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by a railroad company under Sec. 122, act June 30, 1864. Held that, if a railroad company should make a second track when they had but a single track before, this would be a betterment or permanent improvement, and, if paid out of the earnings, would be fairly characterized as "profits used in construction." But in the case of a stone bridge, built to replace a wooden one, only the increased value of the new bridge over the old one when in good repair was taxable. Grant, collector, v. Hartford & New Haven Railroad Company, 3 Otto, 225. Same case in 9 Blatch. 542.

The circuit court was right in holding that the only penalty to which the company was liable for default under Sec. 122 of the internal revenue act of June 30, 1864, as amended July 13, 1866, was that of $1,000 specially provided for in that section. The penalty of five per cent, and interest at the rate of one per cent per month, applies only to cases of default in the payment of duties upon income imposed by Sec. 119 as amended. Erskine v. Milwaukee & St. Paul R. R. Co., 4 Otto, 619. This decision was expressly reaffirmed in the case of Elliott v. Railroad, 9 Otto, 572.

The tax on interest of corporations under the internal revenue laws was essentially an excise on the business of the class of corporations mentioned in the statute. Under ordinary circumstances, it will be conclusively presumed that payments of interest were made from earnings; but where it appears that at the end of a civil war, during which interest had fallen in arrear and earnings had been substantially suspended, the company, in reorganizing its affairs for future business, either funded its past-due coupons in a new issue of bonds, or paid them from the proceeds of sale of new bonds, no such presumption can arise, and if the facts are established they will constitute a complete defense to the recovery of a tax charged on such payments of interest. The bondholder would undoubtedly be taxable for income derived in that way, but the payment would not be one upon which the company could be taxed. Memphis & Charleston R. R. Co. v. United States, 108 U. S. 228.

Held that the interest accruing on subsidy bonds loaned

by the government to the railroad company was taxable under Sec. 122, act June 30, 1864. Sioux City & Pacific R. R. Co. v. United States, 110 U. S. 205.

In a suit against a railroad company for tax on undivided net earnings, it appeared that the company had overpaid the United States for tax on gross receipts for the same year. Held, that the company was entitled to deduct the amount of tax overpaid on gross receipts from whatever was due on net earnings, and that it was not necessary for the company to plead an offset. Missouri River, F. S. & G. R. Co. v. United States, Circuit Court N. D. Mo., January, 1884, McCrary, J., 19 Fed. Rep. 66.

In a suit by the United States to recover a large sum for unpaid taxes on undivided net profits accruing from 1864 to 1867, the facts showed an assessment in 1868, covering the period in question, of some $39,000, which was paid. On an examination by a revenue agent made in 1879, some $40,000 more was reported as due for the same period on the same account, and suit was brought. The judge in charging the jury commented on the testimony, and said, among other things, that "from the assessment made by the government officer in 1868, the payment of money in pursuance of it, and the acquiescence of the government in what was thus done for so long a period, nearly twelve years, a presumption arises that the assessment then made was correct, and that the money paid covered the defendant's entire liability for taxes on surplus earnings between the periods embraced. The burden is thus cast upon the plaintiff (the United States) to repel the presumption by evidence that the assessment was erroneous. The court further said that in its judgment it would be unsafe and therefore unjust, under the evidence before the jury, to render a verdict against the defendant. Held by the Supreme Court that these remarks to the jury were just and proper. United States v. Philadelphia & Reading R. R. Co., 123 U. S. 113.

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The question as to what constitutes "profits used in construction" is often difficult to decide, but one general rule may be adopted to guide officers in determining what may be

called repairs and what improvements, viz.: The condition of the road and rolling-stock when the law taxing profits used in construction took effect should be taken as the basis. Any money expended to place the road or rolling-stock in better condition than it then was is an improvement, and should not be allowed as an expense. Care should be taken to exclude from the expense account all charges for new cars and locomotives (unless to replace such as have been destroyed or worn out), discount on bonds sold, estimated depreciation of property, and like charges. Where steel rails have been substituted for iron, the difference in cost should be excluded from repair account. Where a road has been ballasted for the first time, the outlay is not a proper charge to repair account. Where old iron has been taken from the main track and used for making side tracks, the cost of new iron to replace it on the main track should not be allowed as an expense. Where an iron bridge is built to replace a wooden one, only the value of a wooden bridge should be allowed. The same rule would apply to buildings where a more costly structure was built to replace another. Int. Rev. Reg., Series 7, No. 1.

Act March 2,

of five pe ries in excess

Tax per cent on sala

of $1,000.

SEC. 123. And be it further enacted, That there shall be levied, collected, and paid on all salaries of officers, or payments for services to persons in the civil, military, naval, or other employment or service of the United States, including Senators and Representatives and Delegates in Congress, when exceeding the rate of one thousand dollars per annum, a tax of five per centum on the excess above the said one thousand dollars; and it shall be the duty of all paymasters and all disbursing officers under the government of the United Disbursing of States, or persons in the employ thereof, hold amount. when making any payment to any officers or persons as aforesaid, whose compensation is determined by a

ficers to with

Duty of accounting officers of treas


fixed salary, or upon settling or adjusting the accounts of such officers or persons, to deduct and withhold the aforesaid tax of five per centum; and the pay-roll, receipts, or account of officers or persons paying such tax as aforesaid shall be made to exhibit the fact of such payment. And it shall be the duty of the accounting officers of the Treasury Department, when auditing the accounts of any paymaster or disbursing officer, or any officer withholding his salary from moneys received by him, or when settling or adjusting the accounts of any such officer, to require evidence that the taxes mentioned in this section have been deducted and paid over to the Treasurer of the United States, or other officer authorized to receive the same: Provided, That payments of prize money shall be regarded as income from salaries, and the tax thereon shall be adjusted and collected in like manner: Provided furMechanics and ther, That this section shall not apply to payments made to mechanics or laborers employed upon public works: And provided further, That, in case it should become necessary for showing the true receipts of the government under the operations of this section upon the books of the Treasury Department, the requisite amount may be carried from unappropriated moneys in the treasury to the credit of said account; and this section shall take effect upon salary and compensation for the month of March, eighteen hundred and sixty-seven.

Prize money subject to this


laborers ex





563. Jurisdiction of district courts.
629. Jurisdiction of circuit courts.
4, 5, and 6 of an act to establish circuit
courts of appeals, approved
March 3, 1891.

711. Exclusive jurisdiction of courts
of the United States.
643. Removal of suits from State
courts to United States circuit

731. Offenses begun in one district and

completed in another. 732. Suits for pecuniary penalties and

forfeitures, where to be brought. 733. Suits for internal revenue taxes, where to be brought.

1, Act of August 13, 1888. Persons


951. Suits of the United States against individuals, what credits allowed.

957. Suits of the United States against

revenue officers.

771. Duties of district attorneys to prosecute.

774. Reports of district attorneys to Commissioner of Internal Rev


827. Compensation of district attorneys for the defense of revenue officers.

858. No exclusion of witnesses on account of color or interest. 860. Disclosures of witnesses not to be used against them.

not to be arrested in one district Act of March 16, 1878. Persons

for trial in another in civil ac-

1014. Offenders against United States
may be arrested and held by
State officer for trial in United
States courts.

1046. Limitations as to indictments for crimes under revenue laws. 1047. Limitations as to suits or prosecutions for penalties and forfeitures under laws of United States.

Act of July 5, 1884, to limit the time

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914. United States practice to conform
to forms and modes of proceed-
ing in the State courts.

within which prosecutions may
be instituted against persons Act of August 1, 1888. Judgment
charged with violating internal
revenue laws.

919. Suits for duties, imposts, taxes,
penalties, or forfeitures.

records and judgment liens. 966. Interest on judgments. 969. Costs in internal revenue suits. 974. Costs, when paid by defense.

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