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The Revenue Act of 1921 contains a number of provisions which did not become effective until January 1, 1922. In consequence, they did not apply to calendar year returns on 1921 incomes which were filed in 1922, but must be observed in all returns filed this year on 1922 incomes. Some of the more important of these provisions are:

Excess Profits Tax on Corporations. This was repealed as of January 1, 1922, and does not apply to 1922 profits. Corporations making returns upon the basis of a fiscal year ending in 1922 pay upon that part of the net income attributable to the period before January 1, 1922.

Corporation Rates. There is now only one rate of tax on the net income of corporations earned in 1922. This is a flat rate of 121⁄2 per cent. Formerly a 10 per cent income tax and an excess profits tax of 20 and 40 per cent were imposed.

Personal Service Corporations. From January 1, 1922, these corporations are taxed the same as other corporations.

Consolidated Returns. For taxable years beginning after December 31, 1921, affiliated corporations, at their option, may make either consolidated or separate returns. Having established a basis, they must adhere to it in future returns.

Surtaxes on Individual Incomes. Beginning with the calendar year 1922, the highest surtax on individual incomes is 50 per cent on net incomes of more than $200,000. Surtaxes begin at I per cent on net incomes of between $6,000 and $10,000, increase by I per cent for each additional $2,000 of net income (except on $20,000 to $22,000 on which the rate is 8 per cent, and $32,000 to $36,000 on which the rate is 15 per cent), to 47

per cent on $98,000 to $100,000, 48 per cent on $100,000 to $150,000 and 49 per cent on $150,000 to $200,000. Formerly surtaxes began at I per cent on net incomes of between $5,000 and $6,000 with a maximum of 65 per cent on net incomes of more than $1,000,000.

Capital Net Gain. For 1922 and later years, the Act provides that any taxpayer other than a corporation, if he desires, may state separately in his return his net gain on sales or exchanges of capital assets and pay on that amount a flat rate of 121⁄2 per cent in lieu of the ordinary normal and surtaxes he otherwise would pay. If he elects thus to segregate his capital net gain, the total tax on his aggregate ordinary net income plus capital net gain must be at least 121⁄2 per cent. Capital assets include any property acquired and held for profit or investment for two years, but not stock in trade or property held for the personal consumption or use of the taxpayer or his family, or any property included in the taxpayer's inventory. Partnerships, estates and trusts also have the benefit of this method of separately treating capital gains.

Building and Loan Associations. Dividends or interest received by an individual after December 31, 1921, and before January 1, 1927, from a building and loan association operated exclusively to make loans to its members, are exempt up to $300 a year. Insurance Companies. Beginning with the calendar year 1922, a distinctive tax, in lieu of the regular income tax on corporations, is imposed by Sections 246 and 247 of the Act on insurance companies other than life or mutual companies. These sections of the law, which are self-explanatory, may be found on page 89 of this volume.

Sale of Mineral Deposits. Where the principal value of mines, oil or gas wells has been demonstrated by prospecting or exploration and discovery work done by the taxpayer, the maximum surtax attributable to a bona fide sale of such property is reduced from 20 per cent to 16 per cent of the selling price for the calendar year 1922.

Amendments of 1922

China Trade Act Corporations. During 1922, one amendment was made to the Revenue Act of 1921. Effective September 19, 1922, the law was modified to provide for the special taxation of corporations organized under the China Trade Act to engage in business in China. Corporations of this kind are permitted to deduct from their taxable net income an amount equal to that part of the net income derived from sources within China which the par value of the shares of stock of the corporation, owned on the last day of the taxable year by individual citizens of the United States or China resident in China, bears to the par value of the entire capital stock. This exemption is allowed only if a special dividend, equal to the saving in tax, is distributed to such of its stockholders as are citizens of the United States or China resident in China, and is in lieu of the privilege allowed other corporations of crediting against their income tax payable to the United States, the amount paid to foreign countries as income, war profits or excess profits taxes.

'Dividends from China Trade Act corporations received by stockholders who are citizens of China and reside there, are exempt from tax; but those received by all other stockholders are subject to both normal and surtaxes.

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