« iepriekšējāTurpināt »
Corporations are not permitted the benefits of the provisions for "capital gain" inasmuch as the tax rate on corporate income is the same as the rate provided for "capital gain," at th election of individuals, partnerships and estates or trusts, to wit, 122% of the "capital net gain."
For the purpose of ascertaining "capital net gain," the general rules for ascertaining gain or loss will apply. No asset however may be included for the purpose of this special tax which does not fall within the definition of "capital assets" as defined above. Bearing in mind that every asset considered in this connection must have been "acquired and held by the taxpayer for profit or investment for more than two years,” and must not include any of the items prohibited. The factors to be considered and shown in schedule are:
Capital net gain = (i) — (j).
(Regard should be had to any change of "basis" under Section 201 of the law, due to distributions with respect to stock of corporations.)
When a taxpayer, who may have the benefit of these provisions of the law, elects to take advantage of it, tax will be computed on his net income other than his "capital net gain" at the normal and surtax rates applicable thereto without reference to the capital gain provisions of the law. The amount of tax so computed plus 122% of the "capital net gain," shall be the amount of tax to be paid; Provided, that when an election is made to take advantage of the "capital gain" provisions of the law, the "total tax shall in no case be less than 122% of the total net income." It may be more.
In the case of a partnership, or a trust or estate, the segregation between capital-gain, and other income, will be made by the firm or individual, and members of the partnership or beneficiaries of the trust will use the information furnished them in making their individual returns of income according to the requirements of Section 218 or 219 of the Law.
The term "collector" means the Collector of Internal Revenue. Commissioner
The term "Commissioner" means the Commissioner of Internal Revenue.
The term "corporation" includes associations, joint-stock companies, and insurance companies.
That the term "dividend" when used in this title (except in paragraph 10) of subdivision (a) of section 234 and paragraph (4) of subdivision (a) of section 245 means any distribution made by a corporation to its shareholders or members, whether in cash or in other property, out of its earnings or profits accumulated since February 28, 1913, except a distribution made by a personal service corporation out of earnings or profits accumulated since December 31, 1917, and prior to January 1, 1922.
Is a distribution by a corporation to its shareholders out of its earnings or profits? A dividend is made by resolution adopted by the Board of Directors of the dividend making corporation. Payment of the dividend is with cash, or with property other than cash, in which the surplus has been invested. Payments of dividends are charged against and reduce the amount of surplus owned and retained by the dividend making corporation. The portion of a dividend taxable is the amount thereof which was paid from earnings of the corporation accumulated subsequent to February 28, 1913 (the beginning of the taxation of income under the Sixteenth Amendment to the Federal Constitution.)
The Income Tax Law provides that so long as a corporation has on hand (not distributed) any earnings accumulated after February 28, 1913, no dividend paid by the corporation can be exempt from being included in a return of income. When all earnings accumulated after February 28, 1913 have been distributed, then any surplus on hand which was accumulated prior thereto may be distributed free of tax.
The Act of 1921 further provides that when there remains no surplus accumulated during the taxable period, but that there is surplus applicable to dividends and which was accumulated
prior to the taxable period, and where such free surplus was the result of earnings of the corporation or increase in value of property accrued prior to March 1, 1913; if a dividend is declared and paid out of such free surplus, it will have no effect in determining the amount of taxable gain upon a subsequent sale of such stock, but if it should ever become necessary to compute the amount of deductible loss on a sale of such stock, then the cost of the stock must be reduced by the aggregate amount of dividends received free of tax.
Let us suppose a corporation is formed with 10 shares of stock which are sold for $1,000 and with the money one bond is purchased for $995, and that on March 1, 1913, the bond was sold for $1,005; and thereafter the corporation declared and paid a dividend of $10, this being the entire amount of its surplus (the effect of tax as a charge against surplus is purposely omitted in this illustration)
The first question presented is, how much of this $10 actual profit is subject to tax to the corporation? The answer is shown as follows:
March 1, 1913
Then obviously, $5 of the dividend is from tax-free surplus. If upon a sale of the stock after dividend, the question is one of computation of profit on the sale of the stock, the tax-free dividend will have no effect; as,
If the question is the computation of amount of deductible loss, the cost of the stock sold must be reduced by the amount of tax-free dividend received on it; as,
But for the change in the Law as made by the Act of 1921, the deductible loss would have been $10.
The statute provides, in addition to the foregoing, that any distribution (whether in cash or other property) made by a corporation to its shareholders or members otherwise than out
(1) Taxable surplus (accumulations after March 1, 1913), or (2) Nontaxable surplus (accumulations prior to March 1, 1913, or appreciation of property accrued prior to such date); then in that event, such distribution "shall be applied against and reduce the basis provided in Section 202 for the purpose of ascertaining the gain derived from or loss sustained from sale or other disposition of stock or shares by the distributee." This is equivalent to saying (and nothing more) that when all surplus of every description has been distributed, any further distributions are from capital, and to the extent thereof shall reduce what would otherwise have been the basis for determining gain or loss upon a "sale or other disposition of the stock or shares by the distributee."
Cash Dividends-Those paid with cash or its equivalent, or with property other than cash, are subject to the surtax to the owners thereof who are individuals and whether received directly by such individuals or through the intervention of partnerships or estates or trusts.
When the owner and recipient of such dividend is a corporation, the dividend-as part of its gross income-must be reported in a return of income, but is to be deducted in the computation of net income to be subjected to tax.
Dividends are wholly exempt from the normal tax to individuals. Dividends become part of the gross income of the recipients thereof when the cash or other property with which they are, or are to be paid, "is unqualifiedly made subject to their demands."
The provision in Section 201 (f) of the Act of 1921, that
dividends paid within the first 60 days of the taxable year "shall be deemed to have been made from earnings or profits accumulated during previous taxable years," has no reference to taxation of individual incomes, nor to any case where the individual normal and surtax applies. The provision has to do solely and only with the computation of invested capital of corporations whose income is subject to excess profits tax.
Is a term which is applied to a situation where the directors of a corporation declare a dividend, on the basis of the issued and outstanding shares of the corporation, and which dividend is to be charged against and reduce the amount of surplus of the corporation carried as such at the time of declaring the dividend-but, instead of paying the dividend in cash, it is paid with shares of the dividend-paying corporation which were authorized at the time of the dividend declaration but which shares had never been issued.
The journal entry in such a case transfers the amount of dividend from the surplus account to the capital account of the corporation. The Supreme Court of the United States has held that this transaction does not represent any gain to the shareholder; that what he had before the dividend was a share of stock with surplus behind it (in the ownership of the dividendpaying corporation) in the amount of such surplus transferred by this operation; that what the shareholder has after such operation is an increased number of shares, but with no additional corporate assets behind them than was true before the dividend and for this reason a stock dividend, as such, is not subject to income tax.
A corporation has issued and outstanding shares of
and a surplus of
The total capital accounted for as above...