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The Federal Income Tax is now imposed by Title II ? and the War Profits and Excess Profits taxes by Title III of the comprehensive Revenue Act of 1918.3 This Act (referred to in this book as the Revenue Act of 1918, the 1918 Law or the present law) was introduced into Congress during the war with Germany, and many of its provisions are definitely a reflection of the exigencies of the times. The rates of tax are higher than those imposed under any preceding law. The law provides for a reduction of the normal tax in the case of individuals and the income and the excess-profits taxes in the case of corporations for the year 1919 and subsequent years. Several provisions of a remedial nature are contained in the law by means of which losses not strictly ascertained in 1918 may nevertheless be applied against the 1918 income. The

1 The purpose of this chapter is to describe briefly the salient provisions and requirements of the law and the system of administration, so that the reader may obtain a general understanding of the subject before the various provisions are taken up and discussed in detail.

2 Title I of the same act contains definitions applicable to the titles following, and must be consulted in connection with Title II.

3 The Act is entitled “An Act to provide revenue, and for other purposes,” and may be cited as the “Revenue Act of 1918." See Section 1404. F. T.-1


taxes imposed by the 1918 Law are stated to be in lieu of those imposed by preceding laws and the 1917 and 1916 laws are repealed, except so far as they remain in force for the assessment and collection of all taxes which have accrued thereunder and for the imposition and collection of penalties with respect thereto. The law expressly provides that no taxes shall be collected under the 1916 or the 1917 Laws for any period after December 31, 1917, except in the case of the Philippines and Porto Rico. The 1918 revenue bill was first introduced in Congress on May 27, 1918, but was not finally enacted until February 24, 1919, after having experienced changes in many of its provisions. The 1918 Law was drafted with greater care than any of the income tax laws preceding it and is presented in a form which, it may be hoped, will not be changed materially by future enactments. Notwithstanding the improvement in the form and language of the statute the 1918 Law is more complicated than any preceding statute by reason of the many exceptional provisions contained therein to meet the extraordinary situation resulting from the abnormal incomes, abnormal losses and abnormal tax rates of the period which embraces the closing of the war and the transition of business from a war to a peace basis.

Preceding Federal Laws. In 1917 the Federal Income Tax was imposed by two statutes, prescribing separate and different rates, one additional to the other. The Act of September 8, 1916 (referred to in this book as the 1916 Law), imposed a tax at comparatively low rates and with comparatively high exemptions. It was amended in many respects by the Act of October 3, 1917 (referred to in this book as the 1917 Law), but remained in force as a separate law imposing a general income tax in contradistinction to the “war income tax” at higher rates and with lower exemptions, which was also included in the Act of October 3, 1917. The 1917 War Income Tax Law contained no administrative provisions, but provided that the tax it imposed should be computed, levied, assessed, collected, and paid upon the same basis and in the same manner as similar taxes imposed by the 1916 Law. Generally speaking, both laws were administered as one, and only one annual return of net income was required from each taxpayer, on the basis of which both taxes were assessed. The 1916 Law was preceded by the Act of October 3, 1913 (referred to in this book as the 1913 Law). This law remained in force without change or amendment up to September 8, 1916, when the 1916 Law was enacted and made retroactive to January 1, 1916. The 1913 Law was the first general income tax law after the adoption of the Constitutional Amendment permitting the imposition of an income tax without apportionment and without regard to any census of enumeration, but there was in effect in this country, from August 5, 1909, to January 1, 1913, a corporation excise tax act (referred to in this book as the 1909 Law), which imposed a special excise tax on corporations with respect to the carrying on of or doing business by such corporations. Though the 1909 Law was not intended to be and was not in any proper sense an income tax law,4 the tax was measured by the net income of corporations, and the language of the subsequent income tax laws is in many instances either identical or very similar. To that extent decisions and rulings under the 1909 Law throw light on the construction of the present law and are referred to for that purpose in this book. Rulings and decisions under the 1913, 1916, and 1917 Laws are referred to in this book so far as, in the opinion of the author, they may be of present value to taxpayers in general.5

During and after the Civil War income taxes were imposed by the Act of July 1, 1862, the Act of June 30, 1864, and the joint resolution of July 4, 1864, Act of March 3, 1865, amending the Act of June 30, 1864, Act of March 2, 1867, and the Act of July 14, 1870. In 1871 the last of the Civil War income tax acts expired and was not reenacted. No further attempt was made to collect income taxes by the Federal Government until the Act of August 28, 1894, which was held unconstitutional on the ground that incomes from real property could not be taxed without apportionment. As a result, the 16th Amendment expressly authorized the imposition of a tax on income from all sources without apportionment and without regard to any census or enumeration.

4 See language of Justice Pitney in Stratton's Independence v. Howbert, 231 U. S. 399.

5 Rulings and decisions under all the prior laws should be used with caution in construing the 1918 Law, as this law contains many new features and changes the old law radically in many respects.

Administration of the Laws. The duty of administering the income tax laws and collecting the taxes thereunder is imposed on the Bureau of Internal Revenue, which is a part of the Federal Treasury Department. The bureau is under the charge of the Commissioner of Internal Revenue (referred to herein as the Commissioner), who, under the direction of the Secretary (referred to herein as the Secretary) has general superintendence of the assessment and collection of all duties and taxes imposed by any law providing internal revenue. The states and territories are divided into some sixty-four collection districts, each under the charge of a collector of internal revenue, with one or more deputy collectors. Returns of net income are filed with the local collector and the tax is paid to him, although the assessments are made by the Commissioner at Washington. The Commissioner, through his revenue agents or inspectors has supervisory power over, and authority to investigate, all accounts, lists or

6 U. S. Rev. Stats., $ 321.

7 As a rule the boundaries of collection districts coincide with the boundaries of the states, but sometimes one collection district embraces two or three states, or one state is divided into two or more collection districts. Districts within a state are designated by number, as the first and sixth districts of California, being the two districts of that state. The lack of sequence in numbering is due to the consolidation of districts from time to time since the period immediately following the Civil War, when the country was divided into the maximum number of districts.

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