713 715 799 810 841 893 909 940 1026 1063 The Sixteenth Amendment adopted February 25, 1913, reads as follows: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration." Even before this definite acquisition of authority to levy an income tax without apportionment, Congress had passed the corporate excise tax of 1909. The evolution of the present statute dates from that act. The series of laws includes the revenue acts of 1913, 1916, 1917, 1918, 1921, 1924 and 1926. An historical sketch of this development, including a description of the main features of the successive revenue acts will be found in Income Tax Procedure, 1926, pages 7-23. The tax is imposed upon "net income," a sum determined by subtracting certain deductions, minutely described in the law, from "gross income," a term which also has a definite legal meaning. The surtax, which commences at an amount in excess of $10,000, is based upon the total net income as thus established. To determine the basis for the normal tax of an individual, there are certain deductions (called "credits") from the net income for dividends, interest on Liberty bonds, etc., the personal exemption, and the exemption for dependents. The gross income of corporations includes the same items as for individuals, but there are differences in the deductions, particularly those having to do with losses and donations. Dividends are deducted from gross income in arriving at the net income of corporations, but are considered as credits (for normal tax only) against the net income of individuals. Moreover, there are certain special subtractions from corporate incomes which are allowed under the title of "credits." (See Chapter 6.) The net income of corporations less such credits is taxed at a flat rate. The various types of taxable income included under the provisions of section 213, and the allowable deductions permitted by sections 214 and 234, are discussed in detail in the chapters which constitute Parts II and III of this book. Exemptions are treated in Chapter 12. The problems of the special classes of taxpayers, such as non-resident aliens, fiduciaries, etc., are presented in Part IV. The law states that the tax shall be imposed upon the net income "of every individual" and "of every corporation." (See sections 210 and 230.) Partnerships are not taxed directly as such. The individual partners account for their partnership profits in their personal returns, the partnership submitting a return for information purposes only. The statutory definitions of "person" and "taxpayer" read as follows: LAW. Section 2. The term "person" means an individual, a trust or estate, a partnership or a corporation. . . . . (9) The term "taxpayer" means any person subject to a tax imposed by this Act. These definitions give effect to section 219 under which estates and trusts are considered as taxable entities. Individuals The statute offers no formal definition of the term "individuals." Under certain conditions a minor is recognized as an individual under the law and is required to file returns. (See Chapter 4.) Partnerships The law does not define precisely what organizations shall be considered partnerships. The regulations and rulings of the Treasury also furnish no comprehensive definition, but, following the statutes of the states in which the cases arise, as well as the principles of the general law of partnerships, they do specify certain forms. |