Federal Income Tax Problems --1922

... the beneficiaries of an estate or trust . . . under regulations prescribed by the Commissioner with the approval of the Secretary."

PROBLEM 40

Computation of Net Loss in the Case of a Taxpayer Reporting on a Fiscal-Year Basis

FACTS:

The Firmset Furniture Company for its fiscal year ended June 30, 1921, has a net loss of $20,000.

QUESTION:

How is the net-loss deduction applied?

ANSWER:

The proportion of the taxpayer's accounting period falling in 1921 is one-half. Therefore, 12 of $20,000, or $10,000, is the amount of such net loss as computed under the Revenue Act of 1921, which may be charged against the income for the fiscal year ended June 30, 1922; if the income for that year is less than $10,000 the difference may be offset against the income for the fiscal year ended June 30, 1923, to the extent of the net income in that fiscal year.

REFERENCE:

Sec. 204 (d): "If it appears, upon the production of evidence satisfactory to the Commissioner, that a taxpayer having a fiscal year beginning in 1920 and ending in 1921 has sustained a net loss during such fiscal year, such taxpayer shall be entitled to the benefits of this section in respect to the same proportion of such net loss which the portion of such fiscal year falling within the calendar year 1921 is of the entire fiscal year."

PROBLEM 41

Illustrating Computation of Tax on Individuals-Fiscal Year 1920-1921

FACTS:

(a) George Russell, a citizen of the United States, living on

the last day of his taxable year with his wife and two dependent children both under 18 years of age, has a taxable net income of $4,850 for the fiscal year ending September 30, 1921.

(b) Robert Wells, a citizen of the United States, living on October 31, 1921 with his wife and two-year-old child, has a taxable net income of $5,010, for the fiscal year ending October 31, 1921.

(c) Wm. Kerr, a citizen of the United States, at the end of his taxable year was living with his wife, and was the chief support of his physically defective father. The taxpayer has a net income of $48,000 for the fiscal year ending November 30, 1921. In arriving at this income he deducted $5,000, as a loss sustained in selling shares of stock, which were sold on November 28, 1921, but which he repurchased the next day and still holds.

(d) Charles Roberts, a citizen of the United States living with his wife on the last day of his taxable year, has a net income of $24,000, for the fiscal year ending October 31, 1921.

QUESTION:

What is the amount of Federal income tax assessable against each of the above individuals?