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REGULATIONS.

Regulations concerning the tax imposed by Section 2, Act of October 3, 1913, on net income of Individuals, Corporations, Joint-stock Companies, Associations, and Insurance Companies.

TREASURY DEPARTMENT.

OFFICE OF COMMISSIONER OF INTERNAL REVENUE,
Washington, D. C., January 5, 1914.

PART 1.

INDIVIDUAL INCOME RETURNS AND COLLECTIONS.

Persons taxa

Article 1. Section 2 of the above-named act imposes a be tax of 1 per centum (designated as the normal tax) on net incomes arising or accruing from all sources during the preceding calendar year to-

(a) Every citizen of the United States, whether residing at home or abroad; and

(b) Every person residing in the United States, though not a citizen thereof; and

(c) From all property owned and from every business, trade, or profession carried on in the United States, by a person residing elsewhere.

Art. 2. Said section also imposes an additional tax on all net incomes of individuals exceeding $20,000, as follows:

1 per cent on incomes exceeding $20,000 and not exceeding
$50,000.

2 per cent on incomes exceeding $50,000 and not exceeding
$75,000.

3 per cent on incomes exceeding $75,000 and not exceeding
$100,000.

4 per cent on incomes exceeding $100,000 and not exceeding
$250,000.

Additional super tax.

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5 per cent on incomes exceeding $250,000 and not exceeding
$500,000.

6 per cent on incomes exceeding $500,000.

Art. 3. The NET INCOME shall consist of the total Net income de

fined.

gains, profits, and income derived from all sources (desig

29

Normal tax; upon what computed.

Gross income. What it includes.

Income exempt

from taxation.

nated as gross income) less deductions numbered first to sixth, inclusive, specifically enumerated in paragraph B of the act. (See article 6.)

In computing the taxable income for the purposes of the normal tax there shall be deducted from the net income as above ascertained:

(a) The amount included in the gross income received as dividends upon the stock or from the net earnings of any corporation, joint-stock company, association, or insurance company which is taxable upon its net income;

(b) The amount of income the tax upon which has been paid or withheld for payment at the source; and (c) The specific exemption of $3,000 or $4,000, as the case may be, except in the case of nonresident aliens.

Art. 4. Gross income includes all gains, profits, and income derived from-

(a) Salaries, wages, or compensation for personal service of whatever kind and in whatever form paid.

(b) Professions, vocations, business (including income from copartnerships), trade, commerce, or sales or dealings in property, growing out of the ownership or use of or interest in, real or personal property.

(c) Interest, rent, dividends, securities, or transaction of any lawful business carried on for gain or profit. (See art. 67 as to interest on deposits and certificates of deposit.)

(d) Gains or profits and income derived from any source whatever, including the income from, but not the value of, property acquired by gift, bequest, devise or descent.

The foregoing is held to include all income, gains, and profits arising or accruing from all sources whatever in the calendar year for which the return is made, except as hereinafter specifically stated.

Art. 5. The following items should not be included as gross income:

(a) Value of property acquired by gift, bequest, devise, or descent during the year.

(b) Proceeds of life insurance policies paid upon the death of the person insured to beneficiaries, or payments made by or credited to the insured, on life insurance, endowment, or annuity contracts, upon the return thereof to the insured at the maturity of the term mentioned in the contract, but this shall not be construed to

mean that interest payments to beneficiaries from insurance companies shall not be included as income.

(c) Income derived from interest upon the obligations of a State or any political subdivision thereof and upon the obligations of the United States or its possessions;

(d) The compensation of the President of the United States in office at the time of the passage of the act of October 3, 1913, during the term for which he was elected, and the judges of the Supreme and inferior courts of the United States in office at the time of the passage of the act of October 3, 1913;

(e) The compensation of all officers and employees of a State or any political subdivision thereof, including public-school teachers, etc. When such State officers

or employees are compensated by the United States, they must include such income as taxable.

Art. 6. Deductions and exemptions allowed in computing taxable income for the purposes of the normal tax.

Under paragraph B the following items are to be de-, Deductions alducted from the gross income:

1. The amount of necessary expenses actually paid for carrying on business, but not including business expenses of partnerships and not including personal, living, or family expenses.

2. All interest paid within the year on personal indebtedness of the taxpayer incurred in the conduct of business.

3. All National, State, county, school, and municipal taxes paid within the year (not including those assessed against local benefits).

4. Losses actually sustained during the year incurred in trade or arising from fires, storms, or shipwreck and not compensated for by insurance or otherwise.

5. Debts due to the taxpayer which have been actually ascertained to be worthless and charged off within the year.

6. Amount representing a reasonable allowance for the exhaustion, wear, and tear of property arising out of its use or employment in the business, not to exceed, in the case of mines, 5 per cent of the gross value at the mine of the output for the year for which the computation is made, but not including the expense of restoring property or making good the exhaustion thereof, for which an allowance is or has been made, nor for any amount paid for new buildings, permanent improvements, or betterments, made to increase the value of any property or estate.

lowed under paragraph B.

"Gross value at the mine" defined.

Gifts or dona

tions made dur

The term "gross value at the mine," as used in paragraphs B and G of section 2 of the act of October 3, 1913, prescribing a limit to the amount which may be deducted in the return of individuals and corporations as depreciation in the case of mines, is held to mean the bona fide market value of ore, coal, crude oil, and gas at the mine or well, where such value is established by actual sales at the mine or well; and in case the market value of the product of the mine or well is established at some other place than at the mine or well, or on the basis of the bullion or metallic value of the ore, then the gross value at the mine is held to be the value of the ore, coal, oil, or gas sold, or of the metal produced, less transportation, reduction, and smelting charges.

7. The amount included in gross income received as dividends upon the stock, or upon the net earnings, of any corporation, joint-stock company, association, or insurance company which is taxable upon its net income.

8. The amount of income, the normal tax upon which has been paid or withheld for payment at the source of income.

None of the above items of deduction shall include ing the year not money or other items of value disposed of by gift, donation, or endowment.

to be deducted.

Exemptions al

lowed under par

agraph C.

Tax computed

on the calendar

1913.

Under paragraph C the personal exemption of $3,000 or $4,000, as the case may be, is to be deducted from the net income except in the cases of nonresident aliens. (See arts. 7, 9, and 10.)

Art. 7. The act provides that the said normal tax shall year except for be computed on the remainder of said net income accruing during each preceding calendar year, and that for the year ended December 31, 1913, said tax shall be computed on the net income accruing from March 1 to December 31, both dates inclusive, after deducting fivesixths only of the specific exemptions and deductions authorized. A specific exemption, therefore, of $2,500 or $3,333.33, as the case may be, will be allowed for the year 1913.

Income of non

resident aliens

mal tax.

Art. 8. The income of nonresident aliens subject to subject to the nor- the normal tax of 1 per cent shall consist of the total gains, profits, and income derived from all property owned, and from every business, trade, or profession carried on and capital invested within the United States (to be designated as gross income), less deductions (1 to 8, inclusive) specifically enumerated in paragraph B of the act (see Art. 6), in so far as said deductions relate to said gains, profits, etc.

Exemption un

der paragraph C

The specific exemption in paragraph C of the act can not allowed in not be allowed as a deduction in computing the normal ble incomes of tax of nonresident aliens.

computing taxa

nonresident aliens

aliens subject to

Nonresident Nonresident aliens are subject to additional or surtax additional or sur-the same as prescribed in the case of citizens of the United States or persons residing in the United States.

tax.

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