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Refund or abatement of penalty taxes. An act to provide for refund or abatement under certain conditions of penalty

taxes imposed by section 38 of the act of August 5, 1909, known as the special, excise corporation-tax law, approved March 3, 1913 (37 Stat., 734).

Be it enacted, etc., That any corporation, joint-stock company, association, or any insurance company subject to the special excise tax provided by section thirty-eight of the act of August fifth, nine- , teen hundred and nine, known as the special excise corporation-tax law, which has been or may be compelled to pay or become liable for any additional tax within the provisions of subsection five of said section thirty-eight, which additional tax has been or may hereafter be imposed for a neglect to file a return as provided in said corporation-tax law on or before the first of March of any year, may, within one year after the passage of this act or within one year after the date of notice of assessment where such notice is given after the passage of this act, make application to the Commissioner of Internal Revenue for a refund of such additional tax. And the Commissioner of Internal Revenue, with the advice and consent of the Solicitor of Internal Revenue, is hereby directed to remit, abate, or pay back all such additional taxes in excess of $100 for any single year whenever in any case it appears to his satisfaction that the additional tax was assessed or imposed solely because of a neglect to make a return at the time or times specified in said act, and without any intention or design on the part of any officer of such corporation, joint-stock company, association, or insurance company to hinder or delay the United States in the collection of the tax originally assessed.

Claim for abatement or refund required to be made on Form 47 or 46, respectively; claims required to be accompanied by affidavit of corporation's president, vice president, or other principal oflicer, and its treasurer or assistant treasurer, stating that neglect to make return was without Intent or design to hinder or delay the United States in collection of tax, etc. (T. D. 1838.)

CHAPTER 8.

INCOME TAX.

AN ACT To reduce tariff duties and to provide revenue for the Government, and

for other purposes. Approved October 3, 1913 (38 Stat., 114, 166.)

Normal tax,
Additional tax.
Personal return; regulations.
Holding companies; accumulation of

profiis beyond needs.
Statement of profits.
Income defined.
Proceeds of life insurance policies ex-

empt.
Deductions.
Persons residing abroad.
Interest on State and United States

bonds to be excluded.
Additional exemption in the case of

married persons. Time for computing tax; returns. Firms, companies, corporations, etc., to

withhold tax and make return. Partnership tax.

Return not required of income from

dividends of taxable corporations. Understatements; appeal from collec

tor. Assessments, notice of, payment of

return by Commissioner within three

years.
Five per cent penalty and interest.
Collection of tax at the source.
False statement; penalty.
Returns for minors, insane persons,

and absentees.
Tax to be withheld from interest on

bonds. Withholding tax from interest on for

eign bonds. License to engage in business of col

lecting foreign payments. Contracts; returns; regulations.

Deduction at source applies to normal

tax only. Penalty for neglect or refusal to make

return or for making false or fraud

ulent return.
Tax on corporations.
Organizations exempt.
Income derived from publie utility or

governmental function.
Deductions allowed.
Tax; how computed ; calendar year.
Returns, date of making; require-

ments.
Assessments; notice and payment.
Payment by corporation designating

different fiscal year. Commissioner to make return and as

sessment within three years, Five per cent penalty and interest. Returns to be filed; publicity; inspec

tion. When allowed. Corporations neglecting to make re

turn or making false return; pen

alty. Construction of word " State" or

“ United States." Reenactment of sections 3167, 3172,

3173, 3176, Revised Statutes.

Officers or employees divulging infor

mation. Canvass of districts. Returns; authority to issue summons

to appear and testify. Collection of 100% and 50% addi.

tional to tax in case of failure to
make return or of false or fraudu-

lent return.
Receipts for taxes.
Jurisdiction.
General provisions extended and made

applicable.
Porto Rico and the Philippine Islands.
Appropriation; oflicers and employees.
Articles coming into the United States

from the Philippine Islands and
articles going into the Philippine

Islands from the United States.
Porto Rico.
Manufacture of articles intended for

exportation in bonded warehouses,
Drawback.
Articles reimported.
Repeal in part of act of August 5,

1909; saving clause.
Refund of offers in compromise.

SECTION II.

Normal tax.

A. Subdivision 1. That there shall be levied, assessed, collected, and paid annually upon the entire net income arising or accruing from all sources in the preceding calendar year to every citizen of the United States, whether residing at home or abroad, and to every person residing in the United States, though not a citizen thereof, a tax of 1 per centum per annum upon such income, except as hereinafter provided; and a like tax shall be assessed, levied, collected, and paid annually upon the entire net income from all property owned, and of every business, trade, or profession carried on in the United States by persons residing elsewhere.

Act is not unconstitutional. (Brushaber . Union Pacific Co., 240 U. S., 1, T. D. 2290; Dodge v. Brady, 240 U. S., 123, T. D. 2302; Tyee Realty CO. 1'. Anderson, 240 C. S., 115, T. D. 2300; Stanton 1. Baltic Mining Co., 240 U. S., 103, T. D. 2303.)

Where an income tax law is doubtful, doubt should be resolved in favor of the taxpayer against the Government. (Miller 1. Gearin, 258 Fed., 225.)

Commissions of general life insurance agent from renewal premiums on policies obtained by him and accepted in some year prior to "preceding calendar year” mentioned are taxable. (Woods v. Lewellyn, 252 Fed., 106.)

Statute can not be changed by regulations. (Edwaris 1. Keith, 231 Fed., 110.)

Tax is not laid on articles in course of exportation or on anything which inherently or by usages of commerce is embraced in exportation, but on the contrary is a general tax. (Wm. E. Peck & Co. v. Lowe, 247 U'. S., 165; T. D, 2726.)

Section does not lay tax upon interest accruing on bonds executed by resident or citizen of United States when held and owned by nonresident foreigner. (30 Op. Atty. Gen., 230.)

Dividends accruing from stock of domestic corporation owned by nonresident aliens are not subject to tax. (30 Op. Atty. Gen., 273.)

Income received by nonresident alien from stocks and bonds of corporations organized under United States laws and mortgages and bonds secured upon property in United States, certificates representing same being held by domestic trust company, is property owned in l'nited States. (De Ganay 1, Lederer, 250 U. S., 376; T. D. 2876.)

" Residence" defined; who are nonresident alien individuals. (T. Ds. 2242, 2794.)

Accrued interest is deductible from gross income when shown as charge against accrued income upon the books of account kept on an accrued basis. (T. D. 2625.)

The general provisions of law, including laws in relation to collection and refund of tax, are applicable to the income tax law. (Dodge 1. Osborn, 240 U. S., 118; T. D. 2301.)

Interest from bonds and dividends on stocks of domestic corporation owned by nonresident aliens held nontaxable, (T. D. 2162.)

Synopsis rulings. (T. Ds. 2090, 2135, 2137, 2152, 2161.)

Additional tax.

Subdivision 2. In addition to the income tax provided under this section (herein referred to as the normal income tax) there shall be levied, assessed, and collected upon the net income of every individual an additional income tax (herein referred to as the additional tax) of 1 per centum per annum upon the amount by which the total net income exceeds $20,000 and does not exceed $50,000, and 2 per centum per annum upon the amount by which the total net income exceeds $50,000 and does not exceed $75,000, 3 per centum per annum upon the amount by which the total net income exceeds $75,000 and does not exceed $100,000, 4 per centum per annum upon the amount by which the total net income exceeds $100,000 and does not exceed $250,000, 5 per centum per annum upon the amount by which the total net income exceeds $250,000 and does not exceed $500,000, and 6 per centum per annum upon the amount by which the total net income exceeds $500,000. All the provisions of this section relating to individuals who are to be chargeable with the normal income tax, so far as they are applicable and are not inconsistent with this subdivision of paragraph A, shall apply to the levy, assessment, and collection of the additional tax imposed under this section.

Personal return; regulations.

Every person subject to this additional tax shall, for the purpose of its assessment and collection, make a personal return of his total net income from all sources, corporate or otherwise, for the preceding calendar year, under rules and regulations to be prescribed by the Commissioner of Internal Revenue and approved by the Secretary of the Treasury.

Instructions governing prepa ration of returns by farmers. (T. D. 2665.)

Holding companies; accumulation of profits beyond needs. For the purpose of this additional tax the taxable income of any individual shall embrace the share to which he would be entitled of the gains and profits, if divided or distributed, whether divided or distributed or not, of all corporations, joint-stock companies, or associations however created or organized, formed, or fraudulently availed of for the purpose of preventing the imposition of such tax through the medium of permitting such gains and profits to accumulate instead of being divided or distributed; and the fact that any such corporation, joint-stock company, or association is a mere holding company, or that the gains and profits are permitted to accumulate beyond the reasonable needs of the business, shall be prima facie evidence of a fraudulent purpose to escape such tax; but the fact that the gains and profits are in any case permitted to accumulate and become surplus shall not be construed as evidence of a purpose to escape the said tax in such case unless the Secretary of the Treasury shall certify that in his opinion such accumulation is unreasonable for the purposes of the business.

Statement of profits.

When requested by the Commissioner of Internal Revenue, or any district collector of internal revenue, such corporation, joint-stock company, or association shall forward to him a correct statement of such profits and the names of the individuals who would be entitled to the same if distributed.

Income defined.

B. That, subject only to such exemptions and deductions as are hereinafter allowed, the net income of a taxable person shall include gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from professions, vocations, businesses, trade, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in real or personal property, also from interest, rent, dividends, securities, or the transaction of any lawful business carried on for gain or profit, or gains or profits and income derived from any source whatever, including the income from but not the value of property acquired by gift, bequest, devise, or descent:

Alimony not income and not subject to tax. (Gould v. Gould, 245 U. S., 151.)

Purpose of act was not to tax income accrued prior to March 1, 1913; income accrued in preceding taxable year excluded. (Southern Pacific Co. v. Lowe, 247 U. S., 330; T. D. 2730.)

Where corporation owns entire stock of subsidiary and is lessee of all its property, maintaining control of subsidiary's money and other property, dividends of subsidiary declared out of surplus which accrued prior to March 1, 1913, not taxable income of parent corporation. (Id.)

Taxable status of stock dividends paid on capital stock from current net earnings or established surplus created from earnings of corporations, etc., defined. (T. Ds. 2163, 2274.)

Under paragraphs B, D, and G, member of partnership need not include as part of net income that part derived from or through partnership which has been received by firm as dividends on stocks owned by it in corporations taxable on their net income. (United States v. Coulby, 251 Fed., 982; affirmed, 258 Fed., 27.)

Under Sixteenth Amendment to Constitution, Congress may tax as income, without apportionment, everything that became income in the ordinary sense of the word after adoption of the amendment. (Lynch v. Hornby. 247 U. S., 339; T. D. 2731; Brushaber v. Union Pacific Railroad, 240 U. S., 1; T. D. 2290.)

Individual stockholder is subject to additional tax on dividends declared and paid by corporation in ordinary course of business after taking effect of act, whether from current earnings or from accumulated surplus made up of past earnings or increase in value of corporate assets, notwithstanding surplus accrued to corporation in whole or in part prior to March 1, 1913. (Lynch v. Hornby, 247 U. S., 339; T. D. 2731.)

Act of September 8, 1916, and act of October 3, 1917, in excluding dividends declared out of earnings or profits that accrued prior to March 1, 1913, not intended to be declaratory of the meaning of “dividends" in the 1913 act. (Id.)

Stock dividends declared in 1914 from profits accrued before January 1, 1913, do not constitute taxable income to recipients. (Towne v. Eisner, 245 U. S., 418; T. D. 2634; reversing 242 Fed., 702; T. D. 2506.)

Earnings and surplus of subsidiary corporations used as capital prior to January 1, 1913, are not taxable income of holding company when formally transferred to it as dividends. (Gulf Oil Corporation v. Lewellyn, 248 U. S., 71; T. D. 2783.)

“ Income means the flow of capital's service, and is not synonymous with receipts. (United States v. Guggenheim Exploration Co., 238 Fed., 231.)

Dividend declared and paid by going corporation, partly in cash and partly in assets of the corporation, is subject to tax when received by individual taxpayer, although declared from surplus which was in part accumulated before March 1, 1913. (Peabody v. Eisner, 247 U. S., 347; T. D. 2732.)

Life insurance agent held liable on commissions on renewal premiums on policies issued before act was adopted. (Edwards V. Keith, 231 Fed., 110.)

Liability in connection with quarters, mileage, reimbursement for actual expenses, etc., furnished or paid by Government to officers and employees. (T. D. 2079.)

Taxability of commissions on renewal premiums for insurance. (T. D. 2011.)

T'he tax on the product of a mine is not a tax upon property as such because of its ownership, but a true excise levied on the results of business of carrying on mining operations. (Stanton v. Baltic Mining Co., 240 U. S., 103; T. D. 2303.)

Proceeds of life insurance policies exempt. Provided, That the proceeds of life insurance policies paid upon the death of the person insured or payments made by or credited to the insured, on life insurance, endowment, or annuity contracts, upon the return thereof to the insured at the maturity of the term mentioned in the contract, or upon surrender of contract, shall not be included as income.

Deductions. That in computing net income for the purpose of the normal tax there shall be allowed as deductions: First, the necessary expenses actually paid in carrying on any business, not including personal, living, or family expenses; second, all interest paid within the year by a taxable person on indebtedness; third, all national, State, county, school, and municipal taxes paid within the year, not including those assessed against local benefits; fourth, losses actually sustained during the year, incurred in trade or arising from fires, storms, or shipwreck, and not compensated for by insurance or otherwise; fifth, debts due to the taxpayer actually ascertained to be worthless and charged off within the year; sixth, a reasonable allowance for the exhaustion, wear and tear of property arising out of its use or employment in the business, not to exceed, in the case of mines, 5 per centum of the gross value at the mine of the output for the year for which the computation is made, but no deduction shall be made for any amount of expense of restoring property or making good the

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