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A. Yes; a credit is allowed for your proportionate share of the dividends and interest.

Q. How should partnership profits be computed?

A. In the same manner and on the same basis as the income of individuals, except that deduction of contributions or gifts to charitable, religious, etc., organizations is not allowed.

Q. May a partner deduct in his personal return his proportionate share of contributions made by the partnership to charitable, religious, etc., organizations?

A. A proportionate share of contributions or gifts made by a partnership may be deducted in the personal return of a partner, provided that this share and other contributions made by the partner individually, do not together exceed 15 per cent of his net income as computed before these deductions are made.

CORPORATIONS Q. What corporations must file returns?

A. Every corporation except those listed in Section 231 of the Law must report. (See page 78.) The return must be filed on or before March 15, unless it is made on the basis of a fiscal year, when it must be filed on or before the 15th day of the third month following the close of the fiscal year. The form on which to make the return may be obtained from the office of any Collector of Internal Revenue. It must be filed with the Collector for the district in which the principal office of the corporation is situated.

Q. What is the rate of tax on corporations?

A. The income tax on corporations for 1924 is at a flat rate of 1272 per cent. This is the same rate that was effective for 1923. There is no excess profits tax.

Q. What constitutes gross income of a corporation?

A. Gross income includes the same items as the gross incomes of individuals and is calculated in the same manner, except that mutual marine insurance companies include the gross premiums received by them, less amounts paid for reinsurance.

Q. Are proceeds from the sale of its capital stock by a corporation taxable income?

A. No; even though the stock is sold at a premium. Conversely, if it is sold at a discount, the discount is not deductible.

Q. What deductions from gross income are allowed corporations!

A. In general, they are the same as are allowed to individuals, except that charitable contributions may not be deducted.

Q. A bank examiner, going over the books of the X National Bank, ordered the bank to charge of 50 per cent of a loan made to a corporation which was on the verge of bankruptcy. May the bank use this charge-off as a deduction in its tax return?

A. According to Treasury Department Regulations, banks and other corporations subject to supervision by Federal authorities, or by State authorities maintaining substantially equivalent standards, may claim as deductions debts which have been charged off in whole or in part in obedience to specific orders or in accordance with the general policy of the Federal or State authorities unless there is affirmative evidence clearly establishing that the charge-offs are not worthless.

Q. Because of a shrinkage in market values, a Federal bank examiner instructed our bank to charge off $1,500 on some bonds we were carrying at $10,000, their cost to us. May this depreciation be deducted from gross income in the bank's return?

A. No. Unless the taxpayer is a dealer in securities as defined by Article 1615 of Treasury Department Regulations 65, a loss due to shrinkage in value through market fluctuation may not be deducted. On the other hand, if the market recovers and you write up the bonds, the appreciation in book value is not taxable income.

Q. What credits may a corporation claim?

A. A specific credit of $2,000 is granted in the case of a domestic corporation with a net income of $25,000 or less. No credit of this kind is allowed to a corporation with a net income of more than $25,000. It is provided, however, that when the net income is more than $25,000 the tax is not to exceed the amount that would be payable if the $2,000 credit were allowed, plus the amount of net income over $25,000.

COLLECTION AT SOURCE Q. When must tax be withheld at the source? What are the rates of taxes so withheld?

A. Withholding of tax at the source is limited in application to payments of fixed or determinable annual or periodic income

to non-resident alien individuals, non-resident foreign partnerships and non-resident foreign corporations; payments of interest on securities, the owners of which are unknown to the withholding agent, and payments of interest on securities which contain a tax-free covenant clause. Such payments include interest, rent, salaries, wages, premiums, annuities, compensation, remunerations, etc., but do not include dividends allowed as a credit by Section 216 (a) of the Act (page' 69), or interest on bank deposits, where the foreign depositor is not engaged in business in the United States and has no office or place of business therein. The rates of withholding are: Non-resident alien individuals, non-resident foreign

partnerships, and where owner is unknown..... 6% Non-resident foreign corporations....

1272% Interest upon corporate obligations containing a tax

free covenant clause paid to individuals or part-
nerships, whether resident or non-resident, to a
foreign corporation having no office or place of
business in the United States, and where the
owner is unknown....

2% Non-resident alien individuals who are citizens or residents of Canada or Mexico may claim the benefit of withholding at the reduced rates of 2 per cent and 4 per cent on the first $8,000 of net income from compensation for labor or personal services performed in the United States in excess of the credits allowed by Section 216 of the Law (page 69) provided they file Form 1115 with their employers not later than February 1 of the following year.

Q. When must withholding agents file returns?

A. Returns must be filed on or before March 15 of each year and any tax withheld must be paid to the Collector on or before June 15. Where tax is withheld from interest on corporate obligations, withholding agents also must make monthly reports under regulations prescribed by the Commissioner.

INFORMATION AT SOURCE Q. When are information reports required?

A. Every individual, partnership, corporation or fiduciary paying interest, rent, salaries, commissions or any income of a fixed or determinable nature amounting to $1,000 or more in any

calendar year to another individual, partnership or fiduciary, must report such payments to the Commissioner of Internal Revenue, Sorting Section, Washington, D. C. Certain payments, although more than $1,000, need not be reported. These items are set forth in Article 1073 of Treasury Department Regulations 65, a copy of which may be obtained from your local Collector of Internal Revenue.

Q. Must corporations report dividends paid to stockholders?

A. Every domestic corporation, not specifically exempt from taxation, making payment of dividends and distributions (other than liquidating dividends and stock dividends or other nontaxable distributions) to any stockholder who is an individual, fiduciary or partnership, amounting to $500 or more during the calendar year, must make an information return on Form 1097 stating the names and addresses of the shareholders to whom the payments were made and the amount paid to each. Resident foreign corporations also must report dividend payments and distributions of $500 or more to the extent that they are made to citizens or residents of the United States, and domestic partnerships or fiduciaries.

Q. When must information reports be filed?

A. Information reports must be made on the basis of the calendar year. They are due on or before March 15 of each year, or at any other time prescribed by Treasury Regulations.

Q. During 1924 I paid my bank $1,500 interest on a loan. Must I make an information report of this to the Government?

A. No. According to Article 1073 of the Treasury Department Regulations, payments of any type made to corporations need not be reported.

Special Taxes


Title VII, Section 700, Revenue Act, 1924 Returns

Every domestic corporation and every foreign corporation engaged in business in the United States must file a return in July of each year in accordance with such regulations as the Commissioner of Internal Revenue may prescribe. Exempt Corporations The following are not subject to this tax:

(1) Corporations not engaged in business (or, in the case of a foreign corporation, not engaged in business in the United States) during the preceding fiscal year, i.e., the twelve months ending June 30.

(2) Corporations listed in Section 231 of the 1924 Act. (Page 78.)

(3) Any insurance company subject to tax under Sections 243 or 246 of the 1924 Act. (Pages 84 and 86.) Basis and Rate of Tax

This is an annual excise tax paid in advance for the privilege of doing business in a corporate capacity during the period of twelve months beginning July 1. The rate of tax is $1 for each $1,000 of the fair average value above $5,000 of the corporation's capital stock during the twelve months preceding July 1, or any part thereof during which the corporation was in existence. The tax on a foreign corporation is $1 for each $1,000 of the average amount of capital employed in the transaction of its business in the United States during the preceding year ending June 30 without deduction of the $5,000 exemption allowed domestic corporations.

A corporation beginning business after July 1 is not subject to tax until the following July 1.

STAMP TAXES Title VIII, Sections 800-807, Revenue Act, 1924, Schedule A

Internal revenue stamps must be affixed to the following documents in the amounts specified:

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