The income tax law imposes upon taxpayers the duty of virtual "self-assessment," but Congress empowers the Commissioner of Internal Revenue to require detailed returns so that there may be a check on taxpayers' methods of computation.

Commissioner may require any returns "necessary."-The law grants to the Commissioner the broad and inclusive power to require any returns which he may consider necessary.

LAW. Section 1102. (a) Every person liable to any tax imposed by this Act, or for the collection thereof, shall keep such records, render under oath such statements, make such returns, and comply with such rules and regulations, as the Commissioner, with the approval of the Secretary, may from time to time prescribe.

(b) Whenever in the judgment of the Commissioner necessary he may require any person, by notice served upon him, to make a return, render under oath such statements, or keep such records as the Commissioner deems sufficient to show whether or not such person is liable to tax. . . . .

Section 1101.

The Commissioner, with the approval of the Secre

tary, shall prescribe and publish all needful rules and regulations for the enforcement of this Act.

Under the authority thus granted, the Treasury requires various special returns which give details regarding complicated calculations, such as those involved in ascertaining depletion allowances, etc.1

REGULATION. every person subject to tax carrying on the business of producing, manufacturing, purchasing, or selling any commodities or merchandise, except the business of growing and selling products of the soil, shall for the purpose of determining the amount of income which may be subject to the tax keep such permanent books of account or records, including inventories, as are necessary to establish the amount of his gross income and the deductions, credits, and other information required to be shown in an income tax return. (Art. 1321.)

The specific exception of farmers is difficult to justify.

Section 1114 (a) of the law provides a penalty not exceeding $10,000 and/or imprisonment for not more than a year, for the willful failure to keep such records as may be required by law or regulations.

Who shall make returns?-An individual must make a return: 1. If single, or if married and not living with husband or wife,2 when his or her net income is $1,500 or more, or his or her gross income $5,000 or more;

2. If married and living with husband or wife, when his or her net income is $3,500 or more, or his or her gross income $5,000 or more.

A single person qualifying as a head of a family is considered a single person whose rule is stated under (1) above. A minor is treated as any other individual, except that the earnings (as distinguished from income from property) of an unemancipated minor are to be included in the gross income of his parent. See Chapter 4.

REGULATION. A husband and wife living together for a period which is less than the entire taxable year must make a return or returns if their aggregate gross income for the taxable year is $5,000 or more, or their aggregate net income is equal to, or in excess of, the credit allowed them by section 216 (f) (2).3· (Art. 401.)

1 Form O revised (oil and gas), form D (minerals), form E (coal), form F (non-metals), form T (timber).

2 For cases of changes in marital status, see Chapter 6. Fiduciaries must make returns for individuals, trusts or estates for which they act. See Chapter 43. For returns of nonresident aliens, see Chapter 41.

See Chapter 6.

Every partnership and every corporation (not specifically exempt), whether it has any net income or not, is required to file an annual return. Partnerships as such are not taxable upon any net income so reported, but the returns must nevertheless be made.

PERSONS LIABLE TO TAX.

REGULATIONS. The statute recognizes four classes of persons-individuals, trusts and estates, partnerships, and corporations. Corporations include associations, joint-stock companies, and insurance companies, but not partnerships properly so called. A taxpayer is any person subject to a tax imposed by the Act. (Art. 1501.)

In general, citizens of the United States, wherever resident, are liable to the tax and it makes no difference that they may own no assets within the United States and may receive no income from sources within the United States. Every resident alien individual is liable to the tax, even though his income is wholly from sources outside the United States. Every nonresident alien individual is liable to the tax on his income from sources within the United States. . . . . Estates and trusts are also subject to the tax. . . (Art. 3.)

CITIZEN DEFINED.—

REGULATION. Every person born or naturalized in the United States, and subject to its jurisdiction, is a citizen. When any naturalized citizen has left the United States and resided for two years in the foreign country from which he came, or for five years in any other foreign country, it is presumed that he has ceased to be an American citizen. This presumption does not apply, however, to residence abroad while the United States was at war, nor does it apply in the case of individuals born in the United States subject to its jurisdiction. For example, if a Swede, after being naturalized in the United States, returned to Sweden and resided there for two years prior to April 6, 1917, he is presumed once more to be an alien. However, even though an individual born in the United States, subject to its jurisdiction, of either citizen or alien parents, resided in a foreign country for a number of years, he would still be a citizen of the United States, unless he had become naturalized in or taken an oath of allegiance to the foreign country of residence or some other foreign state. A foreigner who has filed his declaration of intention of becoming a citizen of the United States but who has not yet received his final citizenship papers is an alien. . . . . (Art. 4.)

Time for filing returns.-The following section applies to the annual returns from both individuals and corporations.8

7

For definition of the term "corporation," see page 10.

5 The law (section 239) states the requirement positively rather than negatively. Exempt corporations must establish their right to exemption. See Chapter 2.

8

For extension of time, see page 44.

For returns of nonresident aliens, see Chapter 41.

See section 241 (a). For foreign corporations, see Chapter 41.

LAW. Section 227. (a) Returns (except in the case of nonresident aliens) shall be made on or before the fifteenth day of the third month following the close of the fiscal year, or, if the return is made on the basis of the calendar year, then the return shall be made on or before the 15th day of March...

CORPORATIONS WITH FISCAL YEARS ENDING IN 1925.

RULING. Any corporation which has filed a return for a fiscal year ending in 1925 and paid or become liable for a tax computed under the Revenue Act of 1924, and is subject to additional tax for the same period under the Revenue Act of 1926, must file a new return covering such additional tax on or before May 15, 1926. Payment of the additional tax may be made at the time the return is filed or, if installment payments are desired, such installments must be paid at the time they would be due if based upon a return for the fiscal year ended February 28, 1926. (V-152692; T. D. 3843.)

This ruling was necessitated by the fact that the 1926 law (affecting 1925 returns). did not become law until February 26, 1926. It will be noted that a new return was called for only in those cases where it would result in the showing of additional tax.

DUE DATE.

REGULATION. The due date is the date on or before which a return is required to be filed in accordance with the provisions of the statute or the last day of the period covered by an extension of time granted by the Commissioner or a collector. When the due date falls on Sunday or a legal holiday, the due date for filing returns will be the day following such Sunday or legal holiday. . . . . (Art. 445.)

...

Due date of RETURNS WHEN ACCOUNTING PERIOD IS CHANGED.—

The due date of a separate return, when a taxpayer changes his accounting period with the approval of the Commissioner, is the fifteenth day of the third month following the close of the new taxable period. (See Art. 26, page 54.)

FILING DATE IN CASES OF LIQUIDATION.

REGULATION. A corporation going into liquidation during any taxable year may upon the completion of such liquidation prepare a return covering its income for the fractional part of the year during which it was engaged in business and may immediately file such return with the collector. . . . . (Art. 651). (See C. B. 3, 286; O. D. 692.)

Although a liquidating corporation may be a subsidiary of a holding company, the regulations permit the filing of a return immediately after liquidation; but if for the purposes of a consolidated return it is desirable to wait until the end of its fiscal year, this may be done. The regulation is permissive, not mandatory.

If a return is made for a portion of a taxable year (see Chapter 6), the exemptions must be reduced.9 Since this results in a larger tax, it is advantageous to wait until the close of the year.

RETURNS OF ANCILLARY EXECUTORS OF NONRESIDENT ESTATES.The domiciliary executor and all the beneficiaries of the estate of a nonresident alien were also nonresident aliens. The ancillary executor was a resident alien. It was held that the return for the estate was not required to be filed until June 15, the due date for nonresident returns. (C. B. IV-2, 68; I. T. 2241.)

Extensions of time for filing returns.—In the case of both individuals and corporations:

LAW. Section 227. (a) The Commissioner may grant a reasonable extension of time for filing returns, under such rules and regulations as he shall prescribe with the approval of the Secretary. Except in the case of taxpayers who are abroad, no such extension shall be for more than six months.

....

Under the new law application for an extension of time need not necessarily (though it is desirable) be made prior to the due date of the return, and the Commissioner is empowered to grant general extensions not exceeding six months.

REGULATION. It is important that the taxpayer render on or before the due date a return as complete and final as it is possible for him to prepare. However, the Commisioner is authorized to grant a reasonable extension of time for filing returns under such rules and regulations as he shall prescribe with the approval of the Secretary. Accordingly, authority for granting extensions of time for filing income tax returns is hereby delegated to the various collectors of internal revenue. Applications for extensions of time for filing income tax returns should be addressed to the collector of internal revenue for the district in which the taxpayer files his returns and must contain a full recital of the causes for the delay. Except in the case of taxpayers who are abroad, no extension for filing income tax returns may be granted for more than six months. (Art 443.)

EXTENSIONS OF TIME FOR JOINT RETURN.

RULING. Where a husband and wife file a joint return and an extension of time has been granted to either of them, the benefit of the extension inures to both and it will be unnecessary for the other party to secure additional authority. (C. B. 2, 203; O. D. 521.)

In contradistinction, where a husband and wife exercise their

See Chapter 6 as to the $2,000 exemption where income for portion of year is less than $25,000.