only with the use of the specific credit of $2,000 for the purpose of computation of income tax.

168 Paragraph (c) of the same section (omitting details of prescription in connection with the computation for fiscal years), provides that in computing income tax, the amount of any war profits tax and excess profits tax imposed by the Act of Congress for the same taxable year, shall be credited against the net income for the period of computation.

169 It follows, therefore, that the amount of income subject to income tax is the remainder after credit for war profits and excess profits tax (and also for other credits not subject to income tax). Therefore, when this remainder does not exceed $25,222.22 subject to income tax for 1921, the $2,000 specific credit for corporations is to be used in computing the income tax.

170 While the excess profits tax is repealed as of January 1, 1922, there would remain certain items which would be included in gross income, but which would not be subject to income tax for 1922 and subsequent years. Eliminating these items the specific credit of $2,000 will be used until the amount of net income subject to income tax exceeds $25,285.71. When net income subject to income tax exceeds this sum no credit of $2,000 will be allowed. Example with excess profits tax for 1921:

171 It will be noted that a specific exemption of $2,000 having been allowed against a remainder of less than $25,000 after credit for excess profits tax, the difference of $222.22 is not to be added to the tax on $25,000 with an allowance of $2,000, but only the amount of income tax on $222.22, or $22.22.

=

First Bracket, 20% of
Capital.
$20,000 $11,000 $9,000 20%
Second Bracket, Balance. 30,000
30,000

$1,800

40%

12,000

175 (c) The amount of any war-profits and excess-profits taxes imposed by Act of Congress for the same tax

able year.

The credit allowed by this subdivision

shall be determined as follows:

176

177

(1) In the case of a corporation which makes return for a fiscal year beginning in 1920 and ending in 1921, in computing the income tax as provided in subdivision (a) of section 205, the portion of the war-profits and excess-profits tax computed for the entire period under clause (1) of subdivision (a) of section 335 shall be credited against the net income computed for the entire period as provided in clause (1) of subdivision (a) of section 205, and the portion of the war-profits and excess-profits tax computed for the entire period under clause (2) of subdivision (a) of section 335 shall be credited against the net income computed for the entire period as provided in clause (2) of subdivision (a) of section 205.

(2) In the case of a corporation which makes return for a fiscal year beginning in 1921, and ending in 1922, in computing the income tax as provided in subdivision (b) of section 205, the war-profits and excess-profits tax computed under subdivision (b) of section 335 shall be credited against the net income computed for the entire period as provided in clause (1) of subdivision (b) of section 205.

CREDIT, AGAINST TAX COMPUTED ON RETURN, OF TAX PAID ON INCOME INCLUDED IN THE RETURN.

Section 222: Individuals-The tax computed under part two of the Income Tax Law, shall be credited with:

178 (a) (1) In the case of a citizen of the United States: the amount of any income, war-profits tax, and excess profits tax paid during the taxable year to any foreign country or to any possession of the United States.

179

(2) In the case of a resident of the United States: (a) The amount of any such tax paid during

the taxable year to any possession of the United States.

(b) The amount of any such taxes paid during the taxable year to any foreign coun

180

181

try, if the foreign country of which such
resident alien is a citizen or subject, in
imposing such taxes, allows a similar
credit to citizens of the United States re-
siding in such country.

(3) In the case of any such individual in the fore-
going classes who is a member of a partnership
or the beneficiary of an estate or trust, his pro-
portionate share of such taxes of the partnership
or the estate or trust, paid during the taxable
year to a foreign country or to any possession
of the United States, as the case may be.
(4) The above credits shall not be allowed in the
case of a citizen entitled to the benefits of section
262; and in no other case shall the amount of
credit taken under this subdivision exceed the
same proportion of the tax, against which such
credit is taken, which the taxpayer's net income
(computed without deduction for any income,
war-profits, and excess profits taxes imposed by
any foreign country or possession of the United
States) from sources without the United States
bears to his entire net income (computed without
such deduction) for the same taxable year.

United States tax $3,890X%=credit, $1,296.67....
Credit cannot exceed amount of foreign tax.

Balance of tax to be paid on return ......

$1,250

$2,640