SEC. 57. EXAMINATION OF RETURN AND DETERMINATION OF TAX.

As soon as practicable after the return is filed the Commissioner shall examine it and shall determine the correct amount of the tax.

ART. 57-1. Examination of return and determination of tax by the Commissioner. As soon as practicable after returns are filed, they will be examined and the correct amount of the tax determined under such procedure as may be prescribed from time to time by the Commissioner. (See section 272.)

SEC. 58. ADDITIONS TO TAX AND PENALTIES.

(a) For additions to the tax in case of negligence or fraud in the nonpayment of tax or failure to file return therefor, see Supplement M.

(b) For criminal penalties for nonpayment of tax or failure to file return therefor, see section 145.

SEC. 59. ADMINISTRATIVE PROCEEDINGS.

For administrative proceedings in respect of the nonpayment or overpayment of a tax imposed by this title, see as follows:

(a) Supplement L, relating to assessment and collection of deficiencies.

(b) Supplement M, relating to interest and additions to tax.

(c) Supplement N, relating to claims against transferees and fiduciaries.

(d) Supplement O, relating to overpayments.

Art. 57-1

CHAPTER IX

MISCELLANEOUS PROVISIONS

Part VI-Miscellaneous Provisions

SEC. 61. LAWS MADE APPLICABLE.

All administrative, special, or stamp provisions of law, including the law relating to the assessment of taxes, so far as applicable, are hereby extended to and made a part of this title.

SEC. 62. RULES AND REGULATIONS.

The Commissioner, with the approval of the Secretary, shall prescribe and publish all needful rules and regulations for the enforcement of this title.

SEC. 63. TAXES IN LIEU OF TAXES UNDER 1934 ACT.

The taxes imposed by this title and Title IA shall be in lieu of the taxes imposed by Titles I and IA of the Revenue Act of 1934, as amended.

SEC. 64. SHORT TITLE.

This title may be cited as the "Income Tax Act of 1936".

(182)

CHAPTER X

CORPORATIONS EXEMPT FROM TAX

Subtitle C-Supplemental Provisions, Supplement A-Rates of Tax (Supplementary to Subtitle B, Part I)

SEC. 101. EXEMPTIONS FROM TAX ON CORPORATIONS.

The following organizations shall be exempt from taxation under this title

ART. 101-1. Proof of exemption.-A corporation is not exempt merely because it is not organized and operated for profit. In order to establish its exemption and thus be relieved of the duty of filing returns of income and paying the tax, it is necessary that every organization claiming exemption file an affidavit with the collector of the district in which it is located, showing the character of the organization, the purpose for which it was organized, its actual activities, the sources of its income and its disposition, whether or not any of its income is credited to surplus or may inure to the benefit of any private shareholder or individual, and in general all facts relating to its operations which affect its right to exemption. To such affidavit should be attached a copy of the charter or articles of incorporation, the by-laws of the organization, and the latest financial statement, showing the assets, liabilities, receipts, and disbursements of the organization. The words "private shareholder or individual" in section 101 refer to individuals having a personal and private interest in the activities of the corporation. Although religious or apostolic associations or corporations exempt under section 101 (18) are relieved from paying the tax, they are required to file returns of income (see article 101 (18)-1).

In the case of the particular classes of organizations listed below, the following additional information should be embodied in or attached to, and made a part of, the affidavit referred to above:

(1) Fraternal beneficiary societies, orders, or associations: (a) The number of subordinate lodges in active operation, (b) whether periodical meetings are actually held;

(2) Building and loan associations and cooperative banks: These associations and banks shall submit the information re

(183)

quired by Questionnaire, Form 1027, copies of which may be obtained from any collector;

(3) Corporations, community chests, funds, or foundations claiming exemption under section 101(6): To what extent the activities of the organization involve carrying on propaganda, or otherwise attempting, to influence legislation;

(4) Educational organizations: In addition to the information called for in (3) above, whether any of the shareholders are paid by the organization, and if so, the reason for each such payment and the amount thereof;

(5) Hospitals: In addition to the information called for in (3) above, whether nonpay patients are accepted;

(6) Business leagues: (a) A statement of the services performed for members, (b) a statement of the services performed for nonmembers;

(7) Clubs: The income received from the use of the facilities by the general public;

(8) Benevolent life insurance associations: (a) The number of counties in which the association accepts risks, (b) copies of the policies or certificates of membership;

(9) Mutual insurance companies: (a) Copies of the policies or certificates of membership; (b) if any substantial amount of income is claimed to be held for the payment of losses or expenses, a statement based upon a reliable table of loss experience demonstrating that the amount so held for the payment of losses is reasonably necessary; or in the case of expenses, a statement based upon reliable statistics showing that the expenses were incurred or that in all probability they will be incurred;

(10) Farmers' cooperative associations: These associations shall submit the information required by Questionnaire, Form 1028, copies of which may be obtained from any collector;

(11) Holding companies: (a) The name of the organization for which it holds title, (b) the information necessary to establish the exemption, under section 101, of the organization for which title is held.

The collector, upon receipt of the affidavit and other papers, will forward them to the Commissioner for decision as to whether the organization is exempt.

When an organization has established its right to exemption, it need not thereafter make a return of income or any further showing 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. But see article 101 (18)-1 with respect to religious or apostolic associations or corporations. Collectors will keep a list of all exempt corporations, to the end that they may occasionally inquire into their status and ascertain whether or not they are observing the conditions upon which their exemption is predicated.

The exemption under section 101 referred to in this article and articles 101 (2)-1 to 101 (13)-1 from filing returns of income does not apply to returns of information (see sections 147 to 149).

[SEC. 101. EXEMPTIONS FROM TAX ON CORPORATIONS.]

[The following organizations shall be exempt from taxation under this title-]

(1) Labor, agricultural, or horticultural organizations;

ART. 101(1)-1. Labor, agricultural, and horticultural organizations.— The organizations contemplated by section 101 (1) as entitled to exemption from income taxation are those which

(1) Have no net income inuring to the benefit of any member; (2) Are educational or instructive in character; and

(3) Have as their objects the betterment of the conditions of those engaged in such pursuits, the improvement of the grade of their products, and the development of a higher degree of efficiency in their respective occupations.

Organizations such as county fairs and like associations of a quasi public character, which are designed to encourage the development of better agricultural and horticultural products through a system of awards, and whose income from gate receipts, entry fees, and donations is used exclusively to meet the necessary expenses of upkeep and operation, are thus exempt. On the other hand, associations which have for their purpose, for example, the holding of periodical race meets, the profits from which may inure to the benefit of their shareholders, are not exempt. Similarly, corporations engaged in growing agricultural or horticultural products for profit are not exempt from tax.

[SEC. 101. EXEMPTIONS FROM TAX ON CORPORATIONS.]

[The following organizations shall be exempt from taxation under this title-]

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

ART. 101 (2)-1. Mutual savings banks.-In order that a corporation may be entitled to exemption as a mutual savings bank, it must appear that it is an organization

(1) Which has no capital stock represented by shares, and