received by the Lake Shore & Michigan Southern Railway Company through one intermediate corporation, from the Philadelphia & Reading Railway Company, will pay the income tax of one per cent three times. And the money received by the Reading Company, from the Philadelphia & Reading Railway Company, will pay the income tax of one per cent twice. And the money received as net earnings by the Philadelphia & Reading Railway Company, but kept in its treasury instead of being transferred to the Reading Company, will pay the income tax of one per cent once.

The system of multiple corporate taxation, which will result from the income tax law, will be applied to each of the more than one thousand holding companies, which own all or nearly all of the stock of more than eight thousand subordinate corporations; and will also be applied, in turn, to each of those subordinate corporations; and again in turn to their subordinate corporations, from degree to degree of subordination, including the operating corporations which underlie them all.

Such a holding company is like the trunk of a tree, which sucks its sap from the remote ends of its rootlets, through its numerous roots and subroots. And the operation of the income tax, upon such a combination of corporations, is similar to what would occur, if all the sap transmitted from each rootlet of a tree, had to be taxed one per cent. of its volume, every time it passes from that rootlet, to a larger, and to a still larger root, upward on its way to the trunk of the tree.

The largest holding company, is the United States Steel Corporation, which has approximately one hundred subordinate corporations, of varying degrees of subordination. Assuming that the net income which will reach that holding company from its subordinate corpo

rations, will amount to $100,000,000, for the fiscal year ending June 30, 1914, that corporation will itself pay an income tax of $1,000,000 on that net income. But the larger amount of money which will have constituted the aggregate net incomes of its operating subordinate corporations, will have paid an income tax of one per cent. out of the treasuries of those corporations. And what will have been thereupon left of those original net incomes, will also be taxed one per cent. as often, and to whatever extent it passes upward, through the treasury of an intermediate corporation, to the treasury of the United States Steel Corporation itself.

This plan of multiple corporate taxation is not described or even mentioned in the income tax law. But it is a logical and inevitable part of that law, from which none of the more than a thousand holding companies, and their more than eight thousand subordinate corporations, can escape, except by severing the bonds which respectively hold them together.

Congress and the President, did not establish this part of the income tax law, inadvertently. They knew what they were doing. They did it as a means of checking those violations of the Sherman Law, which those holding companies and their subordinate corporations, have been doing throughout many money-making years, and which have been too numerous and too extensive to be heretofore prevented or even much diminished, by the Sherman Law itself.

CHAPTER III.

INCOME TAX RETURNS.

SECTION 1.

PERSONAL INCOME TAX RETURNS.

The statute provides that each person of "lawful age", who has received a taxable annual income of $3,000 or more, during the last preceding calendar year, shall on or before March 1, 1914, and also on or before March 1, in each year thereafter, make, under oath or affirmation, a true and accurate return" to the collector of internal revenue, for the district in which such taxable person resides or has his principal place of business; or in the case of a person residing in a foreign country, to the collector for the district in which his principal business is carried on in the United States; which true and accurate return, must set forth specifically the separate items which constitute his "personal gross income" for that calendar year; and also the total amount of those items; and also the items and the amounts, of such of the deductions which are specified in Section 2, or Section 3, of Chapter 1, of this pamphlet, as are justified by the facts of his case.

Where the income of a person under "lawful age", or subject to other legal disability, is in the custody or control and management of some person or corporation acting in a fiduciary capacity for that person; it is the duty of the party so acting, to make and render a true and accurate return of the income of that person, if his "personal taxable income" amounts to $3,000 or more; which return must have all the characteristics that are specified in the first paragraph of this section, relevant

to a return made by a person of "lawful age" for himself. And where the income of a particular person under legal disability, is in the custody and control and management of two or more fiduciary parties jointly, any one of those parties may act alone, in making the required return for that person.

When any particular person knows, that if he were to make a true and accurate return to the collector of internal revenue, for himself or for any person under legal disability, that return would show that the person making it, or the person on whose behalf it would be made, had no "personal taxable income," during the last preceding calendar year, after all proper deductions, including $3,000, would be subtracted from his "personal gross income"; no return whatever is required by the statute to be made to the collector of internal revenue in that

case.

When the collector of internal revenue, or any deputy collector, has reason to believe that the personal taxable income which is specified in any return, is understated therein, he will give due notice to the person making that return, to show cause why the amount of that taxable income should not be increased; and upon the acquirement of proof of the extent of any understatement, the collector or deputy collector may increase that taxable income to that extent. From such an increase, the person making the return, may appeal to the Commissioner of Internal Revenue; and the Commissioner will decide the appeal, upon all the papers which were before the collector of internal revenue, and upon whatever sworn testimony of witnesses the appellant may submit to the Commissioner.

SECTION 2.

CORPORATE INCOME TAX RETURNS.

The statute provides that any corporation, joint stock company, association, or insurance company, which is subject to the income tax law, may make its income tax returns for successive calendar years, or for its chosen fiscal years, at its option; and that, if it chooses to go by calendar years, it shall make its "true and accurate return", on or before the first day of March of each year, for the preceding calendar year; and that if it chooses to go by fiscal years, it shall make its "true and accurate return" within sixty days after the close of each fiscal year, for that fiscal year.

The statute also provides that the "true and accurate return" of each corporation, joint stock company, association or insurance company, shall be made under the oath or affirmation of its president, vice-president or other principal officer, and its treasurer or assistant treasurer; to the collector of internal revenue for the district in which that organization has its principal place of business; and that every such "true and accurate return" shall state the following facts relevant to the business of the organization making it:

FIRST: The total amount of its paid up capital stock outstanding; or if it has no capital stock, its capital employed in business at the close of the year covered by the report.

SECOND: The total amount of its bonded and other indebtedness, at the close of the year covered by the report.

THIRD: In the case of an American organization, the gross amount of its income, received from all sources during the year covered by the report; and in the case