PENALTIES. Art. 51. For failure to make payment of tax before close of business 279 June 15 and 10 days after notice and demand.-There shall be added to the tax 5 per cent on the amount of tax unpaid and interest at the rate of 1 per cent per month from the time the same became due, except from the estates of insane, deceased, or insolvent persons. (Sec. 9 (a).) And the delinquent shall also be liable for specific penalty of not 280 less than $20 nor more than $1,000. (Sec. 18.) Art. 52. For failure to make return within time fixed by law for tax 281 or information purposes.-Penalties are: Ad valorem.-Fifty per cent on the amount of tax shown by a cor- 282 rect return. (Sec. 16, 3176, R. S.) Specific. Not less than $20 nor more than $1,000. (Sec. 18.) Specific penalties provided by the income-tax law are held to attach to the person and in case of death of such person are nonenforceable. 283 284 Ad-valorem penalties (those measured by income) attach to income 285 and are to be enforced regardless of the death of the owner of the income by which the penalty is measured. Waiver after expiration of time limit for assessment.-Where the 286 limitation of the statute as to assessment has run and a written waiver of exemption from assessment is given by the taxpayer, the ad valorem penalties of 50 per cent, addition to tax, is not to be assessed for delinquency in filing return. Return made and mailed in time.-If a return is made and placed 287 in the United States mail, properly addressed, and postage paid, in ample time, in due course of mail, to reach the office of the collector or deputy collector on or before the last due date, no penalty will be held to attach should the return not be actually received by such officer until subsequent to that date. Art. 53. For false or fraudulent return, or statement, willfully made 288 with intent to defeat or evade assessment of tax.-Penalties are: Ad valorem.-One hundred per cent to be added to the amount of 289 the tax shown by a correct return. (Sec. 16, 3176, R. S.) Specific.-Fine as for misdemeanor, not exceeding $2,000 or im- 290 prisonment not exceeding one year or both, in the discretion of the court, with the costs of prosecution. (Sec. 18.) REASONABLE CAUSE. Art. 54. Section 3176, Revised Statutes, as amended by act of 291 September 8, 1916, provides that if after delinquency has ensued and before receiving a notice from the collector of internal revenue, of such delinquency and request for a return, the delinquent individual 292 293 or corporation shall have filed with the collector of internal revenue a return and shall accompany such return with a showing "that the failure to file it (in time) was due to a reasonable cause and not to willful neglect, no such addition shall be made to the tax." "Reasonable cause," for the purpose of this article of the regula tions, is held to be such a condition of fact as had the taxpayer in default exercised ordinary business care and prudence it would have been impracticable or impossible for him to have filed return on the prescribed time. NOTICE. What constitutes.-The "notice from the collector" provided for in subsection 3176 of section 16 of the act of September 8, 1916, is the "note or memorandum addressed to such person requiring him or her to render to such collector or deputy collector the list or return required by law within 10 days from the date of such note or memorandum, verified by oath or affirmation," prescribed by subsection 3173 of said section 16 of the act of September 8, 1916. 294 Delinquent returns must be accompanied by an affirmative showing of fact alleged as reasonable cause for excuse from 50 per cent penalty. The Commissioner of Internal Revenue will pass upon the validity of the showing. The showing must be in the form of an affidavit, under oath, and should be attached to the return. The penalty of 50 per cent “addition to tax" will be asserted in all cases where the showing made is not approved by the Commissioner of Internal Revenue. 295 The specific penalty, subject to the authority of the Commissioner of Internal Revenue to entertain offers in compromise, is fixed at not less than $20 nor more than $1,000, and is asserted for refusal or neglect to pay tax, to make a return, or supply information required under the income-tax law and at the time required, and is to be asserted independently of the penalty by way of "addition to the tax." 296 The limitation of penalty for refusal or neglect by section 18 of the act of September 8, 1916, as amended, to $1,000 is enlarged as to corporations by section 14 (c) of the act of September 8, 1916, which places the limitation of amount of penalty for delinquency or fraud of and by corporations at $10,000, so that as to corporations the penalty for delinquency or fraud is not less than $20 nor more than $10,000, and each officer of the corporation required by law to make, render, sign, or verify any return who makes any false or fraudulent return or statement with intent to evade or defeat the assessment of tax, will, in addition to and apart from the corporation, be subject to prosecution, and on conviction to fine not exceeding $2,000 and imprisonment not exceeding one year, or both, in the discretion of the court, with the costs of prosecution. Mutual insurance companies, other than mutual life and mutual marine, Assessment life and accident companies; stock fire insurance companies; stock casualty, fidelity, and surety insurance companies; miscellaneous stock companies, articles 245–246. 122 Preparation of claims for credit for taxes and penalties uncollectible, 123 Taxes in litigation, articles 250–256. . 124 Preparation of claims for the abatement of taxes and penalties under 125 Filing of a claim for abatement does not operate as a delay of collection, 127 Penalty of 5 per cent and interest at the rate of 1 per cent a month, articles 128 Duplicate charges, article 264.. 128 Preparation of claims for refunding taxes and penalties, form 46, articles 129 Payment of claims allowed, article 267. 129 Deductions of amounts due by claimants, etc., articles 268-273; statutes of 130 Claims for sums recovered by suit, articles 274-275.. 132 297 298 299 300 CORPORATIONS SUBJECT TO TAX. Art. 55. Domestic corporations tax under act of September 8, 1916.Under the provisions of Parts II and III of Title I of the act of September 8, 1916, as amended, every corporation, joint-stock. company or association or insurance company organized in the United States, no matter how created or organized, except those specifically exempt under section 11 of this title, shall be subject to pay annually an income tax of 2 per cent upon the entire net income received during the preceding calendar or fiscal year, as the case may be. Art. 56. War income tax under act of October 3, 1917.-Under Title I of the act of October 3, 1917, an additional tax of 4 per cent, known as the war income tax, is similarly imposed on the net income of such corporations, except that for the purpose of the assessment of the additional 4 per cent tax the net income of such corporations shall be credited with the amount of dividends received from other corporations subject to tax under Title I of the act of September 8, 1916, as amended, and the act of October 3, 1917. DEFINITIONS. Art. 57. Corporations defined." Corporation" or "corporations," as used in these regulations, shall be construed to include all corporations, joint-stock companies and associations, and all insurance companies coming within the terms of the law, as well as all business trusts organized or created for the purpose of engaging in commercial or industrial enterprises, the capital of which is evidenced by certificates or shares of interest issued or issuable to members on the basis of which profits are distributed or distributable. Such organizations will be hereinafter referred to as corporations. Art. 58. Joint-stock companies and associations defined. The term "joint-stock companies " or " associations" shall include associations, common-law trusts, or organizations by whatever name known which carry on or do business in an organized capacity, whether created under and pursuant to State laws, trust agreements, declarations of trust, or otherwise, the net income of which, if any, is distributed or distributable among the members or shareholders on the basis of the capital stock which each holds, or, where there is no capital stock, on the basis of the proportionate share or capital which each has, or has invested, in the business or property of the organization, all of which joint-stock companies or associations shall in their organized capacity be subject to the tax imposed by this act, and shall make returns of annual net income accordingly. Art. 59. The terms "taxable year" or "taxable period" as and 301 when used in these regulations shall mean the calendar or duly established fiscal year or period for which the return is made or is required to be made. The term "this title " when used in these regulations means Title I 302 of the act of September 8, 1916, as amended by the act of October 3, 1917. Art. 60. Incomplete corporations.-Corporations which have applied 303 for but have never received charters and corporations which have received charters but never perfected their organizations and which as entities have transacted no business and had no income whatever from any source may, upon presentation of the facts to the collector, be relieved from the necessity of making returns, so long as they remain in this unorganized condition. In the absence of a showing to this effect to the collector of internal revenue, such companies will be required to make returns and will be liable to the penalties of the law for failure to do so. Art. 61. Corporation dissolved prior to October 4, 1917.-A corpora- £04 tion which was dissolved in 1917, prior to passage of the war-revenue act of October 3, 1917, is subject to tax under the act of September 8, 1916, as amended, and also to the war income tax and the war excess profits tax imposed by the act of October 3, 1917 (Brady et al. v. Anderson, 240 Fed., 665). A corporation so situated will make a return on revised form 1031, covering the period in 1917 during which it was in business prior to its dissolution. If it shall have previously made a return covering this period and shall have paid any excess profits tax under the act of March 3, 1917, it shall be entitled to credit for the amount of such tax so paid against any excess profits tax assessable against it under Title II of the act of October 3, 1917. Art. 62. Limited partnerships.—Limited partnerships—that is, part- 305 nerships having one or more special partners who may share in the profits of the firm but whose liability for the debts of the company 23272°-18- 4 |