which the decedent has, during his lifetime, transferred in such a manner that it will pass to another person at or after the death of the decedent must be included in the gross estate. For example, a conveyance of real estate, reserving an estate or a right of possession, or the income during the life of the grantor, would be such a transfer, as would the creation of a trust of real or personal property for the benefit of the grantor during his life and at his death, or at a stated time thereafter, for the benefit of other persons. 20. Property Owned Jointly With Others. The gross estate, as shown on the Return, must include the value of all property owned by the decedent jointly with others, to the extent of the interest of the decedent therein. This applies to real estate held in tenancy in common or in joint tenancy, bank accounts in the name of the decedent and other persons, corporation stock or bonds registered in the name of the decedent and others, and community property of husband and wife. It is not material that such property may pass entirely to the suvivor upon the death of one of the owners, or that the interest of the decedent was one which has no existence in law after his death. The property is part of the gross estate, as defined by the law, except where it can be shown that the decedent had no real beneficial ownership. It is presumed that the joint owners held equal interests in the property, but if the estate can show that the interest of the decedent was less than an equal share, or if the decedent owned more than one-half interest, the gross estate will include the value of the interest actually owned. 21. The Net Estate. Deductions From the Gross Estate. The net estate consists of the remainder, after deducting from the gross estate the following: 1, funeral expenses; 2, administration expenses; 3, claims against the estate; 4, unpaid mortgages; 5, losses incurred by the estate during period of settlement from fire or other casualty and not compensated by insurance or otherwise; 5, expenditures for the support of dependents of the decedent during the period of administration; 6, other charges against the estate allowed by the law under which it is being administered; 7, the exemption of $50,000. 22. None of these credits can be allowed, except as the estate is actually diminshed thereby between the time of the death and the distribution; that is, the amount must be actually spent and it is not sufficient that it would be allowable as a charge against the estate under the administration laws. Conversely, even though expenditures are made for purposes described as allowable deductions, such expenditures will be allowed as deductions only to the extent that they are allowed as proper expenditures by the estate under the local law of administration. If the amount spent for the support of dependents, for instance, exceeds what is allowable under the local law, such excess can not be deducted from the gross estate. If the local law does not allow expenditure for such purpose to be charged against the estate, no deduction can be made. 23. As already pointed out, a mortgage unpaid at the time of the decedent's death can be deducted only if the gross estate includes the total value of the property subject to the mortgage. 24. The estate tax to be paid to the federal government, and the inheritance taxes paid to the state governments, may not be deducted from the gross estate in order to determine the net estate and the rate of tax. 25. Payment of the Tax. The tax is due and payable one year after the death of the decedent. It may be paid at any time before it is due, upon the filing of a tentative Return, and a discount will be allowed at the rate of 5% from the date of payment to the date the tax is due. If the tax is not paid within ninety days after the day it is due, interest at 10% from the due date is to be added to the tax. For example, if the tax is paid two months and twenty days after it is due, no interest is added, but if it is paid three months and ten days after it is due, interest at 10% for the three months and ten days is added. Where the collector finds that the amount due can not be determined, because of claims against the estate, necessary litigation (other than lititgation to defeat the payment of this tax), or other unavoidable delay in determining the net estate, the interest shall be at the rate of 6% from the date of the death until the cause of the delay is removed, and thereafter at 10%. If the complete and final Return can not be filed at the proper time, one year after the death, the executor should fully inform the collector of the necessity for additional time, and an extension may be granted for not more than ninety days. At the end of that time, even though the cause for delay still exists and the Return can not be made with certainty, the executor must file a Return showing a tax liability large enough to include any tax which the estate is likely to be required to pay, and such amount must be paid. If it is finally determined that this amount was too large, the excess may be refunded upon filing of a claim (Form 46). If a larger amount is due, notice of assessment of the excess will be given, and it becomes immediately due and payable, with interest at 10% from the time of the notification, and is a lien on the estate. 26. In making advance payment of the tax, a tentative or final Return must be filed, which must show the gross estate and the deductions completely and accurately. Expenses, claims, etc., may not be estimated, but may be deducted only if actually incurred. If the amount deductible is subsequently increased, the excess tax paid may be recovered upon filing a claim (Form 46). With a tentative Return, a partial payment to apply on the tax due may be made at the 5% discount. If the Return is tentative, and only partial payment is made, the balance must be paid upon final Return at the end of the year. 27. The discount for advance payments is to be computed according to the following formula: Amount of tax, multiply by 5%, multiply by exact number of days from date payment is actually received by collector to the due date, one year from death, divide by 365, and deduct from amount of tax. TITLE V. MISCELLANEOUS WAR TAXES I. FACILITIES OF PUBLIC UTILITIES. 1. The following taxes, in effect November 1, 1917, are to be paid to the carrier by the person paying for the service and to be paid to the government by the carrier upon monthly Returns. Where the payment is made by the United States or by a state, there is no tax. 2. Freight. Three per cent of amount paid for transportation within the United States by rail or water or by any form of mechanical motor power when in competition with carriers by rail or water. 3. Express. One cent for each 20c or fraction thereof paid for transportation within the United States. 4. Passenger Fares. Eight per cent of the fare paid for transportation of persons by rail or water, or by motor power when on a regularly established line and in competition with carriers by rail or water, within the United States or from the United States to any point in Canada or Mexico, where the ticket is sold in the United States. Commutation or season tickets for trips less than 30 miles, tickets for trips where the fare is less than 35c, and tickets other than mileage books, bought and partially used before the act goes into effect, are not subject to the tax. Tickets so bought and not partially used, mileage books, and cash payments of fares, are not to be accepted for passage until the tax is paid to the conductor. 5. Berths and Parlor Car Seats. Ten per cent of the amount paid for seats, berths, and staterooms, in parlor cars and sleeping cars or on vessels. Tickets purchased and partially used before the law goes into effect are exempt, as in the case of passenger fares. 6. Oil Pipe Lines. Five per cent of the transportation charges. 7. Telegraph, Telephone and Radio Messages. Five cents upon each telegraph, telephone, or radio dispatch, message, or conversation, originating within the United States, for the transmission of which a charge of 15c or more is made. II. INSURANCE. The following taxes, in effect November 1, 1917, are to be paid by persons or corporations issuing policies of insurance, except corporations exempt from the Income Tax. Monthly Returns are required. Policies of re-insurance are not taxed. 9. Life Insurance. Eight cents on each $100 or fractional part thereof of the amount of each policy issued. 10. Industrial Life Insurance. Forty per cent of the first weekly premium of each policy issued on weekly payment plan, not exceeding $500 and insuring life only. 11. Fire, Casualty, Liability, and All Other Insurance. One cent on each $1 or fraction thereof of premium charged for each policy, including renewals. III. WAR EXCISE TAXES. 12. Tax on Sales by Manufacturers. On and after the passage of the War Tax Law, on October 3, 1917, the manufacturer, producer, or im porter of any of the articles mentioned in the following schedule shall pay a tax upon every such article sold, and shall make a monthly Return. There is no tax upon the transfer, after the law is in effect, of title to articles sold and delivered prior to May 9, 1917, where the title was reserved in the vendor as security, but such sales made after May 9, 1917 (when the War Tax Law was introduced in Congress), and before October 3, are taxed. 13. The Schedule. Automobiles, automobile trucks, automobile wagons and motorcycles, 3% of the selling price. Piano players, graphophones, phonographs, talking machines, and records for use thereon, 3% of the selling price. Moving picture films which have not been exposed, 14 of 1c per lineal foot. Positive moving picture films, sold or leased, 1⁄2 of 1c per lineal foot. Jewelry, real or imitation, 3% of selling price. Sporting goods, games and parts of games (except playing cards), and children's toys, 3% of the selling price. Perfumes, essences, extracts, toilet waters, cosmetics, petroleum jellies, hair oil, pomades, hair dressings, hair restoratives, hair dyes, tooth and mouth washes, dentifrices, tooth pastes, aromatic cachous, toilet soaps and powders, and similar preparations for toilet purposes, 2% of the selling price. Pills, tablets, powders, etc., and all medicinal preparations, compounds, and compositions, prepared or sold under claim of any private formula, secret or occult art, or exclusive right or title, or under any letters patent or trademarks or formulae as proprietary medicines, 2% of the selling price. Chewing gum, 2% of the selling price. 14. Floor Tax. On all of the above articles, except moving picture films, a so-called "floor tax," at one half of the above rates, is imposed. This tax applies to all persons holding any of such articles for sale on October 3, 1917, except retailers who are not also wholesalers, and except manufacturers, producers, and importers. 15. To Be Collected from Purchaser. The manufacturer or dealer is permitted to add the above taxes to the purchase price of the article. Where that is prevented by a contract of sale made prior to May 9, 1917, the law expressly requires the tax to be paid by the purchaser to the seller, in addition to the contract price. 16. Pleasure Boats. The owner or user of a boat, not used exclusively for business or trade, is required to pay a tax imposed on October 3, 1917, and on July 1 of each year thereafter, upon the use of such boat, according to the rates stated below. A like tax must also be paid at the time of purchase by a user, at any time, at one-twelfth of the same rate for each month (including the month of purchase) remaining until the next July 1. There is no tax upon a boat which is built according to plans and specifications approved by the Navy Department, or which is used exclusively for national defense during the tax year. On boats of over 5 net tons the rates are, for each foot of length over all: if not over 50 feet, 50c; if not over 100 feet, $1; if over 100 feet, $2. Motor boats, not over 5 net tons, with fixed engines, are taxed $5. IV. ADMISSIONS AND DUES. 17. Admissions. From and after November 1, 1917, there is a tax of le for each 10c or fraction thereof paid for admission to any place, except (1) where the maximum charge for admission is 5c, (2) outdoor general amusement parks, (3) shows, rides, and other amusements within such parks, for which the maximum charge is 10c, (4) where the proceeds inure exclusively to the benefit of religious, educational, or charitable institutions, societies, or organizations, and (5) agricultural fairs, none of the profits of which are distributed to stockholders or members. The tax upon the admission of children, where an admission charge is made, is le whatever the amount paid. The tax is to be paid by the person paying for the admission, and is to be collected and turned over to the government by the person receiving the admission, with a Return under oath to be made each month. Persons admitted free to any place where admission is charged are to pay the tax which would be due for a paid admission, except in the case of children under twelve years of age, municipal officers on official business, and bona fide employees. Admission by season ticket or subscription, or under a lease or right to the permanent use of a seat or box, is subject to the tax for each performance for which accommodations are reserved or used. 18. Cabarets. Where the charge for admission to any public performance for profit at any cabaret or similar entertainment is wholly or in part included in the price paid for food, refreshment, service, or merchandise, the amount of the charge for admission is to be computed under rules to be prescribed by the Treasury Department, and a tax of lc for each 10c or fraction thereof so paid is levied upon each such admission. Wherever entertainment is furnished as an inducement to patronize any business, under such circumstances that purchasing something is practically a condition of the privilege of witnessing the entertainment, such entertainment is not free, but is charged for as part of the service furnished or goods sold. 19. Dues. From and after November 1, 1917, there is imposed a tax of 10% upon the dues, including initiation fees, paid to any social, athletic, or sporting club or organization, if in excess of $12 per year. The government collects the tax from the club, which is required to make monthly Returns, but the member is liable for the tax. Dues paid to a fraternal beneficiary society, such as is exempt from the Income Tax, are not taxed. V. POSTAL RATES. 20. On and after November 2, 1917, the first class postal rate is 3c instead of 2c, except that as to drop letters it is 2c instead of 1c; the postal card rate is 2c instead of 1c; and on and after July 1, 1918, the rates for second class matter are increased. VI. MUNITIONS TAX. The tax on munition manufacturers is now 10% for the taxable year 1917 and will be discontinued after January 1, 1918. |