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SUIT TO RECOVER TAXES-TIME LIMITATION.

Mail & Newspaper Transportation Co. v. Anderson, Collector.
Circuit Court of Appeals, Second

Circuit, New York. (234 Fed. 590)

TAXABILITY OF PROCEEDS FROM ORE SALES.
Stratton's Independence v. Howbert

U. S. Supreme Court (231 U. S. 399)

TAXABILITY UNDER ACT OF OCT. 3, 1913, OF INCOME RECEIVED BY
NON-RESIDENT ALIENS FROM DOMESTIC STOCKS AND BONDS.
De Ganay v. Lederer, Collector.

U. S. District Court, Eastern District of

Pennsylvania (239 Fed. 568)

TAXABILITY OF INCOME ACCRUED TO PERSON DYING AFTER
MARCH 1, 1913, BUT BEFORE OCTOBER 3, 1913.
Brady et al, executors v. Anderson, Collector.

U. S. District Court, Southern District
of New York.

VALUE OF STOCK AS CARRIED ON BOOKS.
U. S. v. Guggenheim Exploration Co.

U. S. District Court, Southern District
of New York. (238 Fed. 231)

APPENDIX

Containing Text of Laws

[Note: In the text of the Income Tax and Excess Profits Tax laws an arbitrary system of breaking up solid text and numbering lines (in the margin) has been introduced to facilitate reference according to direction of the Index.

When the abbreviation (LL) appears in the Index, the reference is to (Law Line Numbers). For example: (App. p. 2 LL 15), in the Index, means, (Appendix, Page 2, Law Line 15)].

THE INCOME TAX.

Act of September 8, 1916, as amended by

the Act of October 3, 1917.

Part I.-On Individuals

1 Sec. 1. (a) That there shall be levied, assessed, collected, and paid annually upon the entire net income received in the preceding calendar year from all sources

2 by every individual, a citizen or resident of the United States,

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a tax of two per centum upon such income;

and a like tax shall be levied, assessed, collected, and paid annually upon the entire net income received in the preceding calendar year from all sources within the United States by every individual, a non-resident alien, including interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise.

(b) In addition to the income tax imposed by subdivision (a) of this section (herein referred to as the normal tax) there shall be levied, assessed, collected, and paid upon the total net income of every individual, or, in the case of a non-resident alien, the total net income received from all sources within the United States,

7 an additional income tax (herein referred to as the additional tax) of 8 one per centum per annum upon the amount by which such total net income exceeds $20,000 and does not exceed $40,000,

9 two per centum per annum upon the amount by which such total net income exceeds $40,000 and does not exceed $60,000,

10 three per centum per annum upon the amount by which such total net income exceeds $60,000 and does not exceed $80,000,

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four per centum per annum upon the amount by which such total net income exceeds $80,000 and does not exceed $100,000,

five per centum per annum upon the amount by which such total net income exceeds $100,000 and does not exceed $150,000,

six per centum per annum upon the amount by which such total net income exceeds $150,000 and does not exceed $200,000,

seven per centum per annum upon the amount by which such total net income exceeds $200,000 and does not exceed $250,000,

eight per centum per annum upon the amount by which such total net income exceeds $250,000 and does not exceed $300,000,

nine per centum per annum upon the amount by which such total net income exceeds $300,000 and does not exceed $500,000,

ten per centum per annum upon the amount by which such total net income exceeds $500,000 and does not exceed $1,000,000,

eleven per centum per annum upon the amount by which such total net income exceeds $1,000,000 and does not exceed $1,500,000,

twelve per centum per annum upon the amount by which such total net income exceeds $1,500,000 and does not exceed $2,000,000 and

thirteen per centum per annum upon the amount by which such total net income exceeds $2,000,000.

For the purpose of the additional tax there shall be included as income the income derived from dividends on the capital stock or from the net earnings of any corporation, joint-stock company or association, or insurance company,

22 except that in the case of non-resident aliens such income derived from sources without the United States shall not be included.

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All the provisions of this title relating to the normal tax on individuals, so far as they are applicable and are not inconsistent with this subdivision and section three, shall apply to the imposition, levy, assessment, and collection of the additional tax imposed under this subdivision. (c) The foregoing normal and additional tax rates shall apply to the entire net income, except as hereinafter provided, received by every taxable person in the calendar year nineteen hundred and sixteen and in each calendar year thereafter.

Sec. 2. (a) That, subject only to such exemptions and deductions as are hereinafter allowed, the net income of a taxable person shall include gains, profits, and income, derived from

26 salaries, wages, or compensation for personal service of whatever kind and in whatever form paid,

27 or from professions, vocations, businesses, trade, commerce,

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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, also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit,

or gains or profits and income derived from any source whatever.

(b) Income received by estates of deceased persons during the period of administration or settlement of the estate, shall be subject to the normal and additional tax and taxed to their estates, and

also such income of estates or any kind of property held in trust, including such income accumulated in trust for the benefit of unborn or unascertained persons, or persons with contingent interests, and income held for future distribution under the terms of the will or trust shall be likewise taxed,

33 the tax in each instance, except when the income is returned for the purpose of the tax by the beneficiary, to be assessed to the executor, administrator, or trustee, as the case may be:

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Provided, That where the income is to be distributed annually or
regularly between existing heirs or legatees, or beneficiaries the
rate of tax and method of computing the same shall be based in
each case upon the amount of the individual share to be dis-
tributed.

Such trustees, executors, administrators, and other fiduciaries are hereby indemnified against the claims or demands of every beneficiary

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for all payments of taxes which they shall be required to make under the provisions of this title, and they shall have credit for the amount of such payments against the beneficiary or principal in any accounting which they make as such trustees or other fiduciaries.

(c) For the purpose of ascertaining the gain derived from the sale or other disposition of property, real, personal, or mixed, acquired before March first, nineteen hundred and thirteen, the fair market price or value of such property as of March first, nineteen hundred and thirteen, shall be the basis for determining the amount of such gain derived.

Additional Tax Includes Undistributed Profits

Sec. 3. For the purpose of the additional tax, the taxable income of any individual shall include the share to which he would be entitled of the gains and profits, if divided or distributed, whether divided or distributed or not, of all corporations, joint-stock companies or associations, or insurance companies, however created or organized, formed or fraudulently availed of for the purpose of preventing the imposition of such tax through the medium of permitting such gains and profits to accumulate instead of being divided or distributed;

and the fact that any such corporation, joint-stock company or association, or insurance company, is a mere holding company, or that the gains and profits are permitted to accumulate beyond the reasonable needs of the business, shall be prima facie evidence of a fraudulent purpose to escape such tax;

but the fact that the gains and profits are in any case permitted to accumulate and become surplus shall not be construed as evidence of a purpose to escape the said tax in such case unless the Secretary of the Treasury shall certify that in his opinion such accumulation is unreasonable for the purposes of the business.

When requested by the Commissioner of Internal Revenue, or any district collector of internal revenue, such corporation, joint-stock company or association, or insurance company shall forward to him a correct statement of such gains and profits and the names and addresses of the individuals or shareholders who would be entitled to the same if divided or distributed.

Income Exempt from Law

Sec. 4. The following income shall be exempt from the provisions of this title:

The proceeds of life insurance policies paid to individual beneficiaries upon the death of the insured; the amount received by the insured, as a return of premium or premiums paid by him under life insurance, endowment, or annuity contracts, either during the term or at the maturity of the term mentioned in the contract or upon surrender of the contract; the value of property acquired by gift, bequest, devise, or descent (but the income from such property shall be included as income); interest upon the obligations of a State or any political subdivision thereof or upon the obligations of the United States (but, in the case of obligations of the United States issued after September first, nineteen hundred and seventeen, only if and to the extent provided in the act authorizing the issue thereof) or its possessions or securities issued under the provisions of the Federal Farm Loan Act of July seventeenth, nineteen hundred and sixteen;

the compensation of the present President of the United States during the term for which he has been elected

and the judges of the supreme and inferior courts of the United States now in office,

and the compensation of all officers and the employees of a State, or any political subdivision thereof, except when such compensation is paid by the United States Government.

Deductions Allowed

Sec. 5. That in computing net income in the case of a citizen or resident of the United States

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(a) For the purpose of the tax there shall be allowed as deductionsFirst. The necessary expenses actually paid in carrying on any business or trade, not including personal, living, or family expenses;

Second. All interest paid within the year on his indebtedness except on indebtedness incurred for the purchase of obligations or securities the interest upon which is exempt from taxation as income under this title;

Third. Taxes paid within the year imposed by the authority of the United States (except income and excess profits taxes) or of its Territories, or possessions, or any foreign country, or by the authority of any State, county, school district, or municipality, or other taxing subdivision of any State, not including those assessed against local benefits;

Fourth. Losses actually sustained during the year, incurred in his business or trade, or arising from fires, storms, shipwreck, or other casualty, and from theft, when such losses are not compensated for by in surance or otherwise:

Provided, That for the purpose of ascertaining the loss sustained from the sale or other disposition of property, real, personal, or mixed, acquired before March first, nineteen hundred and thirteen, the fair market price or value of such property as of March first, nineteen hundred and thirteen, shall be the basis for determining the amount of such loss sustained;

Fifth. In transactions entered into for profit but not connected with his business or trade, the losses actually sustained therein during the year to an amount not exceeding the profits arising therefrom;

Sixth. Debts due to the taxpayer actually ascertained to be worth less and charged off within the year;

Seventh. A reasonable allowance for the exhaustion, wear and tear of property arising out of its use or employment in the business or trade; Eighth. (a) In the case of oil and gas wells a reasonable allowance for actual reduction in flow and production to be ascertained not by the flush flow, but by the settled production or regular flow;

(b) in the case of mines a reasonable allowance for depletion thereof not to exceed the market value in the mine of the product thereof, which has been mined and sold during the year for which the return and computa tion are made.

such reasonable allowance to be made in the case of both (a) and (b) under rules and regulations to be prescribed by the Secretary of the Treasury:

Provided, That when the allowances authorized in (a) and (b) shall equal the capital originally invested, or in case of purchase made prior to March first, nineteen hundred and thirteen, the fair market value as of that date, no further allowance shall be made. No deduction shall be allowed for any amount paid out for new buildings permanent improvements, or betterments, made to increase the value of any property or estate.

63 and no deduction shall be made for any amount of expense of restoring property or making good the exhaustion thereof for which an allowance is or has been made.

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Ninth. Contributions or gifts actually made within the year to corporations or associations organized and operated exclusively for religious. charitable, scientific, or educational purposes, or to societies for the prevention of cruelty to children or animals, no part of the net income of which inures to the benefit of any private stockholder or individual, to an amount not in excess of fifteen per centum of the taxpayer's taxable net income as computed without the benefit of this paragraph. Such con tributions or gifts shall be allowable as deductions only if verified under rules and regulations prescribed by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury.

Credits Allowed

(b) For the purpose of the normal tax only, the income embraced in a personal return shall be credited with the amount received as divi. dends upon the stock or from the net earnings of any corporation, joint

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