Total war-profits and excess-profits taxes computed at One-third of the net income for the year was derived from Government contracts (20,000 divided by 60,000), hence Sec. 301 (b): "For the calendar year 1921 there shall be levied, collected, and paid upon the net income of every corporation which derives in such year a net income of more than $10,000 from any Government contract or contracts made between April 6, 1917, and November 11, 1918, both dates inclusive, a tax equal to the sum of the following: "(1) Such a portion of a tax computed at the rates specified in subdivision (a) of section 301 of the Revenue Act of 1918, as the part of the net income attributable to such Government contract or contracts bears to the entire net income. In computing such tax the excess-profits credit and the war-profits credit which would be applicable to such calendar year under the Revenue Act of 1918 if it had been continued in force, shall be used; "(2) Such a portion of a tax computed at the rates specified in subdivision (a) of this section as the part of the net income not attributable to such Government contract or contracts bears to the entire net income. .." For further reference see Art. 713, Regulations 62. PROBLEM 280 Illustrating Computation of Excess-Profits Tax in Case the Excess-Profits Credit is not All Absorbed in the First Bracket FACTS: The Soapine Chemical Corporation, which reports on the calendar-year basis, had an invested capital of $20,000 for the taxable year 1921. The net income of the company for the year was $6,000. QUESTION: What is the excess-profits tax? ANSWER: The excess-profits tax is $560, as under: The excess-profits credit equals $3,000 plus 8% of $20,000, or a total of $4,600. Sec. 301 (c): "In any case where the full amount of the excessprofits credit is not allowed under the first bracket of subdivision (a), by reason of the fact that such credit is in excess of 20 per centum of the invested capital, the part not so allowed shall be deducted from the amount in the second bracket." PROBLEM 281 Illustrating the Application of the Limitation of the ExcessProfits Tax in the Case of a Corporation Making a FACTS: Return for a Full Year The International Shirt Corporation had an invested capital of $25,000 for the calendar year 1921. Its income for the year ended Dec. 31, 1921, was $40,000. QUESTION: What is its excess-profits tax liability for 1921? Computation of limitation of tax 20% of ($20,000 minus $ 3,000) equals Total tax ...... $ 3,400 8,000 $11,400 REFERENCE: Sec. 302: "That the tax imposed by subdivision (a) of section 301 shall in no case be more than 20 per centum of the amount of the net income in excess of $3,000 and not in excess of $20,000, plus 40 per centum of the amount of the net income in excess of $20,000; . . .” PROBLEM 282 Illustrating the Application of the Limitation of the ExcessProfits Tax in Case of a Corporation Making a Return For Less Than a Full Twelve-Months Period FACTS: The invested capital of the O Company for the six-months period ended Dec. 31, 1921, was $40,000. The net income for the same period was $36,000. PROBLEM: Compute the excess-profits tax. SOLUTION: Income for 6 months Income for 12 months, at same rate, (12% X $40,000) $40,000 80,000 Excess-profits credit-$3,000+8% of $40,000 or $6,200. Limitation: 20% of ($20,000 - $ 3,000), or Plus 40% of ($36,000 - $20,000), or $3,400 Excess-profits tax for the 6 mo. period.. $9,800 REFERENCES: Articles 732 and 733, as amended by T. D. 3245, Bul. 48-21-1953. Art. 732: "When a return is rendered for a fractional part of a year, the limitation shall be computed in the same manner as if the period covered by the return were a full taxable year." Art. 733 contains a practical illustration of the computation. Sec. 302 (Quoted under Problem 281) See Problem 323. PROBLEM 283 Illustrating the Determination of the Excess-Profits Tax in Case Thirty Percent or More of the Net Income of a Corporation Is Derived from a Trade or Business Which if It Constituted the Sole Trade or Business of the Corporation Would Bring the Corporation within the Class of Personal-Service Corporations FACTS: and the Remainder of the Net Income Is Derived from a Separate Trade or Business Requiring In- H. B. Thomas Engineering Company, a New York corporation, is engaged in the business of rendering professional engineering services. If this constituted its sole business, it would undoubtedly be regarded as a personal-service corporation. However, the company also owns a ten-story business building, nine floors of which it rents out to business concerns. The company itself occupies the remaining floor. The invested capital for 1921 was $225,000, of which $200,000 was used in the nonpersonal-service part of the business. The net income for the accounting year ended December 31, 1921 was $150,000, $60,000 |