affected by very recent decisions but notes have been appended in connection therewith in order to apprise the reader of the latest rulings, and the text of such decisions have been added to Chapter V on the Excess Profits Tax. Professional contact with the officials and officers of Internal Revenue of the Treasury Department at Washington, including the Commissioner, himself, and with such members of the Advisory Board as the writer has had the pleasure of meeting, has impressed him with their profound and unanimous desire to grant to the taxpayer every right and fair concession possible to be drawn from a most liberal interpretation of the law that will ensure an equitable administration of it. With this significant assurance, not inconsistent with a positive duty, the taxpayer should dismiss from his mind that sense of antagonism that so often exists toward tax departments of the Government, and should seek to coöperate with them for the procurement of the necessary revenue of which the present extraordinary taxes are expected to contribute a vital part. The writer wishes to express his gratitude to those of his friends who by suggestions and helpful recommendations and counsel have made possible the treatment of a variety of problems that will present themselves under the new laws; he also takes occasion to express his grateful acknowledgment of the helpfulness of the Income and War Tax Services of the Corporation Trust Company, which contain the rulings and decisions of the Treasury Department upon these laws. On account of the difficulty of arrangement, the subjects are not coördinately grouped. The index, however, has been made especially copious in order to afford a ready reference to the subject of inquiry. 52 Broadway, New York City, January 2, 1918. GODFREY N. NELSON. PREFACE TO FIRST EDITION Since the enactment of the Corporation Excise Tax of 1909, and the Federal Income Tax Law, applicable to both individuals and corporations, effective March 1, 1913, the writer has prepared, and advised with regard to, many income tax returns of corporations and individuals. The preparation of returns almost invariably necessitated the analysis and subdivision of book accounts as commonly kept in order to conform them to the classification prescribed by these laws. To obviate the necessity of analyzing and rearranging accounts and to facilitate the preparation of returns was the first thought that actuated the writing of this book. To make it more helpful there have been included rulings of the Treasury Department and court decisions on the most important items of income and expenses. The writer makes no pretense at having produced a law book and at no time had that aim in view. This is intended merely to serve the purpose of a practical guide to those who, either for themselves or others, are called upon to prepare returns. Statements contained herein are predicated: first, upon the Income Tax Law enacted September 8, 1916, which was retroactive and took effect as of January 1, 1916; second, upon rulings by the Treasury Department thereon; and third, upon such rulings and court decisions under the Excise Tax of 1909 and the Income Tax Law of 1913, which are consistent and not in conflict with the requirements of the present law. An expression of gratitude is due to various officials and officers of Internal Revenue of the Treasury Department at Washington and New York for the courtesies shown to the writer in matters submitted to them, but this acknowledgment should not be construed as an endorsement by them of the contents of this book. The writer also acknowledges the helpfulness of the Income Tax Service of the Corporation Trust Company, the index to which was especially useful as a ready reference to Treasury Decisions. Mention should also be made of Mr. Henry Campbell Black's treatise on the law of "Income Taxation" under Federal and State laws, to which the writer has referred. The arrangement of subjects is not co-ordinate throughout, but the order of the statute and the returns of net income have been followed as nearly as practicable. 52 Broadway, New York City, December 16th, 1916. GODFREY N. NELSON. TABLE OF CONTENTS I. General Provisions of Law: Income Tax-War Income Tax- War Excess Profits Tax-When Effective...... II. Income Tax (Act of Sept. 8, 1916): Who is subject to Income III. War Income Tax (Act of Oct. 3, 1917): Who is subject to War Income Tax-Division of Tax-Normal-Additional-Div- IV. Income and War Income Taxes: Exemptions-Combined Nor- mal Taxes-Combined Additional Taxes-Examples of Computing Normal Taxes-Examples of Computing Normal V. Returns of Individuals: Combined Return-Who is Required to make return-Return Form-Return by Husband and Wife Fiduciaries-Agent-Private Banks-Citizen residing abroad -To whom Return is made-Verification-Returns by persons in Military Service-Due date of filing-Extension of Time- Penalty for Failure to file Return-False Return-When In- ternal Revenue Officer may prepare Return-Due date of Payment-Penalty, delayed Payment-*Claims for Refund of Taxes-Advance Instalment Payments-Forms of Pay- ment-Porto Rico, Philippines.... VI. Income of Individuals: Income Defined—Undivided Surplus of PAGE part of Compensation-Board, Lodging, etc., in lieu of Cash- .19-48 VII. Farms and Farmers: "Farms and Farmers," Defined-Income from Farms-Prepaid Farm Expenses-Shares-Expenses- Losses Live Stock - Farm Machinery - Depreciation — Books of Account-Farm maintained only for Recreation....48-50 VIII. Deductions Allowed Individuals: Exemptions-Single-Married -Heads of Families—Salaries Exempt-Dividends Creditable -Tax Withheld-Necessary Business Expenses-Interest Deductible-Interest Incurred in Purchase of Liberty Bonds- Accrued Interest on Bonds Purchased-Charities-Taxes- Local Assessments - Water Rates - Pensions-Premium, Fidelity Bonds-Loss Defined-Loss not in Business or Trade -Losses, more than one Trade-In Trade Defined-Bad Debts-Depreciation-Stocks and Bonds-Depletion, Oil and Gas Wells-Mines-Improvements-Restoring Property- Replaced Buildings-Condemned Buildings-Damage Suits, Judgments-Insurance Reserve Funds-Insurance Premiums -Commissions, Real Estate Campaign Expenses-Expense, Nontaxable Income-Assessment of Stocks-Taxes paid by Amended Law-Nonresident Alien Individuals-Nonresident |