and the deductions and credits allowed under this title. . .. (3) Every individual having a gross income for the taxable year of $5,000 or over, regardless of the amount of his net income. (b) If a husband and wife living together have an aggregate net income for the taxable year of $2,000 or over, or an aggregate gross income for such year of $5,000 or over, (2) the income of each shall be included in a single joint return, in which case the tax shall be computed on the aggregate income."

PROBLEM 192

Illustrating Case in Which Individual is Unable to make His Own Return

FACTS:

Allan Jordan, whose parents are dead, is an infant seven years of age. He receives an income of $25,000 annually from property, which income is turned over to his duly appointed guardian, James Warren, for the support, maintenance, etc., of the ward.

QUESTION:

Will Allan Jordan be required to file an income-tax return for the calendar year 1921?

ANSWER:

The ward being an infant, and unable to make his own return, Mr. Warren, his guardian, should file a return for him.

REFERENCE:

Sec. 223. (c): "If the taxpayer is unable to make his own return, the returns shall be made by a duly authorized agent or by the guardian or other person charged with the care of the person or property of such taxpayer."

FACTS:

PROBLEM 193

Liability for Filing Return-Partnership

The Mails & Mails Company, a partnership, keeps its books on the calendar-year basis.

QUESTION:

Is the partnership required to file a return for 1921?

ANSWER:

Yes, however for information purposes only. A return sworn to by any one of the partners must be filed for each taxable year.

REFERENCE:

Section 224: "That every partnership shall make a return for each taxable year, stating specifically the items of its gross income and the deductions allowed by this title, and shall include in the return the names and addresses of the individuals who would be entitled to share in the net income if distributed and the amount of the distributive share of each individual. The return shall be sworn to by any one of the partners."

FACTS:

PROBLEM 194

Liability for Filing Return-Fiduciary

John Morgan acts in a fiduciary capacity for individuals, estates, and trusts.

QUESTION:

Is Mr. Morgan required to file returns for the individuals, estates, and trusts for which he acts?

ANSWER:

Mr. Morgan must make a return of income (a) for each individual whose income is in his charge, if the net income of such individual is $2,000 or over if married and living with husband or wife or is $1,000 or over in other cases, (b) for each trust and estate for which he acts, if the net income of such trust or estate is $1,000 or over or if any beneficiary of such trust or estate is a nonresident alien, and (c) every individual, whose income is in his charge, having a gross income for the taxable year of $5,000 or over, regardless of the amount of the net income.

REFERENCE:

Sec. 225 (a): "That every fiduciary (except a receiver appointed

by authority of law in possession of part only of the property of an individual) shall make under oath a return for any of the following individuals, estates, or trusts for which he acts, stating specifically the items of gross income thereof and the deductions and credits allowed under this title

(1) Every individual having a net income for the taxable year of $1,000 or over, if single, or if married and not living with husband or wife;

(2) Every individual having a net income for the taxable year of $2,000 or over, if married and living with husband or wife;

(3) Every individual having a gross income for the taxable year of $5,000 or over, regardless of the amount of his net income;

(4) Every estate or trust the net income of which for the taxable year is $1,000 or over, and

(5) Every estate or trust of which any beneficiary is a nonresident alien."

FACTS:

PROBLEM 195

Liability for Filing Return Joint Fiduciaries

J. Miller, S. Brown and L. Jones, are joint fiduciaries for an individual, for whom it is necessary to make a return.

QUESTION:

Who should make the above return?

ANSWER:

Any one of the three fiduciaries, who knows enough about the individual's affairs to make the return.

REFERENCE:

Sec. 225 (b): "Under such regulations as the Commissioner with the approval of the Secretary may prescribe a return by one of two or more joint fiduciaries and filed in the office of the collector of the district where such fiduciary resides shall be sufficient compliance with the above requirement. Such fiduciary shall make oath (1) that he has sufficient knowledge of the affairs of the individual, estate or trust for which the return is made, to enable him to make the return, and (2) that the return is, to the best of his knowledge and belief, true and correct. Any fiduciary required to make a return under this Act shall be subject to all the provisions of this Act which apply to individuals."

PROBLEM 196

Illustrating Computation of Tax on Return for Period of Less Than Twelve Months

FACTS:

S. Bolden, a citizen of the United States, with the consent of the Commissioner changed his accounting period from the fiscal year ended June 30, 1921 to the calendar-basis year. Accordingly he is required to file a return for the period from July 1, 1921 to December 31, 1921. He has a net income of $30,000 for this period. He is married and was living with his wife on December 31, 1921.

PROBLEM:

Show the computaton of Mr. Bolden's income tax.

SOLUTION:

Net income for 6 months (July 1 to December

Tax assessable for 6 months (12 of $12,590) $ 6,295

REFERENCES:

Sec. 226 (c): "In the case of a return for a period of less than one year the net income shall be placed on an annual basis by multiplying the amount thereof by twelve and dividing by the number of

months included in such period; and the tax shall be such part of a tax computed on such annual basis as the number of months in such period is of twelve months."

For further illustration see Art. 431, Reg. 62.

PROBLEM 197

Illustrating Rates of Tax Applying in Case a Return is Filed For a Period of Less Than Twelve Months-Period Falling Partly Within One Calendar Year and Partly Within Another Calendar Year

FACTS:

S. B. Lois made a return for the eight-months period from July 1, 1921, to February 28, 1922, on account of having changed his accounts, with the approval of the Commissioner, from the basis of a fiscal year ending June 30 to the basis of a fiscal year ending February 28. His taxable net income for the eight months was $60,000, and his exemption (for a full year) was $2,400.

QUESTION:

What is Mr. Lois' tax liability for the eight-months period!

ANSWER:

In accordance with the provisions of section 226 (c) the net income must first be placed on an annual basis by multiplying by twelve and dividing the result by the number of months in the period. The tax must then be computed on this 'annual' income (equivalent to a fiscal year) according to the method prescribed in section 205 (b) for fiscal years ended in 1922, and the total resultant tax arrived at on this 'annual' basis must be reduced to the proportion which the number of months in the period (eight) is of twelve months.

The computation follows:

Net income for eight months.... $60,000