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Exempt
Income

(g) Farmers', fruit growers', or like association,
acting as sales agent in marketing the prod-
ucts of its members;

(h) Corporation or association organized ex-
clusively to hold title to property, collect
income therefrom, and to turn over the en-
tire amount thereof, less expenses, to an
organization exempt from tax hereunder;
(i) Federal land bank or national farm-loan
association as authorized by Act of July 17,
1916; or, joint-stock land bank authorized
under the same Law, in respect to income
derived from bonds or debentures of other
joint stock land banks or any Federal land
bank;

(j) Civic league operated exclusively for the
promotion of social welfare and not for
profit.

The following additional organizations are declared to be non-taxable if no part of their net income accrues to an individual:

(k) Exclusively religious, charitable, scientific
or educational corporation or association;
(1) Business league, chamber of commerce, or
board of trade, not organized for profit;
(m) Pleasure, recreation, or club of other non-
profitable purpose.

The interest from municipal bonds is exempt from tax in the hands of all corporations and other organizations, foreign or domestic, as well as in the hands of individuals. The annual return blank used by corporations under the previous Statute required the inclusion of such income, but apparently only for statistical purposes, inasmuch as this income was not considered in the computation of their net income subject to tax. Corporations may also have the

benefit of other exemptions provided by the Statute, in so far as they may be appropriate to a corporation, as, for instance, any securities issued under the provisions of the Federal Farm Loan Act of July 17, 1916.

No tax hereunder shall be levied on income derived from any public utility or from the exercise of any essential governmental function which accrues to the District of Columbia or to any State or Territory, to the Philippine Islands or Porto Rico, or to any political sub-division of the foregoing. This exemption is made broad enough to apply to that proportion of the income of public utilities to which any of the above-named governmental agencies may be entitled under any contract, entered into in good faith and antedating this Law, for the acquisition, construction, operation or maintenance of such public utility. Obviously this exemption does not extend to the income of the person or corporation making such a contract with the governmental agency.

In general, dividends accruing to a corporation are taxable hereunder, even though the corporation declaring and paying such dividends has already been taxed on the amount of its net income represented by the dividend. It seems to be clear from the Statute, however, that only such dividends are taxable hereunder as have been paid out of earnings or profits accrued since March 1, 1913.

Public

Utility

Income

Dividends

Taxable

Defined

Foreign
Organizations

Interest and

Dividends

Computing
Sale
Profit or
Loss

Deductions

Allowed
Domestic

Organizations

The revised Statute provides that foreign organizations shall be taxed as to interest on bonds or other interest-bearing obligations of residents, corporate or otherwise, and as to dividends on the capital stock of resident corporations and other associations whose net income is taxable under the Law.

Profits accruing to a corporation from the sale or other disposition of any kind of property acquired before March 1, 1913, shall be calculated on the basis of the fair market value of such property as of that date. Losses resulting from similar transactions shall be calculated on the same basis.

A domestic organization shall be allowed the following general deductions in the computation of its net income subject to tax:

(a) Ordinary and necessary expense of maintenance and operation of business and properties, including necessary rentals or other payments for property to which the corporation has no title, etc., and in which it has no equity;

(b) Losses actually sustained and charged off and not compensated for by insurance or otherwise, including a reasonable allowance for the exhaustion, wear and tear of property arising out of its use in the business or trade; oil and gas wells and mines are especially considered, but in this connection the Statute provides that no further allowance shall be made after the total amount deducted hereunder shall equal the capital originally invested therein, or in the case of purchase prior to March 1, 1913, the fair market value as of that date; the cost of new buildings. permanent improvements, etc., shall not be

deducted, nor shall there be any deduction
for the expense of restoring property on
which an allowance is or has been made;
(c) Amount of interest paid on its indebtedness,
but the amount of indebtedness in respect
to which the interest may be deducted here-
under shall not be in excess of the sum of:
(1) The entire amount of paid-up capital
outstanding at close of year, or if no
capital stock, the entire amount of capi-
tal employed in business at close of
year; and,

(2) One-half of its interest-bearing indebt-
edness then outstanding.

In respect to capital stock issued without par
value, the amount of paid-up capital stock
as understood in this connection will be
the amount of cash, or its equivalent, paid
or transferred to the corporation as a con-
sideration for such shares.

(d) Taxes paid, such as are imposed by author-
ity of the United States or its Territories or
possessions, or any State or taxing sub-di-
vision thereof, not including assessments
against local benefits; also taxes levied under
the authority of any foreign country.

In respect particularly to the deduction of interest in computing corporate net income, the Statute provides that preferred stock shall not be considered as interest-bearing indebtedness. The deduction of the entire amount of interest is also provided for in the case of indebtedness wholly secured by collateral which is the subject of sale or hypothecation by a corporation or other organization which is "a dealer only in the property constituting such collateral"; but interest shall not be deducted on an amount of indebtedness in excess of the actual value of

Computing
Interest
Deductions

Special
Deductions
Allowed
Insurance
Companies

Life

Insurance

in Favor of Corporations

the collateral.
a corporation for any tax paid pursuant to a
guarantee that the interest on bonds or other
indebtedness shall be free from taxation. A
bank, loan or trust company shall be allowed
to deduct interest paid on deposits or moneys
received for investment and secured by the in-
terest-bearing certificates of indebtedness is
sued by such bank, loan or trust company.

No deduction shall be allowed

Insurance companies are allowed to deduct their net addition to reserve funds required by law, and "sums other than dividends paid within the year on policy and annuity contracts." Life insurance companies shall not include within their income that portion of a premium received from an individual policyholder as shall have been paid back or credited to him within the tax year. In this connection the Statute recites a number of provisions which apply to mutual fire, mutual employers' liability, mutual workmen's compensation, mutual casualty, and mutual marine insurance companies.

It is interesting to note in connection with deductions allowed corporations that according to ruling by the Treasury Department under the previous Law, premiums paid by such corporations on insurance policies issued in their favor on the lives of their officers or others are allowable deductions in computing corporate net income. In such cases, however, the pro

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