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Our purpose in presenting this analysis of the Federal Income Tax law is to make it as comprehensive as possible without entering too fully into a discussion of its provisions. What the public particularly desires to know is the scope of the law and how to comply with its requirements. We have appended hereto a copy of the Act and also important Treasury Regulations and forms under it. In this discussion reference will be made to the law by paragraphs and subdivisions of paragraphs.

The legislation which we are considering is section 2 of the Tariff Act approved October 3, 1913. Subdivision 1 of paragraph A imposes a normal tax of one per centum per annum upon the entire net income arising or accruing from all sources in the preceding calendar year to the individuals named. It also provides that said tax shall be levied, collected and paid annually upon the entire net income from all property owned and of every business, trade or profession carried on in the United States by persons residing elsewhere.

Paragraph B defines the sources of taxable income. In addition thereto other income is subject to the tax as follows:

a–The share of the profits of a partnership to

which any taxable partner would be entitled
if the same were divided, whether divided or

b-Income derived from property acquired by

gift, bequest, devise or descent.
C-Income received as salary by any official of

the United States (except the President and
judges in office March first 1913) the govern-
ments of the District of Columbia, Porto
Rico, and the Philippine Islands, or the politi-

cal subdivisions thereof.
d-Income which may arise or accrue within the

preceding calendar year from any source not

particularly mentioned. A tax known and designated as an additional tax is imposed upon the income of the individuals named whenever their net income exceeds $20,000. This tax is assessed under the provisions of subdivision 2 of paragraph A.

Taxable income consists of money, property, debts receivable, or anything else which has an ascertainable value, received as gains, profits and income from either of the sources hereinbefore referred to during the taxable year. A debt receivable which does not represent income derived from any of said sources is not taxable.

In making a return of net income subject to the tax the individual will exclude for the purpose of both the normal and additional tax that which has been received as follows:

a—The proceeds of life insurance policies paid

upon the death of the person insured, or pay-
ments made by or credited to the insured on
life insurance endowment or annuity contracts
upon the return thereof to the insured at ma-

turity of the term mentioned in the contract.
bThe value of property acquired by gift, be-

quest, devise or descent. C-The interest upon the obligations of a State or any

political subdivision thereof; the United States or its possessions, or of the District of Columbia. Also the compensation of the President and others enumerated in the 3d subdivision of paragraph B.

The income received during the taxable year from the following sources is exempt from the normal tax but must be included in the individual's return for the purposes of the additional tax:

a—The dividends on the capital stock or from the net

earnings of corporations and others enumerated in paragraph G, who pay the normal tax upon net

income. b-The income upon which the normal tax has been

withheld and paid or to be paid under provisions of paragraphs D and E, referred to in subdivision 2

of paragraph B. Subject to the aforesaid exclusions the individual will make such deductions from his gross income as are applicable, as stated in subdivision 2 of paragraph B. From net income thus ascertained the exemption allowed in paragraph C, will be deducted. The income that remains is taxable.

Difficulty may arise in properly determining those deductions which relate to the exhaustion, wear and tear of property in business, worthless debts, and local assessments.

The necessary exhaustion, or depreciation, wear and tear of property in carrying on business will be determined in each case from the character and nature of its use. proper allowance for the general depreciation of property arising from its use should not include cost of maintenance etc.

A worthless debt must be charged off within the taxable year in order that the same may be deducted from taxable income. A debt of this description is one that is not collectible on account of the insolvency of the debtor. A local assessment is one assessed upon real estate to cover a proportionate cost of a public improvement which, to the extent of such assessment, enhances the value of the taxpayer's property.

It cannot be doubted that under the provisions of paragraph C taxable income to the amount of $3000 belonging to every person, married or unmarried, is exempt from the tax. No other reasonable construction can be given the law. Marriage should not be construed as a voluntary surrender of a legal right to the Government of the United States. The law contemplates that the husband or wife, when living together, may claim the benefit of the additional exemption of $1000 from the aggregate taxable income of both in excess of $3000. No other construction of the law will square with reason and justice.

If the entire gross income of the individual from the sources mentioned does not exceed $3000 he is not required to make a return of such income to the collector of internal revenue. If such income exceeds that amount he should make a return with claims for deduction and exemption. It may happen that after the individual has made the deductions and exemption, as stated, from his gross income that no apparent taxable income will remain, but he is not the sole judge of that matter, the collector will pass upon the return and may determine otherwise, if he does the individual may appeal to the Commissioner of Internal Revenue and introduce sworn testimony.

Under the provisions of paragraph D, the individual will make a return, under oath or affirmation, of his net income for aforesaid purposes, to the collector of internal revenue of the district in which he, the taxpayer, resides or has his principal place of business. In case a person resides in a foreign country such return will be made in the place where his principal business is carried on in the United States. In either case the return must be filed with the collector on or before March first of each year. The return must show the net income of the individual for the year which begins on the 1st day of January and ends on the 31st day of December following. For the year 1913, the net income will be computed from March 1st to December 31st both dates inclusive. Five-sixths only of the deduc

tions in paragraph B and the exemption in paragraph C, for the taxable year of twelve months will be deducted from gross income for the ten months (except that in the case of dividends on the capital stock or from the net earnings of corporations which is made the 7th specific deduction in paragraph B, the total amount thereof should be deducted from gross income for the purposes of the normal tax, instead of five-sixths of such income).

The tax will be assessed, upon the net income so returned by the individual, by the Commissioner of Internal Revenue unless the same is increased by the collector of internal revnue. If the collector should make the increase the individual may submit the case to the Commissioner of Internal Revenue for review, as before stated. After the tax has been assessed a notice will be sent to the individual of the amount on or before the 1st day of June and the tax must be paid to the collector of internal revenue on or before the 30th day of said month. Under paragraph E the Commissioner is authorized to make a return for the individual, in case of his neglect or refusal so to do, and thereupon assess the tax upon it with penalty.

Those who act in a fiduciary capacity, as stated in paragraph D, are required to make a return and pay the tax for the individual they represent. They are governed by the same provisions of the law that relate to individuals in making such return. One of two or more persons acting in said capacity is authorized to make such return provided he files it in the district where such person resides or where the will or other instrument is recorded.

The net income from property owned and business carried on in the United States by persons residing elsewhere shall be computed upon the basis prescribed in paragraph B and that part of paragraph G relating to the computation of net income of corporations and others organized, created,

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