vided," instead of income "over and above" a certain amount, manifestly is to meet the Journal's criticism that, although the bill levied no tax on incomes under the certain amount, "it provided for the collection of a tax on incomes no matter how small, if such incomes were derived from interest on bonds." Further, that such a proceeding was not only unjust to those receiving incomes below the taxable limit, but "was probably unconstitutional inasmuch as it required a corporation to withhold or pay, as the case might be, from or on behalf of its creditors, moneys to which the creditors were entitled or which the corporation was not obligated to pay except under threat of even larger penalty." It was also pointed out "that no provision was made for the disposal of the moneys withheld on incomes of less than" a certain amount. This criticism has been met by insertion of the words, "And paid to the Government" at the end of the clause authorizing the deduction. See p. 87.

"The result of these two changes is that a tax is levied on all incomes unless the recipient can prove that he is exempt, which, in the case of a person who derives even $10 a year from bond interest, seems impossible.' See Arts. II, XI, XII, XVI.

The writer in the Wall St. Journ. further states in Art. XVII that he pointed out in a former article that the provisions as to surtax and deduction for dividends received from corporations which had paid the normal tax of 1 per centum on net income before the distribution of the dividend would leave free of surtax the $600,000 of dividends received annually by the estate of A. B. (used as an example), and also made it possible for A. B. to incorporate his other investments and thereby avoid the payment of the surtax on all his income by paying it to himself in the form of dividends from A. B., Inc., such dividends not being taxable in the hands of the individual.

He further states that an effort was made to remedy the defect by inserting (see B) the words "for the purpose of the normal tax," so that the bill thus read: "That in computing net income for the purpose of the normal tax there shall be allowed as deductions," etc. The writer then refers to the clause added to Subdivision II, which begins with the words, "For the purpose of this additional tax, the taxable income, etc.," and says that this "narrows the attempt to collect a tax on undistributed earnings to companies formed or fraudulently availed of for the purpose of pre

venting the imposition of such tax, but it in no way strengthens the act as to the collection of a surtax on incomes derived from the enormous total of dividends from legitimate corporations not used for fraudulent purposes. The anomalous situation is now presented of a measure still leaving open the loophole for the evasion of taxation contained in the original draft and at the same time throwing on the Secretary of the Treasury the responsibility and authority to decide whether or not a corporation is fraudulent and whether it permits its gains and profits to accumulate as surplus beyond the reasonable needs of business.

"It would be difficult to conceive a more drastic power or a more weighty responsibility than for one man to be charged with the duty of deciding which of the thousands of corporations in this country are fraudulent or used for fraudulent purposes, and what are their legitimate business requirements in the way of surplus."

Only the individual is subject to the additional tax, and, when he pays the normal tax (it not being paid for him at the source) the additional tax will be assessed against him and collected at the same time and in the same manner. Both taxes may be easily figured

out. A convenient illustration is given in Speer, 19.

The instructions under the old acts were that residents should make return in the district where they resided at the time of making return, residence being that during the year for which income was derived; and if any person resided abroad, his return was to be made in the district where he last resided. 7 Int. Rev. Rec. 59. See Bump, 284.

The place where a person voted, or was entitled to vote, was formerly held to be his residence, and, if not a voter, the place where the tax on personal property was paid. Bout. (1863) 273.

The wife of an alien was held to be an alien, though a citizen before marriage. If she resided abroad, the profits and income from stock, etc., held by a trustee here were not to be returned; if she resided here, she was liable to the tax imposed upon every citizen residing here. 6 Int. Rev. Rec. 66. See Bump, 284.

It was held that an alien residing here was entitled to the same exemption as a native-born or naturalized citizen. 6 Int. Rev. Rec. 18.

It was held that income from personalty held by a trustee for persons not citizens and

not residing here was not taxable. 1 Int. Rev. Rec. 171.

Income from an inherited estate in a foreign country of one who had become a citizen there in order to receive the estate was held to be taxable. 3 Int. Rev. Rec. 140.

Where the gains of an association were its sole property, and not divisible among its members, the association was held to be a person within the meaning of the law, and required to make a return. 10 Int. Rev. Rec. 39.

Where a person died before the end of the income year, the gains, income, etc., during that portion of the year he was in life were held subject to taxation as income. Mandell v. Pierce, 3 Cliff. 134. See 14 Int. Rev. Rec. 91; Bump. 284.

Cases relative to residing and doing business in the United States may be found in Foster & Abbot, 98-101. English decisions as to residence are given in Dowell's Income Tax Laws (7th ed.), 448–453.

WHAT THE NET INCOME INCLUDES

B. That, subject only to such exemptions and deductions as are hereinafter allowed, the net income of a taxable