taxable at the rate for the preceding year, shall be first applied against the income for the most recent year. Any balance shall be applied against the income for the next preceding year and so on. Change from Fiscal Year to Calendar 111. If a taxpayer, with the approval of the Commissioner changes from fiscal year to calendar year in computing his net income, he must make a separate return for the time elapsing between the close of the last fiscal Year, etc. year and the following December 31. If he changes from calendar year to fiscal year, a separate return must be made for the period between the close of the last calendar year and the date of the close of the fiscal year. If he changes from one fiscal year to another, a sepa rate return must be made for the period between the close of the former fiscal year and the close of the new fiscal year. If he is making his first return, and keeps his account for fiscal year, he must make a separate return for the period between the beginning of the calendar year in which such fiscal year ends and the end of the fiscal year. In all these cases net income shall be computed according to the period for which separate return is made, and shall be taxed according to the rate for the calendar year in which the period is included; and the personal exemption allowed shall be reduced to amounts bearing the same ratio to the full credits for such exemption as the number of months in such period bears to twelve months. 112. If the net income of an individual and his income tax are computed on the basis of a calendar year, return shall be made on or before the fifteenth day of March; if computed on the basis of a fiscal year, return shall be Place of Return Extension of Return made on or before the fifteenth day of the third month following the close of the fiscal year. 113. Return shall be made to the Collector for the district in which the person making the return has his legal residence or his principal place of business, or if he has no legal residence or place of business in the United States, then with the Collector of Internal Revenue at Baltimore, Maryland. 114. In cases where good cause exists in the judgment of the Commissioner, he may grant an extension of time for filing returns. The 1913 Statute limited this extension to thirty days. Last year, on account of disturbed conditions due to the war, the extensions in many cases were very liberal. The Act of 1918 states that no such extension, except in the case of taxpayers who are abroad, shall be for more than six months. This does not mean that the Commissioner will grant a full six months extension and it is suggested, therefore, that in this respect, and in fact as to the entire question of extensions, the official rulings should be carefully observed. What provision, if any, will be made for filing tentative returns is not yet clear. Some such provision may be made for individuals as well as for corporations and other taxpayers on account of the exceptionally short period between the date of issuance of the return blanks (due to the late passage of the law) and March 15th, the date by which most taxpayers must file their returns. As usual, a collector of Internal Revenue will doubtless have authority to grant an extension of thirty days in the cases of sickness or absence. 115. It is also probable that an extension of time will be granted to non-resident aliens, foreign corporations and American citizens in the military or naval forces for a sufficient period of time after the termination of the war. 116. Any deputy collector may, when he has reason to believe that an understatement of income has been made, require the taxpayer upon due notice to show cause why the amount of return should not be increased. Upon proof of such understatement, the collector may increase the return accordingly. The taxpayer may appeal to the Commissioner. Provisions Relating Especially to Corporations Understate ment of Income Former Income 117. Corporate net income in the United States has been subject to tax continuously since the enactment of Corporate the so-called Corporation Excise Tax Law of 1909. In its effect that Statute levied a one per cent. tax on corporate net income; the 1916 Law raised the rate to two per cent. It was increased to six per cent. for the year 1917 and the present law raises the rate to twelve per cent. It is added parenthetically that, as is well understood, corporate income is not liable to the surtax, or socalled additional tax rates, imposed upon individual income by the 1913 Act and each of the later statutes. 118. The organizations taxable hereunder are divided into two classes: (a) Corporations or insurance companies, organized in the (b) Similar organizations authorized, organized or existing Taxable Law of 1918 119. The Revenue Act of 1918 provides that the net income of every corporation (except insurance companies Rates under certain circumstances which will be treated under a special heading) shall be taxed at the following rates: For the calender year 1918, twelve per cent. of the amount of net income above allowable credits; for each year thereafter, ten per cent. of such amount. For railroads under federal control under the Act of March 21, 1918, the rate of tax shall be ten per cent. for 1918 and eight per cent. for each year thereafter. Non-Taxable 120. The following organizations are declared to be Organizations non-taxable under the law; (a) Labor, agricultural, or horticultural; (b) Mutual savings banks not having a capital stock represented by shares; (c) Fraternal beneficiary societies, orders, or associations, (a) operating under the lodge system or for the benefit of the members of a fraternity itself operating under the lodge system, and (b) providing for the payment of life, sick, accident, or other benefits to the members of such society, order or association or their dependents; (d) Domestic building and loan associations and co-operative banks without capital stock, organized and operated for mutual purposes and without profit; (e) Mutual benefit cemetery associations; (f) Farmers' or other mutual hail, cyclone or fire insurance companies, mutual ditch or irrigation companies, mutual or co-operative telephone companies, or like organizations of a purely local character, the income of which consists solely of assessements, dues and fees collected from members for the sole purpose of meeting expenses; (g) Farmers', fruit growers' or like associations, or cooperative societies, organized and operated as sales agents for the purpose of marketing the products of members and turning back to them the proceeds of sales less the necessary selling expense, on the basis of the quantity of produce furnished by them, or as purchasing agents for the purpose of supplying merchandise to members at cost, including the necessary expense. (h) Corporations organized for the exclusive purpose of (i) Federal land banks and national farm-loan associations (j) Civic leagues or organizations not organized for profit (k) Personal service corporations (except as otherwise Other Non The following additional organizations are de- (1) Corporations organized and operated exclusively for (m) Business leagues, chambers of commerce, or boards (n) Pleasure, recreation or other clubs of non-profitable purpose. 122. These organizations, while exempt from payment of tax, are not exempt from giving information at the source regarding salaries, etc., nor from filing statements regarding conditions precedent to their exemption, etc. Organizations Federal 123. The Federal Reserve Statute exempts from taxation the capital stock and surplus of Federal Reserve Reserve Banks. The income derived from dividends on the stock Banks of Federal Reserve Banks is also exempt. Dividends paid by member banks are, of course, subject to tax. |