The 1913 rates applied to 1913, 1914, and 1915; the 1916 rates to 1916; the 1916 and 1917 rates were both imposed in 1917, and the 1918 rates apply to 1918 and subsequent years.

SURTAX TABLES. The following table shows the surtax under the 1918 Law on net incomes of the specified amounts. In each instance the first figure of net income in the net income column is to be excluded and the second

figure included. The percentage given opposite applies to the excess of income over the first figure in the net income column, and the sum in the next column is the tax on the entire difference between the first figure and the second figure in the net income column. The final column gives the total surtax on a net income equal to the second figure in the net income column.

The surtax for any amount of net income not shown in the above table is computed by adding to the total surtax for the largest amount shown which is less than the income, the surtax upon the excess over that amount at the rate indicated in the table. For example, if the amount of net income is $63,128, the surtax is the sum of $8,690 (the surtax upon $62,000 as shown by the table) plus 30 per cent of $1,128, or $338.40, making a total surtax of $9,028.40.12

COMPUTING THE TAX-ILLUSTRATION. The tax on a married person with a net income of $15,000 for the year 1918, 12 Reg. 45, Art. 12.

assuming that none of such income consists of (a) dividends from a corporation taxable for income tax purposes on its net income, or a personal service corporation out of earnings or profits subject to income tax, or (b) interest upon obligations of the United States and bonds issued by the War Finance Corporation, is computed as follows:

The tax on an unmarried person would be increased by 12% on $1,000 or $120, since the personal exemption is $1,000 less, and the balance of taxable net income over $4,000 would be increased accordingly. In case a married person or the head of a family is entitled to further exemption because of persons dependent upon him, the normal tax will be reduced at the rate of $24 for each such dependent, that is, 12% on $200.13

Husband and Wife. Where a husband and wife make returns of their joint incomes neither the normal tax or 13 Revenue Act of 1918, § 216 (d).

surtax is to be computed on the joint income of both, but on the separate income of each although the incomes of both may be reported on the same return.14

Surtax on Stockholders in Respect of Undistributed Profits of Corporations. The surtax is ordinarily assessed only upon the income actually received by the taxpayer. But if any corporation however created or organized, is formed or availed of for the purpose of preventing the imposition of the surtax upon its stockholders or members through the medium of permitting its gains and profits to accumulate instead of being divided or distributed, the corporation is not subject to income tax, and the stockholders are taxable as stockholders of a personal-service corporation, except that the war excess-profits tax paid by the corporation will be deducted from the net income of the corporation before the computation of the proportionate share of each stockholder or member.15 This provision applies only where the accumulation is permitted for the purpose of avoiding the surtax. Ordinarily, the stockholder of a corporation has no need to concern himself with this provision or to make any inquiry as to the undistributed income of the corporation.16 The fact that a corporation is a mere holding company, or that the gains and profits are permitted to accumulate beyond the reasonable reeds of the business is prima facie evidence of a purpose to escape the surtax. The collectors, however, have no authority to decide when the gains and profits of a corporation are accumulated beyond the reasonable needs of the business, and therefore taxable as indicated above. The Commissioner must first certify that in his opinion the accumulation is unreasonable.17 In any case the Commissioner or a collector may require a corporation to furnish 14 Revenue Act of 1918, § 216 (c); Reg. 45, Art. 2; T. D. 2090; T. D. 2137.

15 Revenue Act of 1918, § 220. Compare this section with section 3 of the Revenue Act of 1916. The taxation of personal service corporations is discussed in Chapter 10.

16 See T. D. 2135.

17 Revenue Act of 1918, § 220.