original purchase price certain expenses incident to the purchase, holding and sale of the property in order that its actual cost may be determined. In this respect it should be understood, however, that the Government will now allow any item of expense to be added which the owner of the property has covered by a deduction in a previous return of income. In other words, incidental expenses or carrying charges cannot be added to the original purchase price for the purpose of reducing the amount of gain to be returned for taxation or for the purpose of increasing the amount of loss to be deducted, if such incidental expenses and carrying charges were deducted in returns made for the years in which incurred.

345.-PROPERTY EXCHANGED

WITHOUT CASH VALUATION.

The exchange of property when there is no cash valuation can be regarded as a mere change of assets that need not be accounted for in a return of income. It is only when the exchange is on a cash basis, where a definite valuation is made of the properties exchanged, that there is a closed transaction and a realization of income or loss. When the exchange is not on such a cash basis and the property received in exchange is later sold, the amount of gain or loss must be determined by going back to the cost of the property given in exchange for it.

346.-SALE OF REAL ESTATE

ON INSTALLMENTS.

With respect to accounting for the profit derived from the sale of real estate on the installment plan, the Treasury Department has repeatedly changed its position. The latest ruling is that each payment. when received, should be apportioned between a return of the cost of the property and profit. In other words, the Department takes the position that each installment payment received under the contract represents in part, return of the cost, and in part, profit; and that the profit for a year may be thus ascertained.

Prior to the issuance of the above ruling it was the practice of the Department, where title does not pass until the final installment is paid, to hold that the running installment payments on account of the purchase price are merely cash receipts and do not ordinarily represent income for the year in which received. In other words, the sale was regarded as having been completed when the final installment is

paid and title passes, and then the gain from the transaction can be ascertained and returned as income for the year in which the final installment is paid.

In some cases the dealer has accounted for the gain represented by a transaction of this kind as of the year in which the contract of sale is made and, in the event of the contract becoming void prior to payment of the final installment, has claimed allowance for any loss sustained by default on the part of the vendee and consequent lapse of contract, taking into consideration the recovery of the property.

When an installment payment, monthly, annual or for some other fixed period, represents not only payment on account of the principal of the purchase price, but also interest on deferred payments, the amount of it representing interest should be returned as income for the year in which received.

347.-RETURN CAN BE SWORN TO

BEFORE ARMY AND NAVY OFFICERS.

Persons in the Military or Naval service of the United States, wherever they may be stationed, can sign and swear to their returns of income before officers of the Army or Navy who are authorized to administer oaths for the purpose of Military and Naval justice and administration.

348.-NON-RESIDENT ALIEN

HAS NO EXEMPTION.

A non-resident alien individual is not entitled to the specific exemption allowed a citizen or resident of the United States. He can not claim the benefit of a credit of either $3,000 or $4,000 in making his return of income from sources in the United States.

349.-LIFE INSURANCE IN FAVOR

OF FIRM OR CORPORATION.

One of the income tax amendments carried by the Act of October 3, 1917 is to the effect that premiums paid on life insurance policies covering the lives of officers or employees or members of a corporation or partnership can not be deducted by a corporation in its return of income or by a partnership in computing its net earnings in order that each partner may include his share of such net earnings in his individual return.

CHAPTER XXI

THE INCOME TAX

ASSESSMENT AND PAYMENT
OF INCOME TAX

350.-RETURNS CHECKED BY COLLECTOR.

Returns of income of individuals and corporations and withholding agents having been filed within the time prescribed by law (on or before March 1 or within 60 days after the close of a corporation's fiscal year) they are checked by the deputies and clerks in the office of the Collector. In other words, the first audit is in the office of the Collector. The returns which pass this audit are listed on assessment lists and forwarded to the Commissioner of Internal Revenue at Washington, D. C. The returns which do not pass this audit are returned to the taxpayer for correction, and, when so returned, should be accompanied by specific instructions and reasons for the change demanded by the Collector. When again sent to the Collector, the amended or corrected return is listed for assessment and sent to Washington.

351. SENT TO WASHINGTON.

A Collector retains in his office only a partial card record contain ing only a few of the facts disclosed by a return of income. All returns remain permanently in the office of the Commissioner of Internal Revenue at Washington. It is not possible, therefore, for a Collector to comply with a request for a copy of a return after the return has been forwarded to Washington. Such request should be made directly to the Commissioner at Washington and will be complied with only when made by the taxpayer (individual or corporation) or the taxpayer's duly authorized attorney or representative.

352.-ASSESSED BY COMMISSIONER.

The tax is assessed by the Commissioner and the assessment list is returned to the office of the Collector. The Collector then issues to each taxpayer a notice of assessment.

353. TIME OF NOTIFICATION.

The law requires that each taxpayer receive notice of the amount of tax due on or before the first day of June (that is, on or before June 1, 1918 for tax due on income for the year 1917, and so on in subsequent years) or, in the case of a corporation filing return on the basis of a fiscal year, on or before the expiration of 90 days from the date when the return is required to be filed. (As the return in such a case must be filed within 60 days after the close of the fiscal year, it follows that notice of tax due, must be given the corporation not later than 150 days after the close of the fiscal year.)

However, as the filing of returns begins immediately after January 1 and as such returns are sent to Washington for assessment and received back as rapidly as they can be handled, notice of amount of tax due may reach the taxpayer long before June 1 or the expiration of 150 days after the close of a fiscal year. Payment need not be made, however, at the time of such early receipt of notice. The taxpayer has the right to defer payment for as long a time as the law. allows him-which time is stated in the notice.

354.-TIME OF PAYMENT.

The law requires that the tax be paid on or before June 15, in the case of returns regularly filed for the preceding calendar year.

With respect to the return filed by a corporation upon the basis of its own fiscal year, the law requires that the tax be paid within 105 days after the date on which the return is required to be filed. As a return in such circumstances must be filed not later than 60 days after the close of the fiscal year, it follows that the tax must be paid not later than 165 days after the close of the fiscal year.

When additional assessment is made by the Commissioner of Internal Revenue as a result of a subsequent investigation of a return, the Collector issues a peremptory ten-day demand for payment of the

tax.

355. WHEN DELINQUENT.

But the penalty for delinquency in payment does not attach the next day after June 15 or the next day after the end of the 165-day period following the close of a corporation's fiscal year.

To any individual or corporation whose tax has not been paid on June 16, or on the 166th day after the close of a corporation's fiscal year, the Collector issues a peremptory demand for payment within 10 days.

If the tax is not paid within 10 days of the date of this notice, the penalty for delinquency attaches, but not before.

356. PENALTY FOR DELINQUENCY.

The penalty for delinquency in payment is 5 per cent of the amount of tax assessed and interest at the rate of one per cent a month until payment is made.

357.-CAN ENFORCE COLLECTION.

But the Collector is not obliged to await the pleasure of any taxpayer who may choose to let the 5 per cent be added and the interest charges accumulate. If the tax is not paid within 10 days of the date of his first peremptory notice, he is supposed to issue a second 10-day notice and, when the time given in such second notice has expired, he has the authority to issue a Warrant of Distraint and by such warrant direct a deputy collector to seize and sell sufficient property to satisfy the Government's claim. The Collector is given full power in this respect by the Revised Statutes of the United States. He does not have to go into court to seize and dispose of property.

358.-NOTICE BY MAIL LEGAL.

Assessment notices are mailed by the Collector, and such method of notification has been held to be legal and the notice, when so given, is presumed to have reached the taxpayer. The burden is on the taxpayer to prove the contrary to avoid imposition of the penalty for delinquency, according to the Court in the case of United States v. General Inspection & Loading Company (204 Fed. 657.)

359.-NO PENALTY FOR ESTATES OF INSANE,

DECEASED OR INSOLVENT.

The penalty for delinquency in payment does not attach, however, to tax due from the estates of insane, deceased or insolvent persons. If a person has regularly filed a return and after having filed such return but before the required date of tax payment has become insane or insolvent or has died, payment of the tax assessed upon the return filed does not become delinquent as in the case of other taxpayers. The Government collects, if possible, but only the amount of the tax assessed.