of the new regulations and forms. Necessarily the book will have its shortcomings, but it is the belief of the author that all the rulings and regulations bearing upon the 1918 Revenue Law will be found therein, together with such rulings and regulations under former laws as are necessary to a proper understanding of the present law and those which immediately preceded it. Any criticism of the book or suggestions for its improvement will be gratefully received. The author's thanks are extended to the many friends who have given him helpful suggestions and criticism in preparing the work, and particularly to Mr. Randolph E. Paul, of the New York and the New Jersey Bar, and Mr. H. B. Spaulding, for their assistance in the preparation of the manuscript. The author's thanks are again extended to the Corporation Trust Company of New York for the use of those invaluable sources of information, its Income Tax Service and War Tax Service. These Services are so generally recognized as the standard reporters of the Treasury rulings that reference is freely made to them as sources of authority. They are cited "I. T. S." and "W. T. S." respectively in the footnotes. New York, March 15, 1919. GEORGE E. HOLMES. 31 Deduction of Allowance for Depreciation, Obso- 97 CHAPTER 1 INTRODUCTION 1 The Federal Income Tax is now imposed by Title II 2 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 pro09 visions are definitely a reflection of the exigencies of the 07 times. The rates of tax are higher than those imposed 21 under any preceding law. The law provides for a reduc31 tion of the normal tax in the case of individuals and the 51 income and the excess-profits taxes in the case of corpora601 tions 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 02 83 1 The purpose of this chapter is to describe briefly the salient 0 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. 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, |