cent Victory notes. All interest accrued on 33 per cent Victory notes at the date of any conversion by the taxpayer into 43 per cent Victory notes will, for the purposes of computing net income, be deemed to be interest upon 33 per cent Victory notes, and will be entitled to the exemptions from taxation to which interest on 3 per cent Victory notes is entitled. ART. 80(a). Summary of tax exemptions of Liberty bonds and Victory notes. Liberty bonds and Victory notes issued under authority of the acts of Congress approved April 24, 1917, September 24, 1917, April 4, 1918, July 9, 1918, September 24, 1918, and March 3, 1919, are entitled, respectively, to the exemptions from taxation set forth in said acts, from which the statements in this article are summarized, and to which they are subject. I. 4 per cent and 41 per cent Liberty bonds and 43 per cent Victory notes are exempt from all Federal, State, and local taxation, except (a) estate or inheritance taxes, and (b) Federal income surtaxes and profits taxes, as follows: 1. First Liberty loan converted 4 per cent bonds of 1932-1947 (first 4s). 2. First Liberty loan converted 41 per cent bonds of 1932-1947 (first 41s, issue of May 9, 1918). 3. First Liberty loan second converted 4 per cent bonds of 1932-1947 (first 41s, issue of Oct. 24, 1918). 4. Second Liberty loan 4 per cent bonds of 1927-1942 (second 4s). 5. Second Liberty loan converted 41 per cent bonds of 1927-1942 (second 44s). 6. Third Liberty loan 41 per cent bonds of 1928 (third 41s). 7. Fourth Liberty loan 4 per cent bonds of 1933-1938 (fourth 41s). 8. Victory Liberty loan 43 per cent convertible gold notes of 1922-1923 (43 per cent Victory notes). 22700°-21-4 are exempt, both as to principal and interest, from all taxation now or hereafter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority, except (a) estate or inheritance taxes, and (b) graduated additional income taxes, commonly known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships, associations, or corporations. II. 4 per cent and 41 per cent Liberty bonds (but not 43 per cent Victory notes), Treasury certificates, and war savings certificates are entitled to certain limited exemptions from graduated additional, income taxes, commonly known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States. upon the income or profits of individuals, partnerships, associations, or corporations, in respect to the interest on principal amounts thereof, as follows: $5,000 in the aggregate of first 4s, first 41s (issues of May 9 and Oct. 24 | 1918), second 4s and 44s, third 41s, fourth 41s, Treasury certificates! and war-savings certificates. 30,000 of first 4s (issue of Oct. 24, 1918, only), until the expiration two years after the termination of the war. 30,000 of fourth 44s, until the expiration of two years after the termina) tion of the war. 30,000 in the aggregate of first 4s, first 41s (issues of May 9 and Oct. 24 45,000 in the aggregate of first 4s, first 44s (issue of May 9, 1918, only 160,000 total possible exemptions from Federal income surtaxes and profits taxes, subject to conditions above summarized. III. 3 per cent bonds and 33 per cent notes are exempt from all; Federal, State, and local taxation, except estate or inheritance taxes. as follows: 1. First Liberty loan 34 per cent bonds of 1932-1947. 2. Victory Liberty loan 3 per cent convertible gold notes of 19221923. are exempt, both as to principal and interest, from all taxation (excep estate or inheritance taxes) now o hereafter imposed by the Unite States, any State, or any of the pos sessions of the United States, or by any local taxing authority. ART. 81. Liberty bond exemption in the case of trusts.-(a) When income is taxable to beneficiaries, as in the case of a trust the income of which is to be distributed to the beneficiaries periodically, each beneficiary is regarded as the owner of a proportionate part of the bonds held in trust and is entitled to exemption on account of such ownership as if he owned such proportionate part of the bonds directly. In such a case a subscription by a trustee for bonds of the fourth Liberty loan, or notes of the Victory Liberty loan, constitutes each beneficiary existing at the time of such subscription an original subscriber for his proportionate part of such bonds or notes, as the case may be, and entitles such beneficiary to the appropriate collateral exemption of interest on bonds of previous issues, whether owned by such beneficiary or by the trustee, as if the beneficiary had himself originally subscribed for such proportionate part of the bonds or notes; and a subscription by such beneficiary for bonds of the fourth Liberty loan or notes of the Victory Liberty loan, as the case may be, entitles him to the appropriate collateral exemption of interest on bonds of previous issues held by the trustee. (b) When, on the other hand, income is taxable to the trustee, as in the case of a trust the income of which is accumulated for the benefit of unborn or unascertained persons, the trustee is regarded as the owner of all the bonds held in trust and the trust is entitled to exemption on account of such ownership. In such a case a subscription by a trustee constitutes the trustee as such the original subscriber and entitles the trust, on account of such subscription, to the collateral exemption of interest on bonds of previous issues. As to exemptions in the case of bonds beneficially owned by nonresident aliens, see article 93. ART. 82. Liberty bond exemption in the case of partnerships and personal service corporations.-As income of a partnership is taxable to the individual partners, each partner is treated as the owner of a proportionate part of the bonds held by the partnership and is entitled to exemption on account of such ownership as if such partner owned such proportionate part of the bonds directly. Such partner, if a partner at the time of the original subscription by the partnership for bonds of the fourth Liberty loan or notes of the Victory Liberty loan, as the case may be, is treated as an original subscriber for a proportionate part of such bonds or notes subscribed for by the partnership and is entitled to the appropriate collateral exemption of interest on bonds of previous issues on account of such original subscription for bonds or notes as if he had subscribed directly for such proportionate part. This principle also applies to stockholders in personal service corporations. ART. 83. Income of foreign Governments.-The exemption of income of foreign Governments applies also to their political subdivisions. Any income collected by foreign Governments from investments in the United States in stocks, bonds, or other domestic securities, which are not actually owned by but are loaned to such foreign Governments, is subject to tax. The income of foreign ambassadors and ministers from investments in bonds and stocks and from interest on bank balances, and the fees of foreign consuls, are exempt from tax, but income of such foreign officials from any business carried on by them in the United States would be taxable. The compensation of citizens of the United States who are officers or employees of a foreign Government is, however, not exempt from tax. ART. 84. Income of States.-Income derived from any public utility or the exercise of any essential governmental function and accruing to any State or Territory of the United States, or to any political subdivision thereof, or to the District of Columbia, or income accruing to the Government of any possession of the United States, or any political subdivision thereof, is exempt from tax. See article 74. The income of State workmen's compensation insurance funds established by State statutes is not taxable. In the case of a public utility acquired, constructed, operated or maintained by a taxpayer under contract with any State, Territory, or political subdivision thereof, or with the District of Columbia, containing an agreement that a portion of the net earnings of such public utility shall be paid to the State, Territory, or political subdivision thereof, or the District of Columbia, the amount so paid may be deducted by the taxpayer as a necessary expense in transacting business. See section 214 (a) (1) of the statute. ART. 85. Compensation of State officers.-Compensation paid its officers and employees by a State or political subdivision thereof, including fees received by notaries public commissioned by States and the commissions of receivers appointed by State courts, is not taxable. Employees of universities receiving salaries paid in part or in whole from funds available under the Smith-Lever Act of May 8, 1914, who are officers or employees of a State, are not required to return as taxable incomes the salaries so received. This is also true with respect to the Act of August 30, 1890, relating to colleges for the benefit of agriculture and the mechanic arts, and to the Act of March 2, 1887, relating to agricultural experiment stations in such colleges. ART. 86. Compensation of soldiers and sailors.—A person of either sex in active service in the military or naval forces of the United States may exclude from gross income his or her compensation received from the United States up to the amount of $3,500 in any taxable year, except that this exemption does not apply to compensation received either before or after the present war. The date of the termination of the war for the purpose of the statute will be fixed by proclamation of the President. The military and naval forces of the United States include, among others, Army contract surgeons and members of the military and naval organizations named in section 1 of the statute. A person is in active service if he is actually serving in such forces, not necessarily in the field or in the theater of war, and is not merely on the retired or reserve list. Accordingly, if |