(2.) Brown, a married man with two dependent children, receives a salary of $5,000. He is required to make return of his income for both taxes, and will be assessed as follows:

(3.) Jones, an unmarried man, receives a salary of $8,000 and derives an additional income of $5,000 a year from stock dividends. He must return his income for both taxes, and will be assessed as follows:

(a) The normal tax:

For the purpose of the normal tax only his total income is credited with the amount of his dividends, leaving $8,000 subject to the normal tax.

come is taken as the base, the tax beginning at $5,000.

$2,500

at 1%

$25

(4) Robinson, a married man with one dependent child, has a business which yields a gross income of $50,000, but costs $25,000 for expenses, interest, etc., which he is allowed to deduct in making his returns. His income taxes will be assessed as follows:

8. Method of Assessment and Collection.

Under the Income Tax Law as amended, both of the income taxes are to be assessed entirely by personal return of those subject thereto, and paid directly by such individuals.

Amendments to the old Act abolish the system of "collection at the source" except (a) in the case of income of nonresident aliens, and (b) in the case of interest on corporation bonds and other obligations containing a covenant on the part of the corporation or mortgagor to pay the tax assessed against such interest. But in the latter event only one normal tax (i. e., two per cent) will be paid by such corporation or mortgagor; individuals subject to both taxes will be required to pay the other normal tax of two per cent directly.

Information at the Source:

In place of "collection at the source," the law as amended substitutes a system of "information at the source," which is designed to provide the Collectors of Internal Revenue with sufficient information regarding the income of every taxable individual to enable them to check the accuracy of the personal returns made by the taxpayers.

Requirements as to All Persons:

Under penalty of a fine for failure to comply with the Act, and of both fine and imprisonment for a false or fraudulent statement, the following individuals, corporations and associations are required to supply information to the Collector of Internal Revenue:

(1) As to Dividends.

Every corporation, joint-stock company or association, or insurance company must render a sworn return of its payments of dividends, including the names and addresses of its stockholders and the number of shares owned by each;

(2) As to Stock Exchange Transactions.

Every person, partnership or corporation doing business as a broker on any exchange or board of trade must render a sworn return showing the names and addresses of its customers and the details of their profits and losses incurred in trading through such brokerage house;

(3) As to All Other Payments of $800 or More.

All persons, firms, corporations and fiduciaries, in whatever capacity acting, including lessees or mortgagors of real or per

sonal property, who make payment to another person, firm or corporation of interest, rent, salaries, wages, premiums, annuities, compensation, remuneration, emoluments, or other fixed or determinable gains, profits, and income (other than dividends and stock exchange items) amounting to $800 or more in any taxable year, must render a sworn return setting forth the amount of such gains, profits and income and the names and addresses of the recipients of such payments;

(4) As to Interest on Corporation Bonds.

All corporations must report the payments of interest on corporation bonds, mortgages, deeds of trust and other obligations, regardless of the amount of such interest, showing the names and addresses of each recipient and the amount of interest paid to each; and

(5) Collection of Foreign Items.

Every bank or other corporation or individual who collects interest or dividends on the bonds and stocks of foreign corporations, which items are not payable in the United States, or of any other foreign payments must render a sworn return of the amount of such payments and the names and addresses of the recipients of each. The Act requires banks and other collection agencies to procure a license from the Collector of Internal Revenue before they are permitted to make foreign collections for their clients or others.

When Returns Art to Be Filed:

Both the Pre-War Income Tax and the War Income Tax relate to the whole of the calendar year 1917, and every calendar year thereafter until repealed or modified.

Every individual subject to either or both taxes must file one or two returns (as may be required) with the Collector of Internal Revenue for the district in which he resides on or before March 1, 1918, and each year thereafter on the same month and date. Special forms for making out such returns will be provided at the office of the collector.

All assessments of income tax are made by the Commissioner of Internal Revenue, and individuals are notified of the amount of taxes due on or before June 1 following the date of making return. Income taxes are due and payable on or before June 15 of the same year, at the office of the district collector.

Penalties:

The Act provides that any person, corporation, partnership, association or insurance company who is or may be liable (a) to

pay the tax, (b) to make a return, or (c) to supply information as required, and who refuses or neglects to comply with the law in any of these respects, may be fined not less than $20 and not more than $1,000. The penalty for making a false or fraudulent return or for supplying false or fraudulent information regarding the income of another is a fine of not more than $2,000, or imprisonment, or both such fine and imprisonment.

II.

THE CORPORATION INCOME TAX.

The Revenue Act of 1917 does not repeal the Pre-War Income Tax on corporations, levied by the Act of September 8, 1916. The old tax remains in force (with certain important amendments), and to it is added a new War Income Tax which is double the rate of the Pre-War Tax.

Although the two taxes are technically distinct, the Act provides that the War Income Tax on corporations shall be “computed, levied, assessed, collected and paid upon the same incomes and in the same manner” as the Pre-War Tax, with one exception as noted below.

The following is a brief digest of the Corporation Income Tax provisions of both the old law as amended and the new War Revenue Act.

1. Corporations Subject to Income Taxes.

Both the Pre-War Income Tax and the War Income Tax on corporations apply to "every corporation, joint-stock company, or association, or insurance company, organized in the United States," and to every such concern organized in any foreign country and doing business in the United States or deriving income from sources within the United States, except certain classes of non-profit corporations and associations such as labor, agricultural and horticultural organizations, fraternal orders and other exempt corporations and associations enumerated in Title I, Part II, Section 11 of the Act of September 8, 1916.

2. Returns to Be Made.

Every corporation, joint-stock company, or association, or insurance company subject to the income taxes must make a return of its net income, regardless of the amount thereof. Any corporation may base its return on its fiscal year, instead of on the calendar year.

One return only is required for the purposes of both the Pre-War Income Tax and the War Income Tax.

3. How Taxable Net Income is Computed.

For the purposes of both taxes on corporation incomes, the Act provides that all forms of income are taxable directly to the corporation, including gains and profits of every kind (subject only to the deductions enumerated below), and including also dividends on the capital stock or paid from the net earnings of other corporations, without any exemptions or credits whatsoever, except (a) for the purposes of both taxes the net income embraced in a return shall be credited with the amount of any excess profits tax imposed by Act of Congress and assessed for the same calendar or fiscal year upon the taxpayer, and (b) for the purpose of the War Income Tax only, the income shall be credited with the amount of any dividends received upon the stock or from the net earnings of any other corporation subject to the tax.

In other words, the Pre-War Income Tax will apply to the entire net income of a corporation, while the War Income Tax will apply to the net income less the dividends received from the stocks of other corporations. In both cases the amount of any excess profits tax is allowed as a credit.

Deductions Allowed From Gross Income:

From the gross amount of the income of a corporation received within the year, the following deductions are allowed:

1. All of the ordinary and necessary expenses paid within the year in the maintenance and operation of its business, including rentals;

2. All losses actually sustained and charged off within the year, when not compensated for by insurance; including also a reasonable allowance for the depreciation of physical properties;

3. Interest paid within the year on its indebtedness, except on indebtedness incurred for the purchase of obligations or securities the interest upon which is exempt from taxation as income; and

4. Taxes paid within the year, domestic and foreign, except income taxes and excess profits taxes.

4. Rates of the Taxes.

The rate levied on corporation incomes by the Pre-War Income Tax is 2 per cent per annum, and the rate levied on the same incomes by the War Income Tax is 4 per cent per annum, making a total rate of 6 per cent.