SEC. 311. (c) If the corpora Act of 1917. return file a claim for abatement of the amount by which the tax so assessed exceeds a tax computed upon the basis of the deduction determined as provided in this section. In such event, collection of the part of the tax covered by such claim for abatement shall not be made until the claim is decided, but if in the judgment of the Commissioner of Internal Revenue, the interests of the United States would be jeopardized thereby he may require the claimant to give a bond in such amount and with such sureties as the commissioner may think wise to safeguard such interests, conditioned for the payment of any tax found to be due, with the interest thereon, and if such bond, satisfactory to the commissioner, is not given within such time as he prescribes, the full amount of tax assessed shall be collected and the amount overpaid, if any, shall upon final decision of the application be refunded as a tax erroneously or illegally collected. SEC. 204. [1] That if a cortion was not in existence during poration or partnership was not the whole of at least one calen- in existence, or an individual was dar year during the prewar not engaged in the trade or busiperiod, then, except as provided ness, during the whole of any in subdivision (d), the war-prof-one calendar year during the its credit shall be the sum of: prewar period, the deduction. (1) A specific exemption of $3,000; and (2) An amount equal to the same percentage of the invested capital of the taxpayer for the taxable year as the average percentage of net income to invested capital, for the prewar period, of corporations engaged in a trade or business of the same general class as that conducted by the taxpayer; but such amount shall in no case be less than 10 per centum of the invested capital of the taxpayer for the taxable year. Such average percentage shall be determined by the Commissioner on the basis of data contained in returns made under Title II of the Revenue Act of 1917, and the shall be an amount equal to eight per centum of the invested capital for the taxable year, plus in the case of a domestic corporation $3,000, and in the case of a domestic partnership or a citizen or resident of the United States $6,000. average known as the median shall be used. If such average percentage has not been determined and published at least 30 days prior to the time when the return of the taxpayer is due, then for purposes of such return 10 per centum shall be used in lieu thereof; but such average percentage when determined shall be used for the purposes of section 250388 in determining the correct amount of the tax. SEC. 311. (d) The war-profits credit shall be determined in the manner provided in subdivision (b) instead of in the manner provided in subdivision (c), in the case of any corporation which was not in existence during the whole of at least one calendar year during the prewar period if (1) a majority of its stock at any time during the taxable year is owned or controlled, directly or indirectly, by a corporation which was in existence during the whole of at least one calendar year during the prewar period, or if (2) 50 per centum or more of its gross income (as computed under section 233389 for income tax purposes) consists of gains, profits, commissions, or other income, derived from a government contract or contracts made between April 6, 1917, and November 11, 1918, both dates inclusive. Act of 1917. PART III.-EXCESS-PROFITS SEC. 312. That the excessprofits credit shall consist of a specific exemption of $3,000 plus an amount equal to 8 per centum of the invested capital for the taxable year. SEC. 312. That the excessprofits credit shall consist of a specific exemption of $3,000 plus an amount equal to 8 per centum of the invested capital for the taxable year. A foreign corporation or a A foreign corporation shall not corporation entitled to the bene- be entitled to the specific exemption of $3,000. fits of section 262390 shall not be entitled to the specific exemption of $3,000. 388 Sec. 250, p. 276. 389 Sec. 233, p. 190. 390 Sec. 262, p. 268. Act of 1921. PART IV.-NET INCOME. SEC. 320. [1] That for the purpose of this title the net income of a corporation shall be ascertained and returned [2] for the taxable year upon the same basis and in the same manner as provided for income tax purposes in Title II of this Act. Act of 1918. PART IV.-NET INCOME. (1) For the calendar years Act of 1917. SEC. 206. That for the purposes of this title the net income of a corporation shall be ascertained and returned (a) for the calendar years nineteen hundred and eleven and nineteen hundred and twelve upon the same basis and in the same manner as provided in section thirty-eight391 of the Act entitled "An Act to provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes," approved August fifth, nineteen hundred and nine, except that income taxes paid by it within the year imposed by the (2) For the calendar year 1913 authority of the United States upon the same basis and in the shall be included; (b) for the same manner as provided in Sec- calendar year nineteen hundred tion II of the Act entitled "An and thirteen upon the same basis Act to reduce tariff duties and and in the same manner as proto provide revenue for the Gov- vided in section II of the Act enernment, and for other pur- titled "An Act to reduce tariff poses, approved October 3, duties and to provide revenue 1913, except that taxes imposed for the Government, and for by section 38 of such Act of other purposes," approved OcAugust 5, 1909, and paid by the tober third, nineteen hundred corporation within the year shall be included, and except that the amounts received by it as dividends upon the stock or from the net earnings of other corporations subject to the tax imposed by Section II392 of such Act of October 3, 1913, shall be deducted; and (3) For the taxable year upon the same basis and in the same manner as provided for income tax purposes in Title II of this Act. SEC. 320. (b) The average net income for the prewar period shall be determined by dividing the number of years within that period during the whole of which the corporation was in existence into the sum of the net income for such years, even though there may have been no net income for one or more of such years. and thirteen, except that income taxes paid by it within the year imposed by the authority of the United States shall be included, and except that the amounts received by it as dividends upon the stock or from the net earnings of other corporations, jointstock companies or associations, or insurance companies, subject to the tax imposed by section II392 of such Act of October third, nineteen hundred and thirteen, shall be deducted; and (c) for the taxable year upon the same basis and in the same manner as provided in Title I of the Act entitled "An Act to increase the revenue, and for other purposes, approved September eighth, nineteen hundred and sixteen, as amended by this Act, except that the amounts received by it as dividends upon the stock 391 Sec. 38, Act of 1909, p. 476. 392 Sec. II, Act of 1913, p. 3. Act of 1921. PART V.-INVESTED CAPITAL. SEC. 325. (a) That as used in this title Act of 1918. PART V.-INVESTED CAPITAL. SEC. 325. (a) That as used in this title The term "intangible properThe term "intangible propty" means patents, copyrights, erty" means patents, copyrights, secret processes and formulæ, secret processes and formulæ, good will, trade-marks, trade- good will, trade-marks, tradebrands, franchises, and other brands, franchises, and other like like property; property; The term "tangible property" The term "tangible property" means stocks, bonds, notes, and means stocks, bonds, notes, and other evidences of indebtedness, other evidences of indebtedness, bills and accounts receivable, bills and accounts receivable, leaseholds, and other property lease-holds, and other property other than intangible property; other than intangible property; The term "borrowed capital" The term "borrowed capital" means money or other property means money or other property borrowed, whether represented borrowed, whether represented by bonds, notes, open accounts, by bonds, notes, open accounts, or otherwise; or otherwise; The term "inadmissible as- The term "inadmissible assets" means stocks, bonds, and sets' means stocks, bonds, and other obligations (other than ob- other obligations (other than obligations of the United States), ligations of the United States), the dividends or interest from the dividends or interest from which is not included in comput- which is not included in comput or Act of 1917. from the net earnings of other corporations, joint-stock companies or associations, or insurance companies, subject to the tax imposed by Title I of such Act of September eighth, nineteen hundred and sixteen, shall be deducted. The net income of a partnership or individual shall be ascertained and returned for the calendar years nineteen hundred and eleven, nineteen hundred and twelve, and nineteen hundred and thirteen, and for the taxable year, upon the same basis and in the same manner as provided in Title I of such Act of September eighth, nineteen hundred and sixteen, as amended by this Act, except that the credit allowed by subdivision (b) of section five of such Act shall be deducted. There shall be allowed (a) in the case of a domestic partnership the same deductions as allowed to individuals in subdivision (a) of section five of such Act of September eighth, nineteen hundred and sixteen, as amended by this Act; and (b) in the case of a foreign partnership the same deductions as allowed to individuals in subdivision (a) of section six of such Act as amended by this Act. Act of 1921. ing net income, but where the income derived from such assets consists in part of gain or profit derived from the sale or other disposition thereof, or where all or part of the interest derived from such assets is in effect included in the net income because of the limitation on the deduction of interest under paragraph (2) of subdivision (a) of section 234,393 a corresponding part of the capital invested in such assets shall not be deemed to be inadmissible assets; The term "admissible assets" means all assets other than inadmissible assets, valued in accordance with the provisions of subdivision (a) of section 326394 and section 331.3 396 SEC. 325 (b) For the purposes of this title the par value of stock or shares shall, in the case of stock or shares issued at a nominal value or having no par value, be deemed to be the fair market value as of the date or dates of issue of such stock or shares. SEC. 326. (a) That as used in this title the term "invested capital" for any year means (except as provided in subdivisions (b) and (c) of this section): (1) Actual cash bona fide paid in for stock or shares; (2) Actual cash value of tangible property, other than cash, bona fide paid in for stock or shares, at the time of such pay 393 Sec. 234 (a) (2), p. 192. 394 Sec. 326 (a), p. 330. 395 Sec. 330, p. 338. 396 Sec. 331, p. 340. Act of 1918. ing net income, but where the income derived from such assets consists in part of gain or profit derived from the sale or other disposition thereof, or where all or part of the interest derived from such assets is in effect included in the net income because of the limitation on the deduction of interest under paragraph (2) of subdivision (a) of section 234,393 a corresponding part of the capital invested in such assets shall not be deemed to be inadmissible assets; The term "admissible assets" means all assets other than inadmissible assets, valued in accordance with the provisions of subdivision (a) of section 326,394 section 330,395 and section 331.396 SEC. 325. (b) For the purposes of this title, the par value of stock or shares shall, in the case of stock or shares issued at a nominal value or having no par value, be deemed to be the fair market value as of the date or dates of issue of such stock or shares. Act of 1917. SEC. 326. (a) That as used in SEC. 207. [1] That as used in this title the term "invested cap- this title, the term "invested ital" for any year means (ex- capital''97 for any year means cept as provided in subdivision the average invested capital for (b) and (c) of this section): the year, as defined and limited (1) Actual cash bona fide paid in this title, averaged monthly. in for stock or shares; (2) Actual cash value of tangible property, other than cash, bona fide paid in for stock or shares, at the time of such pay 397 (a) In 1917 a corporation owned patents of great value which it acquired many years before for a consideration of $1.00. Inasmuch as "no stock of the plaintiff company was issued therefor, nor were these patents specifically paid for in cash or tangible property," they could not be included in invested capital under Sec. 207, Act of 1917. Iredell (Col.) v. De Laski & Thropp Circular Woven Tire Co., (C. C. A., Third Cir. 1923) 290 Fed. 955, affirming Id., (D. C., D. N. J. 1920) 268 Fed. 377. 397 (b) Where a partnership borrowed money from a bank on its own notes and one of the partners put up as collateral his personal securities of greater value than the amount of the loans, the money borrowed constituted "borrowed money. Neither the money borrowed nor the collateral represented invested capital SEC. 207. [3] (a) In the case of a corporation or partnership: (1) actual cash paid in. SEC. 207. [4] (a) (2) the actual cash value of tangible prop under Sec. 207 of the Act of 1917. Cartier v. Doyle (Col.), (C. C. A., Sixth Cir. 1921) 277 Fed. 150, reversing Id., (D. C., W. D. Mich. 1920) 269 Fed. 647. 397 (c) Section 207 of the Act of 1917 defining and limiting invested capital for income tax purposes is not so arbitrary and discriminatory as to be wanting in "due process of law."' LaBelle Iron Works v. U. S., (1921) 256 U. S. 377. 397 (d) In 1912, a corporation owning ore lands of known value greatly in excess of the purchase price paid several years before, appraised the same at their actual value, and readjusted the books of account. The outstanding stock was surrendered simultaneously with the book adjustment, and new stock of equal par value, share for share, was issued therefor. wise, a stock dividend was declared and paid, representing the appreciation in value of the lands. The value of the property in 1917, the taxable year, was at least as great as it was in 1912. It was held that the increase or appreciation in value of the lands, al Like |