Lapas attēli
PDF
ePub

THE FEDERAL REVENUE ACT OF 1921

Modification of the Act of 1918 as to Individuals

An essential change is made in the rule for determining gain or loss in case of the sale of property acquired by gift between living persons, but this change does not apply to testamentary gifts.

New rules are provided for determining gain or loss in connection with the exchange of property.

3 The net loss provision of the Act of 1918 is revived in modified form.

4 A new provision provides for taxing, separately from ordinary income, capital gains, realized upon a sale or other disposition of property acquired and held for profit or investment for more than two years next preceding the sale, and makes provision for the ascertainment of such gains.

5 There is a modification of the definition of gross income as contained in the Act of 1918 and as that Act was modified by regulations.

6 A new provision is added preventing deduction for amortization of "present value" of expected future income from life or other terminable interests received by gift, bequest or inheritance.

7 A modification is made of exemptions to individuals, including non-resident aliens.

8 Section 220 of the Act of 1918, which provision was substantially carried in all Income Tax Acts, provided for the taxation of undistributed surplus and income of corporations which was not required or necessary for the purposes of the corporation. This provision is modified by the Act of 1921, in view of the stock dividend decision of the Supreme Court of the United States, so that in lieu of taxing, upon Certificate of the Secretary of the Treasury, such undistributed surplus to stockholders as individual income at individual rates, there is to be instead a flat tax of 25% of the net income for each year in addition to the corporation income tax upon the net income of the corporation for each year, or the stockholders may agree to be taxed on such net income in the same manner as is provided for partnerships.

9 There is a modification of the rule determining the amount of credit against United States tax, for tax paid to foreign countries or to a Possession of the United States.

10 There is a modification of the basis for requiring returns of income from individuals.

Corporations

11 The definition of gross income is slightly modified to provide for relief in cases where the majority of the net income of a domestic corporation is derived from sources in a Possession of the United States.

12 A change is made in deductions allowed to corporations, in that, tax paid by banks or other corporations for their stockholders, as a state method of collection of tax from such stockholders, is permitted to be deducted by the corporation, unless the bank or other corporation making such payment of tax, is reimbursed by the stockholder for the tax paid.

13 The method of determining the amount of foreign tax paid which may be deducted as a credit against United States tax is similar to that provided in the case of individuals.

14 The provision for consolidated returns gives to corporations affiliated within the meaning of that provision an option of electing on or after January 1, 1922, whether they will make a consolidated return or separate returns, the election once exercised to be binding for future returns. 15 A new plan is provided for the taxation of income of insurance companies.

Administrative Provisions

16 Some amendment has been made in the administrative provisions of the law seeking to give relief in cases of additional assessment, in allowing interest on refunds in certain cases, and for other purposes.

Excess Profits Tax

17 The applicable provisions of the Revenue Act of 1918 for war-profits tax and excess-profits tax are continued in the Act of 1921. That is to say, the provisions of the Reve

nue Act of 1921 for war-profits and excess-profits tax are those of the Revenue Act of 1918, with merely the elimination of rates "applicable to prior years and other provisions which have already expired."

18 The excess-profits tax is repealed as of January 1, 1922. 19 Corporations required to pay an excess-profits tax for 1921 will, therefore, have recourse to those provisions of Regulations 45 which would have applied to the Act of 1918.

DIGEST OF INCOME TAX

Income Tax

20 The Federal Income Tax is an annual impost or levy by the United States Government of certain specified rates of tax on a sum designated as "net income."

Sources of the Tax

21 Authority for this levy for 1921 and subsequent years, until repealed, is the Revenue Act of 1921 adopted 3:55 p. m., November 23, 1921, and made effective for taxation of income as at January 1, 1921.

To Whom the Tax Applies

22 This tax applies to the income of individuals, estates or trusts and to all corporations not exempt under the law. 23 The individuals whose income is thus taxed, are citizens of the United States, wherever residing, aliens resident in the United States and non-resident aliens receiving income from certain sources in the United States.

The Kinds of Tax

24 Normal Tax and surtax upon the income of individuals, and estates or trusts.

25 Income tax (and excess-profits tax and war-profits tax for 1921) upon the income of corporations, domestic and foreign.

Section 210

"there shall be levied, collected, and paid for each taxable year upon the net income of every individual a normal tax of 8 per centum of the amount of the net

income in excess of the credits provided in section 216: Provided, That in the case of a citizen or resident of the United States the rate upon the first $4,000 of such excess amount shall be 4 per centum."

Section 211—

26 "in addition to the normal tax imposed by section 210 of this Act, there shall be levied, collected and paid for each taxable year upon the net income of every individual—

27 (1) For the calendar year 1921, a surtax equal to the sum of the following:

[merged small][merged small][ocr errors]

Beginning at (1) per centum on the first $1,000 above $5,000, with rising gradations practically in steps of $2,000 each, to 65 per centum of the amount by which the net income exceeds $1,000,000. (See table II on pages 88-90.)

28 (2) "For the calendar year 1922, and each calendar year thereafter, a surtax equal to the sum of the following:"

Beginning at (1) per centum of the first $4,000 above $6,000 with rising gradations practically in steps of $2,000 each, to 50 per centum of the amount by which the net income exceeds $200,000. (See table III on pages 92-93.)

Partnerships and Personal Service Corporations

Section 218

29 Individuals carrying on business in partnerships shall be liable for income tax only in their individual capacity. 30 The individual stockholders of personal service corporations shall be taxed in the same manner as the members of partnerships; Provided, that income accrued to or received by personal service corporations after December 31, 1921, shall be taxed as is the income of other corporations, consequently the shareholders of personal service corporations will not be taxed as are members of partnerships after December 31, 1921.

31 Where a personal service corporation has a fiscal year beginning in 1921 and ending in 1922, the net income of the

corporation shall be prorated between those years according to the percentage that the part of the fiscal year falling within a calendar year is of 12 months. The shareholders shall be taxed as though members of a partnership for all of the 1921 income of the corporation.

32 Because of the reasoning of the Supreme Court of the United States, in connection with its decision on the "stock dividend" case, doubt arose as to the correctness of this provision of law. With this in mind the Congress provided in section 1332 Revenue Act of 1921 for such a contingency. By this provision, if by a final judicial adjudication the method of taxing the income of personal service corporations from 1918 to 1921 inclusive is declared invalid, then such income shall be taxed as the income of other corporations is taxed, and the shareholders of such personal service corporations may make claim for refund of the tax they have paid; Provided, That a personal service corporation of which no shareholder or member has filed such a claim within six months next after such final decision shall not be subject to taxation on its said income.

Estates and Trusts

Section 219—

33 "That the tax imposed upon the net income of individuals shall apply to the income of estates or trusts or any kind of property held in trust, including:

[blocks in formation]

Income received by estates of deceased persons during the period of administration or settlement of the estate;

Income accumulated in trust for the benefit of an unborn or unascertained person or persons with contingent interests;

Income held for future distribution under the terms of the will or trust; and

Income which is to be distributed to the beneficiaries periodically, whether or not at regular intervals, and the income collected by a guardian of an infant to be held or distributed as the court may direct."

« iepriekšējāTurpināt »