Act of 1917. Act of 1916. Act of 1913. their individual capacity, and the share of the profits of the vidual162 capacity, and the the share of the profits of the partnership to which any tax- share of the profits of a partpartnership to which any tax- able partner would be entitled if nership to which any taxable able partner would be entitled the same were divided, whether partner would be entitled if the if the same were divided, divided or otherwise, shall be same were divided, whether diwhether divided or otherwise, returned for taxation and the vided or otherwise, shall be reshall be returned for taxation tax paid under the provisions of turned for taxation and the tax and the tax paid under the pro- this title: Provided, That from paid, under the provisions of visions of this title: Provided, the net distributive interests on this section, and any such firm, That from the net distributive which the individual members when requested by the Commisinterests on which the individual shall be liable for tax, normal sioner of Internal Revenue, or members shall be liable for tax, and additional, there shall be any district collector, shall fornormal and additional, there excluded their their proportionate ward to him a correct statement shall be excluded their proporshares received from interest on of such profits and the names of tionate shares received from in- the obligations of a State or any the individuals who would be terests on the obligations of a political or taxing subdivision entitled to the same, if distribState or any political or taxing thereof, and upon the obliga- uted: subdivision thereof, and upon tions of the United States and the obligations of the United its possessions, and all taxes paid States (if and to the extent that to the United States or to any it is provided in the Act aupossession thereof, or to any thorizing the issue of such obli. State, county, or taxing subdivision of a State, and that for the gations of the United States that they are exempt from taxa- mal tax there shall be allowed purpose of computing the nortion), and its possessions, and that for the purpose of comput-five, subdivision (b), for their a credit, as provided by section ing the normal tax there shall be allowed a credit, as provided its derived from dividends. And proportionate share of the profby section five, subdivision (b), such partnership, when for their proportionate share of quested by the Commissioner of the profits derived from divi- Internal Revenue, or any disdends. Such partnership, when trict collector, shall render a requested by the Commissioner correct return of the earnings, of Internal Revenue or any dis-profits, and income of the parttrict collector, shall render a nership, except income exempt correct return of the earnings, under section four of this Act, profits, and income of the partnership, except income exempt under section four of this Act, setting forth the item of the gross income and the deductions and credits allowed by this title, and the names and addresses of the individuals who would be en- uted. titled to the net earnings, profits, and income, if distributed. partnership shall have the same privilege of fixing and making returns upon the basis of its own fiscal year as is accorded to corporations under this title. If a! fiscal year ends during nineteen hundred and sixteen or a subsequent calendar year for which there is a rate of tax different A re setting forth the item of the come tax under said Act. U. S. v. Coulby, (C. C. A., Sixth Cir. 1919) 258 Fed. 27, affirming Id., (D. C., N. D. Ohio 1918) 251 Fed. 982. SEC. 218. (d) 166 Personal serv- SEC. 218. (e) 166 Personal service corporations shall not be sub-ice corporations shall not be subject to taxation under this title, ject to taxation under this title, but the individual stockholders but the individual stockholders thereof shall be taxed in the thereof shall be taxed in the same same manner as the members of manner as the members of partpartnerships. All the provisions nerships. All the provisions of of this title relating to partner- this title relating to partnerships ships and the members thereof and the members thereof shall so shall so far as practicable apply far as practicable apply to perto personal service corporations sonal service corporations and and the stockholders thereof: the stockholders thereof: ProProvided, That for the purpose vided, That for the purpose of of this subdivision amounts dis- this subdivision amounts distribtributed by a personal service uted by a personal service corcorporation during its taxable poration during its taxable year year shall be accounted for by shall be accounted for by the the distributees; and any por- distributees; and any portion of tion of the net income remain- the net income remaining undising undistributed at the close of tributed at the close of its taxable its taxable year shall be ac-year shall be accounted for by counted for by the stockholders the stockholders of such corporaof such corporation at the close tion at the close of its taxable of its taxable year in proportion year in proportion to their reto their respective shares. spective shares. 164 Sec. 212, p. 72. 165 Sec. 214 (a) (10) and (11), p. 100. 166 Sec. 1332 of Title XIII of the Act of 1921 imposes an alternative tax on personal service corporations for the years 1918 to 1921, inclusive, in the event that the personal service sections of applicable acts are declared invalid. Sec. 1332 is as follows: SEC. 1332. (a) That if either subdivision (e) of section 218 of the Revenue Act of 1918 or subdivision (d) of section 218 of this Act is by final adjudication declared invalid, there shall, in addition to all other taxes, be levied, collected, and paid on the net income (as defined in section 232) received during the calendar years 1918, 1919, 1920, and 1921, by every personal service corporation (as defined in section 200) included within the provisions of such subdivisions, a tax equal to the taxes imposed by Titles II and III of the Revenue Act of 1918 and, in the case of income received during the calendar year 1921, by Titles II and III of this Act. (b) In such event every such personal service corporation shall, on or before the fifteenth day of the sixth month following the date of entry of decree upon such final adjudication, make a return of any income received during each of the calendar years 1918, 1919, 1920, and 1921 in the manner prescribed by the Revenue Act of 1918 (or in the manner prescribed by this Act, in the case of income received during the calendar year 1921). Such return shall be made and the net income shall be computed on the basis of the taxpayer's annual accounting period (fiscal year or. calendar year, as the case may be) in the manner provided for other corporations under the Revenue Act of 1918 and this Act. (c) If either subdivision (e) of section 218 of the Revenue Act of 1918 or subdivision (d) of section 218 of this Act is so declared invalid, claims for credit or refund of taxes paid under both such sections shall be allowed, if made within the time provided in subdivision (f) of this section. Act of 1913. Act of 1917. from the rate for the preceding calendar year, then (1) the rate for such preceding calendar year shall apply to an amount of each partner's share of such partnership profits equal to the proportion which the part of such fiscal year falling within such calendar year bears to the full fiscal year, and (2) the rate for the calendar year during which such fiscal year ends shall apply to the remainder. Act of 1916. (d) In case the claims for credit or refund, filed within six months from such date of entry of decree, represent less than 30 per centum of the outstanding stock or shares in the corporation, the amount of taxes imposed by this section upon such corporation shall be reduced to that proportion thereof which the number of stock or shares owned by the shareholders or members making such claims bears to the total number of stock or shares outstanding. (e) The tax imposed by this section shall be assessed, collected, and paid upon the same basis, in the same manner, and subject to the same provisions of law, including penalties, as the taxes imposed by sections 230 and 301 of the Revenue Act of 1918 (or by sections 230 and 301 of this Act, in the case of income received during the calendar year 1921), but no interest or penalties shall be due or payable thereon for any period prior to the date upon which the return is by this section required to be made and the first installment paid. The amount of tax paid by any shareholder or member of a personal service corporation pursuant to the provisions of subdivision (e) of section 218 of the Revenue Act of 1918 or subdivision (d) of section 218 of this Act shall be credited against the tax due from such corporation under this section upon the joint written application of such corporation and such shareholder or member or his representatives, heirs, or assigns, if such application is filed with the Commissioner within six months from such date of entry of decree. (f) Notwithstanding any other provision of law, no claim for a credit or refund of taxes paid under subdivision (e) of section 218 of the Revenue Act of 1918 or subdivision (d) of section 218 of this Act, may be filed after the expiration of six months from such date of entry of decree: Provided, however, That a personal service corporation of which no shareholder or member has filed such claim within such period of six months shall not be subject to the tax imposed by this section. Act of 1924. ESTATES AND TRUSTS. SEC. 219. (a) The tax imposed by Parts I and II of this title shall apply to the income of estates or of any kind of property held in trust, including (3) Income received by estates of deceased persons during the period of administration or settlement of the estate; and (1) Income accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent interests, and income accumulated or held for future distribution under the terms of the will or trust; (2) Income which is to be distributed currently by the fiduciary to the beneficiaries, and income collected by a guardian of an infant which is to be held or distributed as the court may direct; (4) Income which, in the discretion of the fiduciary, may be either distributed to the beneficiaries or accumulated. Act of 1921. This subdivision shall not be in effect after December 31, 1921. In the case of a personal service corporation having a fiscal year beginning in 1921 and ending in 1922, amounts distributed prior to January 1, 1922, to its stockholders out of earnings or profits accumulated after December 31, 1920, shall be taxed to the distributees, and the stockholders of record on December 31, 1921, shall be taxed upon their distributive shares of the difference (if any) between such distributive profits and the portion of the corporation's net income assignable to the calendar year 1921, determined in the manner provided in clause (1) of subdivision (c) of section 205167 of this Act. ESTATES AND TRUSTS. SEC. 219. (a) That the tax imposed by sections 210168 and 211168 shall apply to the income of estates or of any kind of property held in trust, including (1) Income received by estates of deceased persons during the period of administration or settlement of the estate; (2) Income accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent interests; (3) Income held for future distribution under the terms of the will or trust; and (4) Income which is to be distributed to the beneficiaries periodically, whether or not at regular intervals, and the income collected by a guardian of an infant to be held or distributed as the court may direct. Act of 1918. ESTATES AND TRUSTS. SEC. 219. (a) That the tax imposed by sections 210168 and 211168 shall apply to the income of estates or of any kind of property held in trust,170 including (1) Income received by estates of deceased persons during the period of administration or settlement of the estate; (2) Income accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent interests; (3) Income held for future distribution under the terms of the will or trust; and (4) Income which is to be distributed to the beneficiaries periodically, whether or not at regular intervals, and the income collected by a guardian of an infant to be held or distributed as the court may direct. 167 Sec. 205 (c), p. 48. 168 Sec. 210, p. 58; Sec. 211, p. 64. 169 (a) The Act of 1913 did not tax the income of an estate or trust, the fiduciary being required only to deduct the normal tax on the income of the beneficiary. Smietanka (Col.) v. First Trust & Savings Bank, (1922) 257 U. S. 602, affirming Id., (C. C. A., Seventh Cir. 1920) 268 Fed. 230. Act of 1917. Act of 1916. Act of 1913. SEC. 2. (b) [1] 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, [2] 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, [3] and income held for future distribution under the terms of the will or trust shall be likewise taxed, 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: SEC. 2. (b) [1] 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, [2] 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, [3] and income held for future distribution under the terms of the will or trust shall be likewise taxed, 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: [4] Provided, That where the [4] Provided, That where the income is to be distributed an- income is to be distributed annually or regularly between ex- nually or regularly between isting heirs or legatees, or existing heirs or legatees, or The Act of 1913 did not tax estates and trusts.169 169 (b) See footnote No. 86, p. 62. 170 The dissolution of a joint stock company and the transfer of its property to a trustee on trust such as is designated by Sec. 219, Act of 1918, is valid, when the transfer is permanent and made in good faith, although the purpose is to avoid or lessen future taxation. Weeks v. Sibley, (D. C., N. D. Texas 1920) 269 Fed. 155, |