PROBLEM 42 Illustrating Adjustments for Payments of Tax Made Prior to the Passage of 1921 Act on Fiscal Year 1920-1921 FACTS: (a) John Burke, having a fiscal year ending June 30, 1921, paid his tax in full, computed under the 1918 Act, September 15, 1921. Under the 1921 Act Mr. Burke's tax liability for his fiscal year is $18 less than the amount paid. (b) William Miller, having a fiscal year ending July 31, 1921, paid his first installment of tax October 15, 1921. Recomputation after the passage of the 1921 Act shows that he overpaid the installment by $5.25. (c) Peter Wood, having a fiscal year ending July 31, 1921, computed his tax under the 1918 Act. Upon the passage of the 1921 Act, a recomputation showed that he still owed $500, on his first installment, which installment he had paid when due October 15, 1921. QUESTION: How are the payments by the above individuals to be adjusted! ANSWER: (a) John Burke, having paid his tax in full, may file a claim for refund of the overpayment of $18. (b) William Miller may file a claim for credit for $5.25 and withhold this amount as an offset against a later installment of tax as computed in accordance with the 1921 Act. (c) Peter Wood must make a new return, and finding $500 due on his first installment must pay same immediately. REFERENCE: Sec. 205 (a) (Quoted under Problem 44) PROBLEM 43 Illustrating Computation of Tax on Individuals-Fiscal Year 1921-1922 FACTS: (a) Charles Owen, a married man living on October 31, 1922 with his wife and his two children both under 18 years of age, shows a taxable net income of $26,000 for the fiscal year ending on that date. (b) Fred Cook, a married man living with his wife on the last day of his taxable year, shows a taxable net income of $5,000, for the fiscal year ending June 30, 1922. (c) John Ross, single, shows a taxable net income of $46,000 for the fiscal year ending August 31, 1922. Included in this income is a capital net gain of $10,000, realized in July, 1922. (d) Edward Moore, a married man, living with his wife on September 30, 1922, has a taxable net income of $6,000 for the fiscal year ending on that date. All of the above taxpayers are citizens of the United States. QUESTION: What is the income tax assessable against each of the above individuals for the fiscal years indicated? 1921 portion (Nov. 1, 1921, to Dec. 31, 1921) 212 Surtax (1922 rates) Total tax 1922 rates 1922 portion (Jan. 1, 1922, to Oct. 31, 1922 10/12 $ 501.00 980.00 $2,676.00 $2,230.00 501.00 $2,731.00 $5,000.00 2,500.00 2,500.00 Balance Tax @ 4% Since the rates for 1921 and 1922 are the (c) Net income 100.00 $100.00 $46,000.00 Less personal exemption. 1,000,00 Total tax (1922 rates, computed under Sec. 206-b) 6,190.00 1921 portion (Sept. 1, 1921. to Dec 31, 1921) 12 of $8,050 $2,683.33 1922 portion (Jan. 1, 1922, to Aug. 31, 1921 portion (Oct. 1, 1921, to Dec. 31, $ 42.50 1922 portion (Jan. 1, 1922, to Sept. 30, 120.00 Total tax assessable $162.50 REFERENCES: Sec. 205 (b) (Quoted under Problem 44) For computation of case under section 206 (b) see Problem 52. PROBLEM 44 Illustrating Computation of Income and Profits Taxes for a Fiscal Year Ended in 1921 FACTS: The Wilson Woodcraft Corporation for its fiscal year ended May 31, 1921, had a taxable net income of $90,000. Its invested capital for the year was $400,000. A return was filed August 15, 1921, showing a tax liability of $20,700. One-fourth of the tax was paid when the return was filed, and a second equal installment was paid on November 15th. PROBLEM: Compute the tax for the fiscal year and show the amount of tax still due. SOLUTION: Computation of excess-profits tax: Excess-profits credit, $3,000+8% of $400,000-$35,000 First bracket (not Net in- Credit Balance Rate Tax over 20% of in come vested capital).. $80,000 $35,000 $45,000 20% $ 9,000 The excess-profits tax, under both the 1918 Act and the 1921 Act, for the full twelve months is $13,000. The excess-profits tax, then, for the 7 months in 1920 would be 12 of $13,000, or $7,583.33, and the excess-profits tax for the 5 months in 1921 would be 512 of $13,000, or $5,416.67. Computation of the income tax: $75,000 @ 10% $7,500 $77,000 @ 10% $7,700 |