Ordinary and necessary expenses paid or incurred in connection with the management, conservation, or maintenance of property held for use as a residence by the taxpayer are not deductible. However, ordinary and necessary expenses paid or incurred in connection with the management, conservation, or maintenance of property held by the taxpayer as rental property are deductible even though such property was formerly held by the taxpayer for use as a home. [Fifth undesignated paragraph amended by T.D. 5331, Feb. 9, 1944, 9 F.R. 1612]

[Insert following statutory quotation immediately preceding § 29.23 (c)-1; T.D. 5371, May 11, 1944, 9 F.R. 5111]

SEC. 111. DENIAL OF DEDUCTION FOR FEDERAL EXCISE TAXES NOT DEDUCTIBLE UNDER SECTION 23 (a). (Revenue Act of 1943, Title I.)

Section 23 (c) (1) (relating to deduction of taxes in computing net income) is amended (a) by striking out "and" at the end of subparagraph (D); (b) by striking out the period at the end of subparagraph (E) and inserting in lieu thereof "; and"; and (c) by inserting at the end thereof the following:

(F) Federal import duties, and Federal excise and stamp taxes (not described in subparagraph (A), (B), (D), or (E)), but this subsection shall not prevent such duties and taxes from being deducted under subsection (a).

SEC. 101. TAXABLE YEARS TO WHICH AMENDMENTS APPLICABLE. (Revenue Act of 1943, Title I.

Except as otherwise expressly provided, the amendments made by this title shall be applicable only with respect to taxable years beginning after December 31, 1943.

§ 29.23 (c)-2 Federal duties and excise taxes. Federal import or tariff duties, business, license, privilege, excise, and stamp taxes, not described in subparagraph (A), (B), (D), or (E) of section 23 (c), paid or accrued within the taxable year are deductible as taxes, except for taxable years beginning after December 31, 1943, provided they are not added to and made a part of the expenses of the business or the cost of arti

cles of merchandise with respect to which they are paid, in which case they cannot be separately deducted. The fact that such taxes are not deductible as taxes under section 23 (c) for taxable years beginning after December 31, 1943, does not prevent a deduction therefor under section 23 (a) provided they represent ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, or, in the case of an individual, for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income. (See § 29.23 (a)-1.) [T.D. 5371, May 11, 1944, 9 F.R. 5111]

[Insert following statutory quotation immediately preceding § 29.23 (g)-1; T.D. 5376, June 3, 1944, 9 F.R. 6056]

SEC. 112. DEDUCTION FOR LOSSES ON SECURITIES IN AFFILIATED CORPORATIONS. (Revenue Act of 1943, Title I.)

(a) Stock losses. Section 23 (g) (4) (B) of the Internal Revenue Code (relating to losses on stock of affiliated corporations) is amended to read as follows:

(B) More than 90 per centum of the aggregate of its gross incomes for all taxable years has been from sources other than royalties, rents (except rents derived from rental of properties to employees of the company in the ordinary course of its operating business), dividends, interest (except interest received on deferred purchase price of operating assets sold), annuities, or gains from sales or exchanges of stocks and securities; and

(c) Taxable years to which applicable. The amendments made by this section shall be applicable with respect to taxable years beginning after December 31, 1941.

§ 29.23 (g)-2 Loss on stock of affiliate.

(b) More than 90 percent of the aggregate of the gross incomes of such corporation for all the taxable years during which it has been in existence has been from sources other than royalties, rents (except rents derived from rental of properties to employees of the company in the ordinary course of its operating business), dividends, interest (except interest received on deferred purchase price of operating assets sold), annuities, or gains from sales or exchanges of stocks and securities, and [Paragraph (b) amended by T.D. 5376, June 3, 1944, 9 F.R. 6057]

*

[Insert following statutory quotation immediately preceding § 29.23 (k)-1; T.D. 5376, June 3, 1944, 9 F.R. 60571

SEC. 112. DEDUCTION FOR LOSSES ON SECURITIES IN AFFILIATED CORPORATIONS. (Revenue

Act of 1943, Title I.)

(b) Bond losses. Section 23 (k) (5) (B) of the Internal Revenue Code (relating to losses on securities of affiliated corporations) is amended to read as follows:

(B) More than 90 per centum of the aggregate of its gross incomes for all taxable years has been from sources other than royalties, rents (except rents derived from rental of properties to employees of the company in the ordinary course of its operating business), dividends, interest (except interest received on deferred purchase price of operating assets sold), annuities, or gains from sales or exchanges of stocks and securities; and.

(c) Taxable years to which applicable. The amendments made by this section shall be applicable with respect to taxable years beginning after December 31, 1941.

SEC. 113. PARTIALLY WORTHLESS BAD DEBTS. (Revenue Act of 1943, Title I.)

(a) In general. The first sentence of section 23 (k) (1) (relating to deductions for bad debts) is amended to read as follows: "Debts which become worthless within the taxable year; or (in the discretion of the Commissioner) a reasonable addition to a reserve for bad debts; and when satisfied that a debt is recoverable only in part, the Commissioner may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction."

(b) Years to which applicable. The amendment made by this section shall be effective with respect to taxable years beginning after December 31, 1938.

§ 29.23 (k)-1 Bad debts.

(b) If, from all the surrounding and attending circumstances, the Commissioner is satisfied that a debt is partially worthless, the amount which has become worthless, to the extent charged off during the taxable year, shall be allowed as a deduction in computing net income. If a taxpayer claims a deduction for a part of a debt for the taxable year within which such part of the debt is charged off and such deduction is disallowed for such year and the debt becomes partially worthless subsequent to such year, a deduction may be allowed for a subsequent taxable year, not in excess of the amount charged off in the prior year plus any amount charged off in the subsequent year, the charge-off in the prior year, if consistently maintained as such, being sufficient to that extent to meet the charge-off requirement. Before a taxpayer may deduct a debt in part, he must be able to demonstrate to the satisfaction of the Commissioner the amount thereof

625507-45-SUPP. VII-BK. 2 -17

which is uncollectible and the part thereof which was charged off. *

*

(c) * If a taxpayer does not claim a deduction in its return for such a totally or partiallly worthless debt for the year in which such charge-off takes place, but claims such deduction for a later year, then such charge-off in the prior year will be deemed to have been involuntary and the deduction shall be allowed for the year for which claimed, if the taxpayer produces sufficient evidence to show (1) that the debt became wholly worthless in such later year or became recoverable only in part subsequent to the year of such involuntary charge-off, as the case may be, and (2) that, to the extent that the deduction claimed in the later year for a debt partially worthless was not involuntarily charged off in prior years, it was charged off in the later year.

CODIFICATION: § 29.23 (k)-1 was amended in the following respects, by Treasury Decision 5376, June 3, 1944, 9 F.R. 6057:

1. The word "wholly" was inserted immediately following the words "which becomes" in the third sentence of the second paragraph of paragraph (a).

2. The text set forth above was substituted for the first two sentences of paragraph (b). 3. The last sentence in paragraph (c) was amended to read as set forth above.

§ 29.23 (k)-3 Uncollectible deficiency upon sale of mortgaged or pledged property. If mortgaged or pledged property is lawfully sold (whether to the creditor or another purchaser) for less than the amount of the debt, and the portion of the indebtedness remaining unsatisfied after such sale is wholly or partially uncollectible, the mortgagee or pledgee may deduct such amount (to the extent that it constitutes capital or represents an item the income from which has been returned by him) as a bad debt for the taxable year in which it has become wholly worthless or is charged off as partially worthless. [First sentence amended by T.D. 5376, June 23, 1944, 9 F.R. 6057]

*

§ 29.23 (k)-4 Worthless bonds and similar obligations.

CODIFICATION: § 29.23 (k)-4 was amended in the following respects, by Treasury Decision 5376, June 3, 1944, 9 F.R. 6057:

The second sentence in the fourth paragraph was amended to read as follows:

If, however, due, for instance, to the financial condition of a debtor, or conditions other than market fluctuation, the taxpayer will

Page 1887

recover upon maturity none or only a part of the debt evidenced by the bonds or other similar obligations (which bonds or other obligations are not securities as defined in this section) and he so demonstrates to the satisfaction of the Commission, and if he has made a proper charge-off with respect to the debt partially uncollectible, he may deduct in computing net income the uncollectible part of the debt evidenced by the bonds or other similar obligations.

The last sentence of the last paragraph was amended to read as follows:

For the purpose of this section, a corporation is deemed to be affiliated with the taxpayer only if the taxpayer owns at least 95 percent of each class of the stock of such corporation, if more than 90 percent of the aggregate of the gross incomes of such corporation for all taxable years has been from sources other than royalties, rents (except rents derived from rental of properties to employees of the company in the ordinary course of its operating business), dividends, interest (except interest received on deferred purchase price of operating assets sold), annuities, or gains from the sales or exchanges of stocks and securities, and if the taxpayer is a domestic corporation.

§ 29.23 (m)-1 Depletion of mines, oil and gas wells, other natural deposits, and timber; depreciation of improvements.

However, no depletion deduction shall be allowed with respect to any timber which the owner has disposed of under any form of contract by virtue of which the owner retains an economic interest in such timber, if such disposal is considered a sale of the timber under section 117 (k) (2) of the Code.

CODIFICATION: The sentence set forth above was inserted immediately following the first sentence of the second paragraph by Treasury Decision 5413, Oct. 31, 1944, 9 F.R. 13103.

(d) "Minerals" include ores of the metals, coal, oil, gas, and such nonmetallic substances as abrasives, asbestos, asphaltum, barite, beryl, borax, building stone, cement rock, clay, crushed stone, feldspar, fluorspar, fuller's earth, graphite, gravel, gypsum, lepidolite, limestone, magnesite, marl, mica, mineral pigments, peat potash, precious stones, refractories, rock phosphate, salt, sand, silica, slate, soapstone, soda, spodumene, sulphur, talc, and vermiculite. [Paragraph (d) amended by T.D. 5413, Oct. 31, 1944, 9 F.R. 13103]

(f) The term "gross income from the property", as used in sections 114 (b) (3)

and 114 (b) (4) (A) and §§ 29.23 (m)-1 to 29.23 (m)-28, inclusive, means the following:

In the case of oil and gas wells, "gross income from the property" as used in section 114 (b) (3) means the amount for which the taxpayer sells the oil and gas in the immediate vicinity of the well. If the oil and gas are not sold on the property but are manufactured or converted into a refined product prior to sale, or are transported from the property prior to sale, the gross income from the property shall be assumed to be equivalent to the representative market or field price (as of the date of sale) of the oil and gas before conversion or transportation.

In the case of a crude mineral product other than oil and gas, "gross income from the property", as used in section 114 (b) (4) (A) means the gross income from mining. The term "mining" as used herein includes not only the extraction of ores or minerals from the ground but also the ordinary treatment processes which are normally applied by the mine owners or operators to the crude mineral product after extraction in order to obtain the commercially marketable mineral product or products.

If the taxpayer sells the crude mineral product of the property in the immediate vicinity of the mine, "gross income from the property" means the amount for which such product was sold, but, if the product is transported or processed (other than by the ordinary treatment processes described below) before sale, "gross income from the property" means the representative market or field price (as of the date of sale) of a mineral product of like kind and grade as beneficiated by the ordinary treatment processes actually applied, before transportation of such product. If there is no such representative market or field price (as of the date of sale), then there shall be used in lieu thereof the representative market or field price of the first marketable product resulting from any process or processes (or, if the product in its crude mineral state is merely transported, the price for which sold) minus the costs and proportionate profits attributable to the transportation and the processes beyond the ordinary treatment processes.

The term "ordinary treatment processes", as used herein, shall include the following:

(1) In the case of coal-cleaning, breaking, sizing and loading for shipment;

(2) In the case of sulphur-pumping to vats, cooling, breaking, and loading for shipment;

(3) In the case of iron ore, bauxite, ball and sagger clay, rock asphalt, and minerals which are customarily sold in the form of a crude mineral product-sorting, concentrating, and sintering to bring to shipping grade and form, and loading for shipment;

(4) In the case of lead, zinc, copper, gold, silver or fluorspar ores, potash, and ores which are not customarily sold in the form of the crude mineral productcrushing, grinding, and beneficiation by concentration (gravity, flotation, amalgamation, electrostatic, or magnetic), cyanidation, leaching, crystallization, precipitation, or by substantially equivalent processes or combination of processes used in the separation or extraction of the product or products from the ore. The furnacing of quicksilver ores is included in the term "ordinary treatment processes". The following processes are not included in the term "ordinary treatment processes": electrolytic deposition, roasting, thermal or electric smelting, refining, or substantially equivalent processes.

In case any of the ordinary treatment processes are not applied in the immediate vicinity of the mining district in which the mine is located, costs incurred for transportation to the processing location and, if transported by the taxpayer, the proportionate profits attributable to transportation, should be subtracted from the sale price of the product to determine "gross income from the property."

CODIFICATION: That portion of paragraph (f) preceding the last undesignated paragraph was amended to read as set forth above, by Treasury Decision 5413, Oct. 31, 1944, 9 FR. 13103.

§ 29.23 (m)-3 Computation of depletion of mines (other than metal, coal, fluorspar, ball and sagger clay, rock asphalt, flake graphite, vermiculite, beryl, feldspar, mica, talc, lepidolite, spodumene, or barite mines, or potash or sulphur mines or deposits) on basis of discovery value. The basis upon which depletion is to be computed in the case of mines (other than metal, coal, fluorspar, ball and sagger clay, rock asphalt, or

sulphur mines with respect to taxable years beginning after December 31, 1941, flake graphite mines with respect to taxable years beginning after December 31, 1942, and vermiculite, beryl, feldspar, mica, talc, lepidolite, spodumene, or barite mines, or potash mines or deposits including potash salts in solution with respect to taxable years beginning after December 31, 1943) discovered by the taxpayer after February 28, 1913, is the fair market value of the property at the date of discovery or within 30 days thereafter, if such mines were not acquired as the result of purchase of a proven tract or lease, and if the fair market value of the property is materially dis[First proportionate to cost. sentence amended by T.D. 5413, Oct. 31, 1944, 9 F.R. 13103]

*

This section does not apply to metal mines, coal mines, fluorspar mines, ball and sagger clay mines, rock asphalt mines, sulphur mines or deposits, or oil or gas wells with respect to taxable years beginning after December 31, 1941, to flake graphite mines with respect to taxable years beginning after December 31, 1942, or to vermiculite mines, beryl mines, feldspar mines, mica mines, talc mines, lepidolite mines, spodumene mines, barite mines, or potash mines or deposits including potash salts in solution with respect to taxable years beginning after December 31, 1943. It does, however, apply to fluorspar mines, ball and sagger clay mines, rock asphalt mines, flake graphite mines, vermiculite mines, beryl mines, feldspar mines, mica mines, talc mines, lepidolite mines, spodumene mines, and barite mines with respect to any taxable year beginning on or after the date of the termination of hostilities in the present war. For the purposes of this section, the term "date of the termination of hostilities in the present war" means the date proclaimed by the President as the date of such termination, or the date specified in a concurrent resolution of the two Houses of Congress as the date of such termination, whichever is the earlier. [Fourth paragraph amended by T.D. 5413, Oct. 31, 1944, 9 F.R. 13103]

*

§ 29.23 (m)-5 Computation of depletion based on percentage of income in case of coal mines, metal mines, fluorspar mines, flake graphite mines, vermiculite mines, beryl mines, feldspar

mines, mica mines, talc mines, lepidolite mines, spodumene mines, barite mines, ball and sagger clay mines, rock asphalt mines, and potash and sulphur mines or deposits. Under section 114 (b) (4) (A) a taxpayer may deduct for depletion an amount equal to 5 percent of the gross income from the property during any taxable year in the case of coal mines; an amount equal to 15 percent of the gross income from the property during any taxable year in the case of metal, fluorspar, ball and sagger clay, or rock asphalt mines, and during any taxable year beginning after December 31, 1942 in the case of flake graphite mines, and during any taxable year beginning after December 31, 1943 in the case of vermiculite, beryl, feldspar, mica, talc, lepidolite, spodumene, or barite mines, or potash mines or deposits including potash salts in solution; and an amount equal to 23 percent of the gross income from the property during any taxable year in the case of sulphur mines or deposits; but such deduction shall not in any case exceed 50 percent of the net income of the taxpayer (computed without allowance for depletion) from the property. * [Headnote and first sentence amended by T.D. 5413, Oct. 31, 1944, 9 F.R. 13103]

The depletion allowance provided in this section shall not be applicable to fluorspar mines, ball and sagger clay mines, rock asphalt mines, flake graphite mines, vermiculite mines, beryl mines, feldspar mines, mica mines, talc mines, lepidolite mines, spodumene mines, or barite mines with respect to any taxable year beginning on or after the date of the termination of hostilities in the present war. For the purposes of this section, the term "date of the termination of hostilities in the present war" means the date proclaimed by the President as the date of such termination, or the date specified in a concurrent resolution of the two Houses of Congress as the date of such termination, whichever is the earlier. [Undesignated paragraph added by T.D. 5413, Oct. 31, 1944, 9 F.R. 13103]

§ 29.23 (m)-10 Depletion; adjustments of accounts based on bonus or advanced royalty.

be taken by the owner of an economic interest in fluorspar, ball and sagger clay, or rock asphalt mines with respect to any taxable year, may be taken by the owner of an economic interest in a flake graphite mine with respect to taxable years beginning after December 31, 1942, and may be taken by the owner of an economic interest in vermiculite, beryl, feldspar, mica, talc, lepidolite, spodumene, and barite mines, and potash mines or deposits including potash salts in solution with respect to taxable years beginning after December 31, 1943; but such depletion deduction shall not in any case exceed 50 percent of the net income of the taxpayer (computed without allowance for depletion) from the property. However, the depletion deduction based upon a percentage of income from the property shall not be applicable in the case of fluorspar, ball and sagger clay, rock asphalt, flake graphite, vermiculite, beryl, feldspar, mica, talc, lepidolite, spodumene, and barite mines with respect to any taxable year beginning on or after the date of the termination of hostilities in the present war. For the purposes of this section, the term "date of the termination of hostilities in the present war" means the date proclaimed by the President as the date of such termination, or the date specified in a concurrent resolution of the two Houses of Congress as the date of such termination, whichever is the earlier. [Last sentence amended by T.D. 5413, Oct. 31, 1944, 9 F.R. 13104]

§ 29.23 (m)-13 Statement to be attached to return when depletion is claimed on percentage basis. (a) There shall be attached to the return of every taxpayer who claims depletion of oil and gas wells under section 114 (b) (3) and § 29.23 (m)-4, or depletion of coal mines, metal mines, fluorspar, ball and sagger clay, rock asphalt, flake graphite, vermiculite, beryl, feldspar, mica, talc, lepidolite, spodumene, and barite mines, and sulphur and potash mines or deposits including potash salts in solution under section 114 (b) (4) (A) and § 29.23 (m)-5, a statement containing the following information with respect to every property for which percentage depletion is allowable:

CODIFICATION: That portion of the first sentence of paragraph (a) immediately preceding (1) was amended to read as set forth