ANSWER: The Revenue Act of 1921, Sec. 239 (a) states "That every corporation subject to taxation under this title and every personal service corporation shall make a return, stating specifically the items of its gross income and the deductions and credits allowed." REFERENCE: Art. 624; Regulations 62: "Every personal service corporation must make a return of income, regardless of the amount of its net income. It shall be made for the taxable year of the personal service corporation; that is, for its annual accounting period (fiscal year or calendar years, as the case may be), regardless of the taxable year of its stockholders. See sections 200, 212, and 218 of the statute, and articles 1523-1532, 25, 26 and 336-339. For the calendar year 1921 the return shall be made on Form 1065. If the personal service corporation makes any change in its accounting period, it shall render the return in accordance with the provisions of section 226 of the statute and article 431. The return of a personal service corporation covering any period beginning prior to January 1, 1922, should state specifically (a) the items of its gross income enumerated in section 213 of the statute; (b) the deductions enumerated in section 214 of the statute, other than the deduction provided in paragraph (11) of subdivision (a) of that section; (c) the amount specified in subdivisions (a) and (b) of section 216 of the statute received by the personal service corporation; (d) the amount of any income, war-profits, and excess-profits taxes of the personal service corporation paid during the taxable year to a foreign country or to any possession of the United States, and the amount of any such taxes accrued but not paid during the taxable year; (e) the amounts distributed by the corporation during its taxable year, with the dates of distribution and the names of the distributees; (f) the names and addresses of the stockholders of the corporation and their respective shares in such corporation at the close of its taxable year, and on December 31, 1921; (g) such facts as tend to show whether or not the corporation is a personal service corporation with reference to any period beginning prior to January 1, 1922; and (h) such other facts as are required by the form. PROBLEM 223 Illustrating Filing of Tax Return by Domestic Corporation Having No Net Income FACTS: The Harrison Leather Company of New York showed a loss for the calendar year 1920, and so reported in a letter addressed to the Commissioner of Internal Revenue and signed by the cashier of the company. QUESTION: What would have been the proper proceeding? ANSWER: The corporation should have filed form 1120 with the collector, showing its gross income and the deductions and credits allowed. REFERENCES: Sec. 239 (a): "That every corporation subject to taxation under this title and every personal service corporation shall make a return, stating specifically the items of its gross income and the deductions and credits allowed by this title. The return shall be sworn to by the president, vice-president, or other principal officer and by the treasurer or assistant treasurer." Art. 621, Regulations 62: "Every corporation not expressly exempt from tax must make a return of income, regardless of the amount of its net income. In the case of ordinary corporations the return shall be on form 1120. . . . PROBLEM 224 Illustrating Filing of Income Tax Returns by Receivers of Domestic Corporation FACTS: The Glen Cove Railroad Company, organized under the laws of the State of New York, being unable to meet its obligations, has been placed in the hands of a receiver appointed by the court. The receiver continues to operate the railroad. QUESTION: Is it necessary to file a return for that company? If so, by whom must the return be filed? ANSWER: It is necessary to file a return on form 1120, which should be made up by the receiver. The receiver must continue to file returns of income for each year or part of year in which he is acting in the capacity of receiver. REFERENCES: Sec. 239 (a): "In cases where receivers, trustees in bankruptcy, or assignees are operating the property or business of corporations, such receivers, trustees, or assignees shall make returns for such corporations in the same manner and form as corporations are required to make returns. Any tax due on the basis of such returns made by receivers, trustees, or assignees shall be collected in the same manner as if collected from the corporations of whose business or property they have custody and control." Art. 622, Regulations 62: "Receivers, trustees in dissolution, trustees in bankruptcy, and assignees, operating the property or business of corporations, must make returns of income for such corporations on Form 1120, covering each year or part of a year during which they are in control. Notwithstanding that the powers and functions of a corporation are suspended and that the property and business are for the time being in the custody of the receiver, trustee, or assignee, subject to the order of the court, such receiver, trustee or assignee, stands in the place of the corporate officers and is required to perform all the duties and assume all the liabilities which would devolve upon the officers of the corporation were they in control. A receiver in charge of only part of the property of a corporation, however, as a receiver in mortgage foreclosure proceedings involving merely a small portion of its property, need not make a return of income." Art. 424, Reg. 62: "A receiver who stands in the stead of an individual or corporation must render a return of income and pay the tax for his trust, but a receiver of only part of the property of an individual or corporation need not. If the receiver acts for an individual the return shall be on form 1040 or 1040 A. When acting for a corporation a receiver is not treated as a fiduciary, and in such a case the return shall be made as if by the corporation itself. . . .” PROBLEM 225 Illustrating Filing of Income Tax Return by Foreign Corporations Having no Place of Business in the United States FACTS: The Dominion Corporation, Ltd., has considerable business in the United States, but maintains no office, transacting its business through an agent. QUESTION: How should the corporation report its income from sources within the United States? ANSWER: Every foreign corporation having income from sources within the United States must make a return of income. If such a corporation has no place of business here, but has an authorized agent in the United States, the agent shall file the return. REFERENCES: Sec. 239 (a): 66 If any foreign corporation has no office or place of business in the United States but has an agent in the United States, the return shall be made by the agent. Art. 625, Regulations 62: "Every foreign corporation and corporation satisfying the conditions set forth under section 262, having income from sources within the United States, must make a return of income. . . . If such a corporation has no office or place of business here, but has a resident agent, he shall make the return. It is not necessary, however, for it to be required to make a return that the foreign corporation shall be engaged in business in this country or that it have any office, branch, or agency in the United States. . . .' 99 PROBLEM 226 Illustrating What Information With Respect to Dividend Payments is Required to be Included in a Corporation Return FACTS: The National Metal Company is a domestic corporation and has over 200 stockholders. Its taxable year ends September 30. It was about to file its income and profits-tax return for the taxable year ended September 30, 1921, when the Revenue Act of 1921 was enacted. In order to study the requirements of the new act it secured an extension of time until January 15, 1922, to file said return. The treasurer of the company was charged with the duty of the preparation of said return. In studying the Revenue Act of 1921, he observed the provision of paragraph (c) of Section 239 to the effect that there is required to be included in the return a statement of such facts as will enable the Commissioner to determine the portion of the taxable year's profits which have been distributed or ordered to be distributed, during the taxable year. He is puzzled as to just what information he should furnish to meet requirements. QUESTION: What is the purpose of the requirements set forth in paragraph (c) of section 239 above mentioned, and how may such requirements be met in this case? ANSWER: The information required under paragraph (c) of section 239 on the return as to dividends paid and declared during the year is probably to enable the Commissioner to determine whether the corporation is being availed of to prevent the imposition of the surtax upon its stockholders through the medium of permitting its profits to accumulate beyond the reasonable needs of the business, and differs from the return that may be required by the Commissioner to enable him to verify the fact that the dividends paid have been included on the personal return of each stockholder. (See Problem 269 for illustration of the latter requirement.) The corporation return form in use during 1920 outlined a schedule to be followed in reconciling taxable net income with book income and surplus at the beginning and end of the taxable year. If the corporation will render its return on the old form and furnish the information on the schedule just referred to, together with a statement of the dividends declared, it is believed the corporation will meet the requirements of the statute, in the connection referred to in this problem. It is possible, however, that the Bureau may later require the filing of an amended return on any new forms which it may issue. REFERENCE: Sec. 239 (c): "There shall be included in the return or appended thereto a statement of such facts as will enable the Commissioner to determine the portion of the earnings or profits of the corporation (including gains, profits and income not taxed) accumulated |