SUBCHAPTER B-GENERAL PROVISIONS Part I-Rates of Tax [See also sections 103-107] SEC. 11. NORMAL TAX ON INDIVIDUALS. There shall be levied, collected, and paid for each taxable year upon the net income of every individual a normal tax of 3 per centum of the amount of the net income in excess of the credits against net income provided in section 25 (a). For alternative tax which may be elected if adjusted gross income is less than $5,000, see Supplement T. [See also sections 103, 117 (c) (2), 143 (b), 211 (a) (1) (A), 211 (c) (3), 337 (c) and 394 (c).] SEC. 12. SURTAX ON INDIVIDUALS. (a) DEFINITION OF "SURTAX NET INCOME".-As used in this section. the term "surtax net income” means the amount of the net income in excess of the credits against net income provided in section 25 (b). (b) RATES OF SURTAX.-There shall be levied, collected, and paid for each taxable year upon the surtax net income of every individual the surtax shown in the following table: If the surtax net income is: Not over $2,000__. Over $2,000 but not over $4,000 Over $4,000 but not over $6,000 Over $12,000 but not over $14,000 Over $14,000 but not over $16,000 Over $16,000 but not over $18,000 Over $38,000 but not over $44,000 The surtax shall be: 20% of the surtax net income. $400, plus 22% of excess over $2,000. $840, plus 26% of excess over $4,000. $1,360, plus 30% of excess over $6,000. $1,960, plus 34% of excess over $8,000. $2,640, plus 38% of excess over $10,000. $3,400, plus 43% of excess over $12,000. $4,260, plus 47% of excess over $14,000. $5,200, plus 50% of excess over $16,000. $6,200, plus 53% of excess over $18,000. $7,260, plus 56% of excess over $20,000. $8,380, plus 59% of excess over $22,000. $10,740, plus 62% of excess If the surtax net income is: Over $44,000 but not over $50,000 Over $50,000 but not over $60,000 Over $90,000 but not over Over $100,000 but not over $150,000. The surtax shall be: $22,500, plus 72% of excess over $44,000. $26,820, plus 75% of excess over $50,000. $34,320, plus 78% of excess over $60,000. $42,120, plus 81% of excess over $70,000. $50,220, plus 84% of excess over $80,000. $58,620, plus 87% of excess over $90,000. $67,320, plus 89% of excess over $100,000. Over $150,000 but not over $111,820, plus 90% of excess $200,000. Over $200,000.. over $150,000. $156,820, plus 91% of excess over $200,000. (c) TAX IN CASE OF CAPITAL GAINS OR LOSSES. For rate and computation of alternative tax in lieu of normal tax and surtax in the case of a capital gain or loss from the sale or exchange of capital assets held for more than 6 months, see section 117 (c). (d) SALE OF OIL OR GAS PROPERTIES. For limitation of surtax attributable to the sale of oil or gas properties; see section 105. (g) LIMITATION ON TAX.-The tax imposed by this section and section 11, computed without regard to the credits provided in sections 31, 32, and 35, shall in no event exceed in the aggregate 90 per centum of the net income of the taxpayer for the taxable year. (h) ALTERNATIVE TAX.— For alternative tax which may be elected if adjusted gross income is less than $5,000, see Supplement T. [See also sections 103, 106, 211 (a) (1) (A) and 211 (c) (3).] Part II-Computation of Net Income SEC. 21. NET INCOME. [See also sections 111-130] (a) DEFINITION.-"Net income" means the gross income computed under section 22, less the deductions allowed by section 23. SEC. 22. GROSS INCOME. (a) GENERAL DEFINITION. "Gross income" includes gains, profits, and income derived from salaries, wages, or compensation for personal service (including personal service as an officer or employee of a State, or any political subdivision thereof, or any agency or instrumentality of any one or more of the foregoing), of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever. In the case of Presidents of the United States and judges of courts of the United States taking office after June 6, 1932, the compensation received as such shall be included in gross income; and all Acts fixing the compensation of such Presidents and judges are hereby amended accordingly. In the case of judges of courts of the United States who took office on or before June 6, 1932, the compensation received as such shall be included in gross income. (b) EXCLUSIONS FROM GROSS INCOME. The following items shall not be included in gross income and shall be exempt from taxation under this chapter: (1) LIFE INSURANCE.-Amounts received under a life insurance contract paid by reason of the death of the insured, whether in a single sum or otherwise (but if such amounts are held by the insurer under an agreement to pay interest thereon, the interest payments shall be included in gross income); (2) ANNUITIES, ETC. (A) In General.-Amounts received (other than amounts paid by reason of the death of the insured and interest payments on such amounts and other than amounts received as annuities) under a life insurance or endowment contract, but if such amounts (when added to amounts received before the taxable year under such contract) exceed the aggregate premiums or consideration paid (whether or not paid during the taxable year) then the excess shall be included in gross income. Amounts received as an annuity under an annuity or endowment contract shall be included in gross income; except that there shall be excluded from gross income the excess of the amount received in the taxable year over an amount equal to 3 per centum of the aggregate premiums or consideration paid for such annuity (whether or not paid during such year), until the aggregate amount excluded from gross income under this chapter or prior income tax laws in respect of such annuity equals the aggregate premiums or consideration paid for such annuity. In the case of a transfer for a valuable consideration, by assignment or otherwise, of a life insurance, endowment, or annuity contract, or any interest therein, only the actual value of such consideration and the amount of the premiums and other sums subsequently paid by the transferee shall be exempt from taxation under paragraph (1) or this paragraph. The preceding sentence shall not apply in the case of such a transfer if such contract or interest therein has a basis for determining gain or loss in the hands of a transferee determined in whole or in part by reference to such basis of such contract or interest therein in the hands of the transferor. This subparagraph and paragraph (1) shall not apply with respect to so much of a payment under a life insurance, endowment, or annuity contract, or any interest therein, as, under section 22 (k), is includible in gross income; [See also section 165 (b).] (B) Employees' Annuities.-If an annuity contract is purchased by an employer for an employee under a plan with respect to which the employer's contribution is deductible under section 23 (p) (1) (B), or if an annuity contract is purchased for an employee by an employer exempt under section 101 (6), the employee shall include in his income the amounts received under such contract for the year received except that, if the employee paid any of the consideration for the annuity, the annuity shall be included in his income as provided in subparagraph (A) of this paragraph, the consideration for such annuity being considered the amount contributed by the employee. In all other cases, if the employee's rights under the contract are nonforfeitable except for failure to pay future premiums, the amount contributed by the employer for such annuity contract on or after such rights become nonforfeitable shall be included in the income of the employee in the year in which the amount is contributed, which amount together with any amounts contributed by the employee shall constitute the consideration paid for the annuity contract in determining the amount of the annuity required to be included in the income of the employee under subparagraph (A) of this paragraph; (3) GIFTS, BEQUESTS, DEVISES, AND INHERITANCES.-The value of property acquired by gift, bequest, devise, or inheritance. There shall not be excluded from gross income under this paragraph the income from such property, or, in case the gift, bequest, devise, or inheritance is of income from property, the amount of such income. For the purposes of this paragraph, if, under the terms of the gift, bequest, devise, or inheritance, payment, crediting, or distribution thereof is to be made at intervals, to the extent that it is paid or credited or to be distributed out of income from property it shall be considered a gift, bequest, devise, or inheritance of income from property; (4) TAX-FREE INTEREST.-Interest upon (A) the obligations of a State, Territory, or any political subdivision thereof, or the District of Columbia; or (B) obligations of a corporation organized under Act of Congress, if such corporation is an instrumentality of the United States; or (C) the obligations of the United States or its possessions. Every person owning any of the obligations enumerated in clause (A), (B), or (C) shall, when so required by regulations prescribed by the Commissioner with the approval of the Secretary, submit in the return required by this chapter a statement showing the number and amount of such obligations owned by him and the income received therefrom, in such form and with such information as such regulations may prescribe. In the case of obligations of the United States issued after September 1, 1917 (other than postal savings certificates of deposit to the extent they represent deposits made before March 1, 1941) and in the case of obligations of a corporation organized under Act of Congress, the interest shall be exempt only if and to the extent provided in the respective Acts authorizing the issue thereof as amended and supplemented, and shall be excluded from gross income only if and to the extent it is wholly exempt from the taxes imposed by this chapter; [Section 5 (b) of the Second Liberty Bond Act, as amended (46 Stat. 20, c. 26; 31 U. S. C. 754) reads as follows: แ "(b) Áll certificates of indebtedness and Treasury bills issued hereunder (after the date upon which this subdivision becomes law) shall be exempt, both as to principal and interest, from all taxation (except estate and inheritance taxes) now or hereafter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority; and the amount of discount at which Treasury bills are originally sold by the United States shall be considered to be interest within the meaning of this subdivision." Section 5 (d) of the same act (46 Stat. 775, c. 512; 31 U. S. C. 754) reads as follows: "(d) Any gain from the sale or other disposition of Treasury bills issued hereunder (after the date upon which this subdivision becomes law) shall be exempt from all taxation (except estate or inheritance taxes) now or hereafter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority; and no loss from the sale or other disposition of such Treasury bill shall be allowed as a deduction, or otherwise recognized, for the purposes of any tax now or hereafter imposed by the United States or any of its possessions. Section 4 of the Public Debt Act of 1941, as enacted February 19, 1941 (55 Stat. 9) read as follows: "SEC. 4. (a) Interest upon, and gain from the sale or other disposition of, obligations issued on or after the effective date of this Act by the United States or any agency or instrumentality thereof shall not have any exemption, as such, and loss from the sale or other disposition of such obligations shall not have any special treatment, as such, under Federal tax Acts now or hereafter enacted; except that any such obligations which the United States Maritime Commission or the Federal Housing Administration has, prior to the effective date of this Act, contracted to issue at a future date, shall when issued bear such tax-exemption privileges as were, at the time of such contract, provided in the law authorizing their issuance. For the purposes of this subsection a Territory, a possession of the United States, and the District of Columbia, and any political subdivision thereof, and any agency or instrumentality of any one or more of the foregoing, shall not be considered as an agency or instrumentality of the United States. "(b) The provisions of this section shall, with respect to such obligations, be considered as amendatory of and supplementary to the respective Acts or parts of Acts authorizing the issuance of such obligations, as amended and supplemented." The Public Debt Act of 1941 became effective March 1, 1941. The above section 4 was amended March 28, 1942 (56 Stat. 190, c. 205, 86; 31 U. S. C. Supp. 742a) to read as follows: "SEC. 4. (a) Interest upon obligations, and dividends, earnings, or other income from shares, certificates, stock, or other evidences of ownership, and gain from the sale or other disposition of such obligations, and evidences of ownership issued on or after the effective date of the Public Debt Act of 1942 by the United States or any agency or instrumentality thereof shall not have any exemption, as such, and loss from the sale or other disposition of such obligations or evidences of ownership shall not have any special treatment, as such, under Federal tax Acts now or hereafter enacted; except that any such obligations which the United States Maritime Commission or the Federal Housing Administration had, prior to March 1, 1941, contracted to issue at a future date, shall when issued bear such tax-exemption privileges as were, at the time of such contract, provided in the law authorizing their issuance. For the purposes of this subsection a Territory, a possession of the United States, and the District of Columbia, and any political subdivision thereof, and any agency or instrumentality of any one or more of the foregoing, shall not be considered as an agency or instrumentality of the United States. |