Art. 1624, Regulations 62: "Fiscal year ending in 1922.-in computing the tax for a fiscal year beginning in 1921 and ending in 1922 the procedure is as follows: (a) The tax attributable to the calendar year 1921 is found by computing the income of the taxpayer and the tax thereon in accordance with the statute as in force on December 31, 1921, as if the fiscal year was the calendar year 1921 and determining the proportion of such tax which the portion of such period within the calendar year 1921 is of the entire period; before calculating the tax the net income computed for the entire period shall be credited with the excess-profits tax computed for the entire period under Title III1 of this statute as if the fiscal year was the calendar year 1921; (b) the tax attributable to the calendar year 1922 is found by computing the income of the taxpayer and the tax thereon in accordance with the statute as in force on January 1, 1922, as if the fiscal year was the calendar year 1922, and determining the proportion of such tax which the portion of such fiscal year falling within the calendar year 1922 is of the entire period; and (c) the tax for the fiscal year is found by adding the tax attributable to the calendar year 1921 to the tax attributable to the calendar year 1922. . . . . .” Art. 954, Regulations 62: "Fiscal year of corporation ending in 1922.-The method provided for computing the tax 2 for a fiscal year beginning in 1921 and ending in 1922 is as follows: The tax 2 attributable to the calendar year 1921 is found by computing the income of the taxpayer and the tax thereon in accordance with the statute as if the fiscal year was the calendar year 1921, and determining the proportion of such tax which the number of months falling within the calendar year 1921 is of the number of months in the entire period. . . .” NOTE: As in Problem 44, illustrating the computation of the tax in the case of a fiscal year ending in 1921, the above computation is made in accordance with the method outlined in Regulations 62, which method is unquestionably more equitable than that shown below. The following computation, however, would appear to be more nearly in conformity with the language of the statute: Computation of income tax and total tax: Net income.. 1 Refers to the profits tax. 2 Article 954 refers only to the profits tax. $15,000.00 Tax on $15,000 at 1212% for 10/12 year (1922) (ex emption $2,000) 1,354.17 Total tax for fiscal year $1,859.28 PROBLEM 46 Illustrating Computation of Tax Against a Personal Servicel Corporation-Fiscal Year 1921-1922 FACTS: The Brown & Wilson Company, a domestic personal service corporation, shows a taxable net income of $64,000 for the fiscal year ending June 30, 1922. QUESTION: What is the income tax assessable against the above corporation? Sec. 205 (b): "If a taxpayer makes return for a fiscal year beginning in 1921 and ending in 1922, his tax under this title for the taxable year 1922 shall be ... (2) the same proportion of a tax for the entire period computed under this title (as in force on January 1, 1922) at the rates for the calendar year 1922 which the portion of such period falling within the calendar year 1922 is of the entire period: Provided, That in the case of a personal service corporation the amount to be paid shall be only that specified in clause (2)." FACTS: PROBLEM 47 Illustrating Capital Gain The H. O. Kerr Tool Company in 1922 sells for $30,000 a warehouse which it had purchased in 1915 for $15,000. The depreciation on the building in the meantime was $2,000. The expense of making the sale amounted to $500. Sec. 206 (a): "That for the purpose of this title: (1) The term 'capital gain' means taxable gain from the sale or exchange of capital assets consummated after December 31, 1921.” FACTS: PROBLEM 48 Illustrating Capital Loss The John G. Ward Dry Goods Company in January, 1922, sold for $30,000 a store building which the company purchased in January, 1900, at a cost of $80,000. The building was estimated to have a 50-year life. The market value of the building on March 1, 1913, was $74,000. The depreciation written off on the books of the company was $1,600 for each year in the period from 1900 to 1912, inclusive, and $2,000 for each year in the period from 1913 to 1920, inclusive. The expenses of the sale were borne by the vendee. The $41,200.00, being lower than the $56,666.67, is used as the basis for computing the loss. Sec. 206 (a): "That for the purpose of this title: . . . (2) The term 'capital loss' means deductible loss resulting from the sale or exchange of capital assets consummated after December 31, 1921;" PROBLEM 49 Illustrating Capital Deductions and Capital Net Gain FACTS: The Moore Malt Company in 1922, sells a store building at a loss of $11,200. The company also sells a warehouse, realizing thereon a profit of $17,000, offset in part, however, by an expense of $500, in effecting the sale. QUESTION: What is the capital deduction, and what is the capital net gain? ANSWER: The capital deduction is $500. The capital net gain is computed as follows: Profit on sale of warehouse Loss on sale of store building Capital deductions. Capital net gain $17,000 $11,200 500 11,700 $ 5,300 REFERENCE: Sec. 206 (a): "That for the purpose of this title... (3) the term 'capital deductions' means such deductions as are allowed under this title for the purpose of computing net income and properly allocable to or chargeable against items of capital gain as defined in this section; (4) the term 'capital net gain' means the excess of the total amount of capital gain over the sum of the capital deductions and capital losses." PROBLEM 50 Illustrating Ordinary Net Income as Distinguished from Capital Gain FACTS: The Pica Printing Company, job printers, in 1922, has in |