possibility that these words were added, and not to provide an unequal and unique method of taxing a partner's gains and profits from a partnership. The contention to the contrary is narrow and literal, even if not lacking in plausibility. It is a contention, however, contrary to the spirit and general policy of the act; it destroys uniformity and equality, and should not be adopted, unless required by the express language of the statute. In my opinion, the language of the statute does not so require; but, on the contrary, when the entire act is examined, it does give a right to the deduction. Counsel for plaintiff invoke the legal principles that an exemption in a tax law must be clearly expressed, and will not be implied; that power to tax will not be taken away, unless the law-making power has done so in clear and unequivocal language; and that, inasmuch as uniformity and equality is difficult, if not impossible, of attainment in tax law, the inequality which might result from the government's contention should not be permitted to control the language of the law. Numerous authorities illustrating these legal principles are cited. These principles are well settled, and I assume ample power in Congress to have assessed defendant's income derived from a partnership in the manner contended for. It is my opinion, however, that Congress has not done so. The foregoing principles and authorities cited in support thereof are not those properly applicable in this situation. The principles in point are those stated in Gould v. Gould, 245 U. S. 151, 38 Sup. Ct. 53, 62 L. ed. 211, where it was held that alimony allowances are not income within the meaning of the 1913 Income Tax Law; that is to say, in the interpretation of statutes levying taxes, it is the established rule not to extend their provisions by implication beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out, and that in case of doubt they are to be construed most strongly against the government and in favor of the citizen. To the same effect are United States v. Wigglesworth, 2 Story 369, Fed. Cas. No. 16,690; American Net & Twine Co. v. Worthington, 141 U. S. 468, 474, 12 Sup. Ct. 55, 35 L. ed. 821; Benziger v. United States, 192 U. S. 38, 55, 24 Sup. Ct. 189, 48 L. ed. 331. Counsel for plaintiff call attention to the fact that the federal Income Tax Law of September 8, 1916 (39 Stat. 756, c. 463), now provides that members of partnerships shall be allowed credit for their proportionate share of partnership gains and profits derived from corporations taxable on their net income, and urge that this is a change of the law, and evidences a belief of the law-making body that the 1913 Income Tax Law had provided differently. I do not agree with this contention. In my opinion, this provision was inserted in the 1916 act to put at rest the present controversy, rather than to change the law, and is to be regarded only as a legislative recognition of the scope and intent of the prior law. The applicable authorities, in my opinion, are the following: Bailey v. Clark, 21 Wall. 284, 22 L. ed. 651; Johnson v. Southern Pacific Co., 196 U. S. 1, 25 Sup. Ct. 158, 49 L. ed. 363; Wetmore v. Markoe, 196 U. S. 68, 25 Sup. Ct. 172, 49 L. ed. 390, 2 Ann. Cas. 265. Judgment is rendered in favor of defendant. An exception may be noted on behalf of plaintiff.40 40 Suppose the partnership and the partner both become bankrupt. Has the United States any priority over partnership creditors against the partnership assets, in its claim for income taxes due from the partner in respect of income from the partnership? See U. S. v. Kaufman, (1925) 267 U. S. 408, 45 Sup. Ct. 322, 69 L. ed. 5 Am. Fed. Tax R. 5262. CHAPTER IV THE TAX ON CORPORATIONS Revenue Act of 1924. SEC. 2. (a) When used in this Act (2) The term "corporation" includes associations, joint-stock companies, and insurance companies. SEC. 230. In lieu of the tax imposed by section 230 of the Revenue Act of 1921 there shall be levied, collected, and paid for each taxable year upon the net income of every corporation a tax of 121⁄2 per cent of the amount of the net income in excess of the credits provided in sections 236 and 263. Regulations 65. See articles 1502-1504, 1506, 1508, of Regulations 65, printed supra, p. 58. ART. 501. Income tax on corporations.-The statute imposes an income tax at a fixed rate on all corporations not expressly exempt. (See section 231 of the statute.) The tax is upon net income, as defined in the statute, after deducting from gross income, as defined in the statute, the allowable deductions. (See sections 232-235.) Certain credits are allowed against net income and against the amount of the tax. (See sections 236, 238, and 263.) The tax is payable upon the basis of returns rendered by the corporations liable thereto, except that in some cases it is to be paid at the source of the income. (See also sections 237, 239, 240, and 241.) For the income tax on individuals, for administrative provisions, and for definitions and general provisions, see Parts I, III, and IV of the regulations. For the income tax on life insurance companies, see sections 242-245; on insurance companies other than life or mutual, sections 246-247. Mutual insurance companies other than life are taxed under section 230. As to foreign corporations, see sections 233 (b), 234 (b), and 241; as to domestic corporations deriving 80 per cent of their gross income from sources within possessions of the United States, see section 262; as to China Trade Act corporations, see section 263. ART. 502. Rates of tax.-The income tax on corporations for 1924 and subsequent years is at the rate of 121⁄2 per cent of the net income subject to tax. In order to determine the amount subject to tax the net income, as defined in section 232 of the statute and article 531 of the regulations, may be reduced by the amount of any credits allowable under sections 236 and 263. ART. 503. Corporations liable to tax.- Every corporation, domestic or foreign, not exempt under section 231 of the statute, is liable to the tax. It makes no difference that a domestic corporation (unless entitled to the benefits of section. 262) may receive no income from sources within the United States. On the other hand, a foreign corporation is taxed only on its income from sources within the United States. (See section 233 (b) of the statute and article 550.) For what the term "corporation" includes and for the difference between domestic and foreign corporations, see section 2 and articles 1501-1509. SECTION 2.-EXEMPT CORPORATIONS Revenue Act of 1924. SEC. 231. The following organizations shall be exempt from taxation under this title (1) Labor, agricultural, or horticultural organizations; (2) Mutual savings banks not having a capital stock represented by shares; (3) Fraternal beneficiary societies, orders, or associations, (a) operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating under the lodge system; and (b) providing for the payment of life, sick, accident, or other benefits to the members of such society, order, or association or their dependents; (4) Domestic building and loan associations substantially all the business of which is confined to making loans to members; and coöperative banks without capital stock organized and operated for mutual purposes. and without profit; (5) Cemetery companies owned and operated exclusively for the benefit of their members or which are not operated for profit; and any corporation chartered solely for burial purposes as a cemetery corporation and not permitted by its charter to engage in any business not necessarily. incident to that purpose, no part of the net earnings of which inures to the benefit of any private shareholder or individual; (6) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual; (7) Business leagues, chambers of commerce, or boards of trade, not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual; (8) Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes; (9) Clubs organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, no part of the net earnings of which inures to the benefit of any private shareholder; (10) Benevolent life insurance associations of a purely local character, farmers' or other mutual hail, cyclone, casualty, or fire insurance companies, mutual ditch or irrigation companies, mutual or coöperative telephone companies, or like organizations; but only if 85 per cent or more of the income consists of amounts collected from members for the sole purpose of meeting losses and expenses; (11) Farmers', fruit growers', or like associations, organized and operated as sales agents for the purpose of marketing the products of members and turning back to them the proceeds of sales, less the necessary selling expenses, on the basis of the quantity of produce furnished by them; or organized and operated as purchasing agents for the purpose of purchasing supplies and equipment for the use of members and turning over such supplies and equipment to such members at actual cost, plus necessary expenses; (12) Corporations organized for the exclusive purpose of holding title to property, collecting income therefrom, and turning over the entire amount thereof, less expenses, to an organization which itself is exempt from the tax imposed by this title; and (13) Federal land banks, national farm-loan associations, and Federal intermediate credit banks, as provided in the Federal Farm Loan Act, as amended. |