Residents or Citizens of the United States

In the case of individuals, residents or citizens of the United States, invested capital shall include:

1. Actual cash paid into the trade or business;

2. Actual cash value of tangible property paid into the trade or business, other than cash, at the time of such payment (but in case such tangible property was paid in prior to January 1, 1914, the actual cash value of such property as of January 1, 1914); and 3. The actual cash value of patents, copyrights, good will, trade marks, trade brands, franchises, or other intangible property paid into the trade or business at the time of such payment, if payment was made therefor specifically as such in cash or tangible property, not to exceed the actual cash or actual cash value of the tangible property bona fide paid therefor at the time of such payment. (Sec. 207.)

Foreign Corporations and Partnerships and Non-Resident Aliens

In the case of foreign corporations and partnerships and non-resident aliens, invested capital shall be that proportion of the actual invested capital, as defined above, which the net income from sources within the United States bears to the entire net income. (Sec. 207.)

Monthly Average

Invested capital for any year means the average invested capital for the year, averaged monthly. (Sec. 207.)

Capital Excluded

Invested capital does not include stocks, bonds (other than United States Bonds), or other obligations, the

income from which is not subject to the Excess Profits Tax. Likewise it does not include money or other property borrowed. (Sec. 207.)

Reorganization, Consolidation, or Change of Ownership of Business

In the case of the reorganization, consolidation or change of ownership of a business after March 3, 1917, if an interest of fifty per centum or more remains in the control of the same persons, partnerships, or corporations, or any of them, no asset transferred or received from the prior business shall be allowed a greater value than would have been allowed such prior business, in determining invested capital, unless such asset was paid for in cash or tangible property, in which case the amount shall not exceed the actual cash or the actual cash value of the tangible property paid therefor at the time of payment. (Sec. 208.)

RATES OF TAX

The tax shall be collected on percentages of the net income as follows: (Sec. 201.)

Net Income (in excess of deduction) and not in excess of 15% of the invested capital for the taxable year.

Rate

...20%

Net income in excess of 15% but not in excess of

20% of invested capital...

.25%

Net income in excess of 20% but not in excess of 25% of invested capital..

.35%

Net income in excess of 25% but not in excess of

33% of invested capital.

..45%

Net income in excess of 33% of invested capital.....60%

BUSINESS OR TRADE WITHOUT CAPITAL OR

MERELY NOMINAL CAPITAL

In addition to other taxes, a business or trade having no invested capital or merely a nominal invested capital, shall, in lieu of the excess profits tax, pay a tax of 8% on income derived from such trade or business in excess of $3,000, in the case of a domestic corporation, or of $6,000 in the case of a citizen or resident of the United States, or a domestic partnership. (Sec. 209.)

NET INCOME

CORPORATIONS

Net income of a corporation shall be determined as follows: (Sec. 206.)

For the years 1911 and 1912, upon the basis provided for under the Corporation Excise Tax Law, Section 38, Act of Congress, approved August 5, 1909, except that income taxes paid to the United States within such years shall be included. This makes the amounts of net income returned to the Treasury Department for the years of 1911 and 1912, for the purpose of the assessment of the Corporation Excise Tax, plus income taxes paid to the United States, the basis of the pre-war income for the years of 1911 and 1912.

For the year 1913, upon the basis provided for under the Income Tax Law, Act of Congress, approved October 3, 1913 (net income as shown on the Income Tax Return filed for year 1913), except that income taxes paid to the United States shall be included and that dividends from stocks of other corporations whose net earnings were subject to tax under the Act of October 3, 1913, received by the corporation, shall be deducted.

For the taxable year, upon the basis provided for under the Income Tax Law of September 8, 1916, as amended, except that dividends from stock of other corporations, whose net earnings are subject to tax under the Act of September 8, 1916, as amended, received by the corporation, shall be deducted.

PARTNERSHIPS AND INDIVIDUALS

Net income of a partnership or individual for the prewar period and taxable year, shall be determined upon the basis provided for under the Income Tax Law of September 8, 1916, as amended, except that the amount received as dividends from the stock of any domestic corporations, whose net income is subject to tax under the Act of September 8, 1916, as amended, shall be deducted. (Sec. 206.)

DEDUCTIONS ALLOWED PARTNERSHIPS

Domestic Partnerships

Domestic partnerships shall be entitled to the following deductions from gross income (allowed under Section 5, Subdivision (a) of the Act of September 8, 1916, as amended), in computing net income:

1. Necessary expenses actually paid in carrying on the business or trade.

2. Interest paid within the year on indebtedness, except on indebtedness incurred in the purchase of obligations or securities, the interest upon which is exempt from taxation as income.

3. Taxes paid within the year, other than those assessed against local benefits, and excess profits and income taxes.

4. Losses actually sustained during the year incurred in the business or trade arising from fires, storms, shipwrecks or other casualty or from theft, when not compensated for by insurance or otherwise.

5. Debts actually ascertained to be worthless and charged off within the year.

6. A reasonable allowance for exhaustion, wear and tear of property within the United States arising out of its use or employment in the business or trade; (a) in the case of oil and gas wells, a reasonable allowance for actual reduction in flow and production to be ascertained by the settled production or regular flow; (b) in the case of mines, a reasonable allowance for depletion thereof not to exceed the market value in the mine of the product thereof which has been mined and sold during the year for which the return and computation are made.

Foreign Partnerships

Foreign partnerships shall be entitled to the following deductions (allowed under Section 6, Subdivision (a) of the Act of September 8, 1916, as amended) from gross income in computing net income:

1. Necessary expenses actually paid in carrying on any business or trade conducted within the United States.

2. The proportion of all interest paid within the year on indebtedness which the gross amount of income for the year derived from sources within the United States bears to the entire net income.