ACCOUNTING PRINCIPLES UNDERLYING

FEDERAL INCOME TAXES

1924

PART I

INTRODUCTION-METHODS OF ACCOUNTING

I

TAXATION-INCOME TAX LEGISLATION

Taxation in general. Survey of Federal income tax acts prior to 1918. Some defects of earlier acts. Revenue acts of 1918 and 1921. Significance of March 1, 1913, and other dates. Administration of the law. Rulings issued by the Department. License to practice. Forms of returns in common use. Suggested method of studying Federal income taxes.

TAXES are assessments levied by government upon persons and property for the use of government. In ancient times regular levies were not resorted to, and in most instances the property owned by the state or ruler brought in sufficient rent or other returns and made taxes unnecessary. Fines, confiscation of property, compensation for crime, and payments of exemption from military service constituted important sources of revenue. The earlier taxes were most severe where religious worship was supported through forced contributions. Reviewing the various kinds of taxation one will find in the time of the theocracy among the Hebrews a capitation tax on every male, a tribute of their first fruits and the first-born of their domestic animals, a redemption tax on first-borns of families, and tithes for the upkeep of the tabernacle and for the benefit of the poor. Greece levied no direct taxes, but secured revenue from lands, fines, confiscations, royalties based on a percentage of the products of the mines, capitation taxes, customs dues on imports, and excise dues and licenses on markets. In Rome, the spoils of conquered nations and the annual tributes exacted from them accounted for a large part of the revenue; other sources were tolls, taxes on corn, legacy and hereditary duties, and sums exacted for the privilege of being a Roman citizen. During the middle ages, under federal institutions, there was no

system of taxation. The kings were maintained by the products of their land; in case of war, their vassals, the barons and knights, were under obligation to furnish their quota of men-at-arms equipped and provisioned without expense to the monarch, and, in turn, this military service was performed by tenants by way of rental for the lands they cultivated.

Taxes on property, as yet the chief source of income for most of the United States, have proved inequitable. Due to the fact that assessors have no ready means of ascertaining the extent of the property of any one individual, evasion of property taxes has become widespread. Property taxes were once based on the full value of property, but the rate is now often applied on a fraction of the "true" value; and it will be readily appreciated that "true" value may fluctuate from nothing at all to a full realizable "cash" value, depending on the inclinations of the board of assessors or other body appointed to pass thereon. With constantly increasing expenditures for governmental purposes, it long ago became evident that the property tax was inadequate. The greater the tax rate, the more numerous were attempts to secure lower valuations, resulting in a still further boost of the rate. Real estate which could not be concealed and the values of which were more easily determinable than personal property soon bore the brunt of the tax. City property owners passed the tax on to lessees in the form of higher rents. Farmers owning their land have, in recent years, been the chief sufferers, unless a purely local market enabled them to shift the burden to consumers.