Lapas attēli
PDF
ePub

it income. The excise tax sued for is measured by the defendant's net income, ascertained by deducting from its gross income received from all sources certain specified items, which do not cover gifts. The Income Tax Laws of 1913, 1916, and 1917 expressly provide that only the income of gifts is to be taxed, from which it may be inferred that, but for this provision, the gifts themselves would have been taxed as income.12

II. COMPENSATION FOR SERVICES
Regulations 65.

ART. 32. Compensation for personal services.-Where no determination of compensation is had until the completion of the services, the amount received is ordinarily income for the taxable year of its determination, if the return is rendered on the accrual basis; or, for the taxable year in which received, if the return is rendered on a receipts and disbursement basis. Commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, pay of persons in the military or naval forces of the United States, retired pay of Federal and other officers, and pensions or retiring allowances paid by private persons or by the United States (except pensions exempted by paragraph (9) of subdivision (b) of section 213), are income to the recipients; as are also marriage fees, baptismal offerings, sums paid for saying masses for the dead, and other contributions received by a clergyman, evangelist, or religious worker for services rendered. However, so-called pensions awarded by one to whom no services have been rendered are mere gifts or gratuities and are not taxable. The salaries of Federal officers and employees are subject to tax. (See section 209 and articles 1661 and 1662 for special provisions relative to earned income and article 88 as to compensation of state officers and employees.) ART. 33. Compensation paid other than in cash.- Where services are paid for with something other than money, the fair market value of the thing taken in payment is the amount to be included as income. If the services were rendered at a stipulated price, in the absence of evidence to the contrary such price

12

Compare the language of the court in Eisner v. Macomber, infra, p. 150.

will be presumed to be the fair value of the compensation received. Compensation paid an employee of a corporation in its stock is to be treated as if the corporation sold the stock for its market value and paid the employee in cash. When living quarters such as camps are furnished to employees for the convenience of the employer, the ratable value need not be added to the cash compensation of the employees, but where a person receives as compensation for services rendered a salary and in addition thereto living quarters, the value to such person of the quarters furnished constitutes income subject to tax. (But see section 213(b) (11).) Premiums paid by an employer on policies of group life insurance covering the lives of his employees, the beneficiaries of which are designated by the employees, are not income to the employees. (See article 293.)

ART. 34. Compensation paid in notes.-Notes or other evidences of indebtedness received in payment for services, and not merely as security for such payment, constitute income to the amount of their fair market value. A taxpayer receiving as compensation a note regarded as good for its face value at maturity, but not bearing interest, shall treat as income as of the time of receipt the fair discounted value of the note at such time. Thus, if it appears that such a note is or could be discounted on a 6 per cent basis, the recipient shall include such note in his gross income to the amount of its face value less discount computed at the prevailing rate for such transactions. If the payments due on a note so accounted for are met as they become due, there should be included as income in respect of each such payment so much thereof as represents recovery for the discount originally deducted.

ART. 35. Gross income from business.-In the case of a manufacturing, merchandising, or mining business "gross income" means the total sales, less the cost of goods sold, plus any income from investments and from incidental or outside operations or sources. In determining the gross income subtractions should not be made for depreciation, depletion, selling expenses or losses, or for items not ordinarily used in computing the cost of goods sold.

ART. 36. Long-term contracts.-Income from long-term contracts is taxable for the period in which the income is deter

mined, such determination depending upon the nature and terms of the particular contract. As used herein the term "long-term contracts" means building, installation, or construction contracts covering a period in excess of one year. Persons whose income is derived in whole or in part from such contracts may, as to such income, prepare their returns upon the following bases:

(a) Gross income derived from such contracts may be reported upon the basis of percentage of completion. In such case there should accompany the return certificates of architects or engineers showing the percentage of completion during the taxable year of the entire work to be performed under the contract. There should be deducted from such gross income all expenditures made during the taxable year on account of the contract, account being taken of the material and supplies on hand at the beginning and end of the taxable period for use in connection with the work under the contract but not yet so applied. If, upon completion of a contract, it is found that the taxable net income arising thereunder has not been clearly reflected for any year or years, the Commissioner may permit or require an amended return.

(b) Gross income may be reported in the taxable year in which the contract is finally completed and accepted if the taxpayer elects as a consistent practice so to treat such income, provided such method clearly reflects the net income. If this method is adopted there should be deducted from gross income all expenditures during the life of the contract which are properly allocated thereto, taking into consideration any material and supplies charged to the work under the contract but remaining on hand at the time of completion.

Where a taxpayer has filed his return in accordance with the method of accounting regularly employed by him in keeping his books and such method clearly reflects the income, he will not be required to change to either of the methods above set forth. If a taxpayer desires to change his method of accounting in accordance with paragraphs (a) and (b) above, a statement showing the composition of all items appearing upon his balance sheet, and used in connection with the method of accounting formerly employed by him, should accompany his

return.

JACKSON v. SMIETANKA

(Circuit Court of Appeals of the United States, 1921. 272 Fed. 970, 2 Am. Fed. Tax R. 1408.)

BAKER, J. Jackson, plaintiff, filed a declaration to recover income taxes paid by him under protest. Defendant's demurrer was sustained; plaintiff declined to plead over; and this writ of error challenges the consequent judgment.

From May, 1913, to April, 1918, plaintiff served as a railroad receiver under appointment of the District Court at Chicago. Plaintiff accepted the employment under an order providing that he "be paid on account of his services at the rate of $2,000 per month" and that on termination of his trust he "shall be at liberty to apply for such further compensation as to the court may then appear reasonable and just." For the years 1913 to 1917, inclusive, plaintiff made returns on the basis of "income received," and, respecting this receivership, he had neither a business system nor books nor unpaid allowances for services from which he could have made returns of "income accrued." In 1918 plaintiff was allowed and paid "as final payment for all services rendered by him during the receivership herein the additional sum of $100,000." On March 14, 1919, plaintiff filed his return for 1918, showing the receipt of said $100,000, and also filed amended returns for 1913 to 1917, inclusive, in which he claimed that pro rata parts of said $100,000 were "accrued income" of those years. On April 16, 1919, the collector rejected the amended returns and demanded normal taxes and surtaxes on the $100,000 so received in 1918. Plaintiff then prepared, and on April 22, 1919, presented to the District Court, a petition for a nunc pro tunc order showing that the additional compensation was earned and had accrued in equal monthly installments throughout the receivership, and the order as tendered was entered. Thereupon plaintiff, on May 28, 1919, paid $26,826 under protest, and subsequently brought this action to recover the difference, $19,973.

Unless some effect is to be given to the nunc pro tunc order, the collector was right. Section 213 of the Revenue Act of 1918 requires a return of "income derived from salaries . or compensation for personal service," and provides that the

amount thereof "shall be included in the gross income for the taxable year in which received by the taxpayer, unless, under methods of account permitted under subdivision (b) of section 212, any such amounts are to be properly accounted for as of a different period." That subdivision permits a return "upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; but if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income, the computation shall be made upon such basis and in such manner as in the opinion of the Commissioner does clearly reflect the income." Not only do the facts of this case demonstrate that there is no permission in that subdivision to save plaintiff from the direct mandate of section 213, but article 32 of Regulations 45 (authorized by section 1309 of the act) explicitly requires that "where no determination of compensation for personal services is had until the completion of the services, the amount received is income for the calendar year of its determination." Plaintiff from time to time during the receivership had applied to the court for additional compensation, and the court had always refused. Manifestly such refusals were in accordance with the original order of appointment, which plainly denied any intermediate right to additional compensation and left the question of what additional compensation, if any, would be fair to be determined when the trust ended and to be dependent upon the outcome of the administration. And whether the regulation means that the compensation is income of the year in which the determination of the amount is made, or is income of the year in which payment is made, is immaterial in the present case, for both determination of amount and payment thereof occurred in

1918.

A year after plaintiff had finally stepped out of the District Court and a month after his liability to make a true return of his income for 1918 had become fixed, plaintiff reappeared in court and obtained the aforesaid nunc pro tunc order. Respecting the general question of a court's authority to make nunc. pro tunc orders or judgments, plaintiff cites certain authorities,

« iepriekšējāTurpināt »