1 ,, CHAPTER III THE INCOME TAX OLD LAW-ACT OF SEPT. 8, 1916 TAX ON INDIVIDUAL INCOME 7.-WHO ARE LIABLE. There are three classes of individuals liable to income tax. (b) An alien residing in the United States is under exactly (c) An alien who does not reside in the United States, but 8. NO RELIEF FROM TAX. No person, liable under the income-tax law of the United States can claim exemption from tax by reason of payment of an income tax in another country. This ruling applies to both citizens of the United States and aliens, resident and non-resident. It also follows that liability to the federal income tax is in no way affected by payment of an income tax imposed by any state. 9.-PARTNERS ONLY AS INDIVIDUALS. Members of partnerships are liable for income tax only in their individual capacity. Each is required to take into account his share of the earnings of the partnership in which he is interested in determining the question of his own individual liability. This question will be gone into fully, however, under the heading of “Partnerships." 10.-RATES OF TAX-ACT OF SEPT. 8, 1916. The income tax, in the aggregate, consists of a tax levied at a flat rate upon entire net income, known as the Normal tax, and a tax levied on total net income, according to an ascending scale of assessment, when net income is in excess of $20,000 for the taxable year— known as the Additional Tax. Note-Often this additional tax is referred to as the "sur-tax" or "super-tax." In any event the meaning of the prefix should be obvious. 11.-NORMAL TAX RATE-ACT OF SEPT. 8, 1916. The Normal Tax rate is 2 per cent. 12.—ADDITIONAL TAX RATES-ACT OF SEPT. 8, 1916. The Additional tax rate is imposed according to the following scale : 1 per cent upon the amount by which total net income exceeds $20,000 and does not exceed $40,000, 2 per cent upon the amount by which total net income exceeds $40,000 and does not exceed $60,000, 3 per cent upon the amount by which total net income exceeds $60,000 and does not exceed $80,000, 4 per cent upon the amount by which total net income exceeds $80,000 and does not exceed $100,000. 5 per cent upon the amount by which total net income exceeds $100,000 and does not exceed $150,000, 6 per cent upon the amount by which total net income exceeds $150,000 and does not exceed $200,000, 7 per cent upon the amount by which total net income exceeds $200,000 and does not exceed $250,000, 8 per cent upon the amount by which total net income exceeds $250,000 and does not exceed $300,000, 9 per cent upon the amount by which total net income exceeds $300,000 and does not exceed $500,000, 10 per cent upon the amount by which total net income exceeds $500,000 and does not exceed $1,000,000, 11 per cent upon the amount by which total net income exceeds $1,000,000 and does not exceed $1,500,000, 12 per cent upon the amount by which total net income exceeds $1,500,000 and does not exceed $2,000,000, 13 per cent upon the amount by which total net income ex ceeds $2,000,000. CHAPTER IV THE INCOME TAX INCOME SUBJECT TO TAX INDIVIDUALS 13.-INCOME FROM ALL SOURCES. The statute makes entire net income, from all sources during the taxable year (which, in the case of individuals, is the calendar year) taxable with respect to the liability of citizens and resident aliens, and entire net income received from all sources within the United States, with respect to the liability of non-resident aliens. At the same time, however, the statute specifically exempts from tax, and even from the computation for tax, income from certain sources. But, in the main, all net income is taxable, provided it is received. by the individual in sufficient quantity to exceed the exemption allowed every person. The exceptions will be taken up later. According to the law the net income of a taxable person shall include gains, profits and income derived from (a) salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, (b) 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, (c) also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, (d) or gains, or profits and income derived from any source what ever. It is obvious from the above that Congress intended to close every possible avenue of escape from tax liability. The language of the law is so comprehensive and sweeping that no other conclusion can be drawn. Naturally, then the rulings of the Treasury Department, opinions of the Attorney-General and decisions of the United 'States Courts show little patience with technicalities but insist that the fundamental purpose of the law be faithfully followed by submission to taxation of all net income except that from the few sources specifically exempted . And, yet, innumerable problems have arisen and many finely drawn decisions have had to be issued. Close distinctions between income and capital transactions have had to be made. 14.-ONLY INCOME "RECEIVED." Under the first income tax law (Act of October 3, 1913) income "accrued", as well as income “received,” had to be included in a return and became subject to tax. This requirement gave rise to a great deal of confusion and inexcusable inequity. With such a provision in the statute it was impossible to administer the act fairly. But this condition was remedied by the Act of September 8, 1916 and only income “received" now need be included in a return for a particular taxable year. 15.-PROFESSIONAL FEES AND SALARIES. It is a matter of quite common occurrence that compensation for personal service is not paid within the year during which it is earned, that is within the calendar year for which the individual is required to file a return. For instance, service rendered during the year 1916 may not have been paid for until sometime in the year 1917. At first the Government requirement was that the individual, in filing return for the year during which the service was rendered include in the return for that year the charge for the service, even though payment had not been made. Now, however, the person in receipt of compensation for personal service, in making return of income accounts for only the amounts received during the year. A salary or fee, earned in 1917, but not paid until sometime in 1918, need not be accounted for in the return for 1917, but can. be included in the return for 1918. Such is the present ruling of the Treasury Department, and it is especially applicable to the accounting difficulties of lawyers, physicians and engineers, as well as to any salaried person in receipt of a bonus, in addition to his salary, such bonus. being generally determinable only after the close of the year in which earned. |