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to the dividends from a foreign corporation received by a domestic corporation where the stock of the former is controlled by the latter. No consolidated return can be made, but credits on account of foreign taxes paid by the foreign corporation could be taken under both the 1918 and 1921 acts.

Income and war profits taxes paid to a foreign country by a citizen of the United States residing in such foreign country on income from sources within the United States cannot be treated as a credit for taxes but as a deduction from gross income (O. D. 317). The amount of income, war profits, and excess profit taxes paid to the Canadian Government is a credit against the income tax liability to the United States Government (O. D. 393). Any taxes on income paid by a citizen to a foreign country on income from sources therein is an allowable credit against taxes or income due to the United States, if his books are kept on the cash basis; if on the accrual basis, only that portion accruing within within the taxable year (0.987). The Cuban tax imposed on each bag of sugar produced by a corporation is a production tax and therefore is not a credit against income tax but a deduction from gross income (O. D. 372). The term "foreign country" (in Sec. 238 (a) and 234 (a) (3) of the Revenue Act of 1918) means the composite whole made up of all the subdivisions of a foreign country; therefore, British Columbia is not a "foreign country" and any income taxes paid therein are deductible only from gross income (O. D. 1050). Taxes imposed by a foreign government on dividends paid by corporations under its jurisdiction, are taxes on the income of the stockholders and any United States corporation receiving such dividends may credit its proportionate tax so paid against income tax due the United States. If the foreign tax is levied on the income of the corporation itself, no part of the tax is properly a credit (O. D. 147; 232). A foreign corporation, ontrolled by a domestic corporation, must have actually paid wuring the year the income taxes for which credit is to be taken by the domestic corporation (T. B. R. 36). A domestic corporation keeping its books on the accrual basis and deriving its entire income from operations in Cuba, may file on Form 1118 a "claim for credit" on taxes on income accruing to the Cuban Government (O. D. 406). Where credit is claimed by an American bank for the amount of taxes withheld from the interest on bank deposits and paid to a foreign country by a foreign bank, there should be attached to and filed with Form 1118, an affidavit

from the foreign withholding agent (O. D. 671). An income tax which really was a tax on expenditures, levied by a foreign country, could not be credited (I. T. 1444).

FISCAL AND PARTIAL YEARS

Fiscal years ending in 1923 and 1924 offer no difficulties because the tax rate has not changed. Where rates have differed, the general rules are: the excess profits tax, surtax, and normal taxes are computed twice in each case, assuming for the sake of the computation, that the 12 months' income falls entirely within each calendar year. The ratio of the number of months actually falling within each year to 12 is then applied to the respective computations (Art. 951-5).

Returns for a fractional year arise from various causes, such as death, discharge of executor or administrator, change from calendar to fiscal year, or vice versa, and the formation of a corporation. The income for such fractional year should be raised to an annual basis in the case of individuals, corporations, estates and trusts, using the credits applicable and reducing the resulting tax to the fraction of the full year represented by the period in question (Art. 431, 718, 732, 761). A case now pending in the courts (Bankers Trust Company and Pearce v. Bowers) has raised the question of whether the basis described is applicable to decedents and their estates; but the Treasury Department has not yet changed its rule.

XXV

INDIVIDUAL AND CORPORATION RETURNS

Payment of taxes. Extensions granted by collector and by Commissioner. 1923 individual and corporation tax returns illustrated.

UNDER the 1918 and 1921 acts, income taxes are payable in four equal instalments. The return itself is due on the fifteenth day of the third month following the close of the fiscal or calendar year; the first instalment is due on the same date. The remaining instalments are due on the fifteenth day of the sixth, ninth, and twelfth months after the end of the fiscal or calendar year (Sec. 250(a); Art. 401-7, 441, 961-2, 1001-2, 1021).

Extensions are granted when necessary; that is, payment of the first instalment may be deferred until a later date when permission for such deferment is obtained. The local collector is empowered to grant extensions not exceeding 30 days in cases of illness or absence (Sec. 3176, Revised Statutes) where application is made before the due date (Art. 443). The collector may, at his option, require the filing of a tentative return (Forms 1040T and 1031T in 1920, regular forms since 1920 marked "tentative") and a payment of one-fourth of the estimated tax on the original due date (Art. 443). An extension, for the same causes, beyond 30 days, can be granted only by the Commissioner, and direct application may be made to him in the first instance. The Commissioner is empowered to grant extensions not exceeding six months following the original due date of the return. A tentative return, original or revised, may be submitted at the end of that time if the complete facts are not available (Sec. 227(a), 241(a); Art. 444). Interest at 6% per annum is charged on the deficiency of the tax payment from

the original due date of the instalment to the date on which the correct amount is paid (Sec. 250(a); Art. 1001).

A general extension may be granted by the Commissioner on all returns (Sec. 227(a) and 241(a)). In 1920 a general extension of time (until May 15) was allowed corporations for preparing 1919 tax returns. A general extension to June 15, 1923, was allowed all corporations for their 1922 returns. Tentative returns containing incomplete information on Forms 1120 and 1040 have been rendered in the past on the due date or deferred due date of the return without permission from the collector or Commissioner, authority therefor being implied in Articles 443 and 444. The facts of the case must warrant the filing of such tentative returns and the return itself should contain the reasons for the delay in submitting the completed return.

Payment of taxes by Treasury certificates of indebtedness is permitted under the regulations issued by the Commissioner (Art. 1731-2 and T. D. 3510, and so forth). Payment may be made by check or in any other form acceptable to the collector (Art. 1733-4). A receipt may be demanded from the collector (Art. 1021).

The extension of time to individuals abroad was held to include domestic corporations which kept their books of account in a foreign country (O. D. 443). A person abroad taking advantage of the time extension was not required to pay interest on the payment accompanying the return (0.809; T. D. 2844); Article 445, now requires the usual rate of interest where an extension was granted. An extension to the husband assumes the same extension to the wife or vice versa if a joint return was filed (O. D. 521). Under the bankruptcy act taxes due the United States take priority over wages (T. D. 3405) and other taxes due (T. D. 3298) but not over administration expenses of the bankruptcy proceedings (T. D. 3000).

ILLUSTRATIONS OF RETURNS

The following problems illustrate the principal features of the individual and corporate returns for 1923. Figures circled, as on page 229, indicate deductions.

PROBLEM FOR INDIVIDUAL TAX RETURN

Jas. H. Barber, 5873 Winthrop Avenue, Chicago, Illinois, presents the following information with the request that it be incorporated into a tax return for 1923:

1. He is married and has three children, all under 18. His wife, Amelia S., has always filed a separate tax return because her income has consisted exclusively of dividends the total of which is between $3,000 and $5,000 yearly. Under these conditions, of course, she pays no tax.

2. His personal time is devoted to two businesses. The first, Brockway and Barber, manufacturers of clothing, is a partnership from which he receives a cash salary of $25,000 per annum. The partnership files each year informational returns (Form 1065 as well as Forms 1096 and 1099). His distributive portion of the partnership income for 1923, after deducting partners' salaries but before deJ. H. BARBER (SOLE PROPRIETOR)-Statement of Profit and Loss of Calendar Year 1923.

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