(2) A war-profits and excess-profits tax for the year ending March 31, 1919, as computed under subdivision (a) of section 301 of the statute is $35,600. A war-profits and excess-profits tax for the entire period as com puted under subdivision (b) of section 301 is $16,400. Section 335 provides that the tax for this period is the sum of 9/12 of the tax of $35,600, as computed under subdivision (a) of section 301, or $26,700, plus 3/12 of the tax of $16,400, as computed under subdivision (b) of section 301, or $4,100, making a total war-profits and excess-profits tax for the fiscal year ending March 31, 1919, of $30,800. No. 9. Illustration of Computation Where Return for Period of Less Than 12 Months. A corporation which has reported on the basis of the fiscal year ending March 31, 1918, later changes to a calendar year basis and files a return covering the 9 months from April 1, 1918, to December 31, 1918. It had an average prewar capital of $50,000, an average prewar net income of $3,500, an invested capital for the 9 months ending December 31, 1918, of $120,000, and a net income for such period of $50,000. The computation in this illustration follows the directions contained in return form 1120 and proportionately reduces items 3 and 8 of schedule III and items 1 and 2 of column 2 of schedule IV. It should be noted that this is a somewhat different method of arriving at the same result which would be reached under a literal application of sections 305, 311 (a) (2) and 326 (d) of the statute. The excess-profits credit is computed by adding the specific exemption of $3,000 to 8 per cent of the full invested capital of $120,000 or $9,600, a total of $12,600, and taking 9/12 of this result, or $9,450, as the excess-profits credit. See item 3 of schedule III of form 1120. The war-profits credit is computed by adding the specific exemption of $3,000 to 10 per cent of the full invested capital of $120,000, or $12,000, a total of $15,000, and taking 9/12 of this result, or $11,250, as the war-profits credit. See item 8, of schedule III of form 1120. The war-profits credit is computed in this case under section 311 (b), because the amount computed under section 311 (a) (2) is less than 10 per cent of the invested capital. The amount computed under section 311 (a) (2) would be the sum of the average prewar net income, or $3,500, plus 10 per cent of the amount by which the full invested capital of $120,000 actually used during the taxable period exceeds the average prewar invested capital of $50,000 (i. e., 10 per cent of $70,000), or $7,000, a total of $10,500. See items 4 and 5 of schedule III of form 1120. This amount is less than 10 per cent of the full invested capital for the taxable year as computed under section 311 (b). See item 6 of schedule III of form 1120. First Bracket. The amount or portion of the net income ($50,000) in excess of the excess-profits credit ($9,450) and not in excess of 9/12 of 20 per cent of the invested capital (i. e., 9/12 of 20 per cent of $120,000), or $18,000, is $8,550. The tax computed under this bracket is 30 per cent of this amount (i. e., 30 per cent of $8,550), or $2,565. Second Bracket. The amount or portion of the net income ($50,000) in excess of 9/12 of 20 per cent of the invested capital (i. e., 9/12 of 20 per cent of $120,000), or $18,000, is $32,000. The tax computed under this bracket is 65 per cent of this amount (i. e., 65 per cent of $32,000), or $20,800. Third Bracket.-80 per cent of the amount or portion of the net income in excess of the war-profits credit (i. e., 80 per cent of the amount by which $50,000 exceeds $11,250, or $38,750), is $31,000. The amount of the tax computed under the first and second brackets ($2,565 plus $20,800) is $23,365. The tax computed under this bracket is the amount by which $31,000 exceeds $23,365, or $7,635. Total Tax-The total tax will be the sum of the taxes computed under the three brackets (i. e., $2,565 plus $20,800 plus $7,635) or $31,000. No. 10. Illustration of Computation of Limitation.-If in illustration No. 9 the invested capital had been $100,000 and the net income $80,000, the tax computed under section 301 (a) of the statute would be $56,200. Section 302 provides, however, that the tax under section 301 (a) shall not be more than 30 per cent of the net income in excess of $3,000 and not in excess of $20,000 plus 80 per cent of the net income in excess of $20,000. In this case the return is for three-fourths of a year and the $3,000 and $20,000 are reduced to $2,250 and $15,000 respectively. The tax is therefore 30 per cent of $12,750 (the difference between $2,250 and $15,000), plus 80 per cent of $65,000 (the balance of the net income), a total of $55,825. The tax under section 301 (a), amounting to $56,200, will accordingly be reduced to $55,825. AVERAGE PERCENTAGES OF PRE-WAR INCOME TO PRE-WAR SCHEDULE OF AVERAGE PERCENTAGES Section 311 of the Revenue Act of 1918 provides that a corporation which was not in existence during the whole of at least one calendar year during the prewar period, and therefore received no income during the prewar period. shall be allowed a specific exemption of $3,000 and "an amount equal to the same percentage of the invested capital of the taxpayer for the taxable year as the average percentage of net income to invested capital, for the prewar period, of corporations engaged in trade or business of the same general class as that conducted by the taxpayer; but such amount shall in no case be less than 10 per centum of the invested capital of the taxpayer for the taxable year. Such average percentage shall be determined by the Commissioner on the basis of data contained in returns made under Title II of the Revenue Act of 1917, and the average known as the median shall be used."' In pursuance of this requirement of the law the accompanying table of medians has been compiled and will be used in complying with Section 250 (b), which provides, "As soon as practicable after the return is filed, the Commissioner shall examine it. If it then appears that the correct amount of the tax is greater or less than that shown in the return, the installments shall be recomputed. If the amount already paid exceeds that which should have been paid on the basis of the installments as recomputed, the excess so paid shall be credited against the subsequent installments; and if the amount already paid exceeds the correct amount of the tax, the excess shall be credited or refunded to the taxpayer in accordance with the provisions of Section 252." Inasmuch as the examination of all returns filed will not be completed by the due date of the last installment of 1918 taxes, it is suggested that the taxpayers entitled to credit based on the appropriate median shown in the accompanying tables, may recompute their tax using a war profits credit based on such median, and file claim for abatement for as much of the las installment of the outstanding assessment as the total tax assessed exceeds the tax so recomputed. In any case where the amount already paid exceeds the amount due, with the benefit of the median, claim for refund should also be filed on Form 46. AGRICULTURE AND DEPENDENT PURSUITS Subdivisions 1. Cotton ginning 2. Cotton growing 3. Dairying and dependent pursuits, including butter, cheese, 5. Florists, nurserymen, and seedmen 6. Forestry and forestal pursuits, naval stores, charcoal burning and grinding 7. Fruit and vegetable growing, including vineyards, orchards, and trucking 8. Grain growing ... .... 9. Poultry raising and products. 10. Mixed farming, including stock breeding, stock raising and general animal husbandry. elsewhere specified Agricultural pursuits not 2. Blacking, bluing, whiting, stains and dressing, dyestuffs, extracts and coloring materials, inks (printing and writing), paints and varnishes Average Percentages Per Cent 14.44 11.44 Subdivisions 3. Celluloid and products..... 4. Cleansing and polishing preparations, soaps and washing compounds Average Percentages Per Cent Not over 10. 10.56 5. Crude chemicals, including leading acids, fertilizers, etc. Not over 10. 6. Druggist's preparations, including perfumery, cosmetics, and patent medicine compounds .... 7. Oils, vegetable and animal, including seed cake.. 8. Petroleum refining, products and by-products.. 9. Chemicals, not elsewhere specified 10.98 Not over 10. 11.27 Not over 10. MANUFACTURING FOODS AND FOOD PREPARATIONS Subdivisions ( 1. Bread and other bakery products, not including confectionery ... 2. Canning, preserving and evaporating-fruits, vegetables, fish, oysters and shrimps Average Percentages Per Cent 11.26 10.67 3. Chocolate and cocoa products, candy and confectionery.. Not over 10. 4. Coffee-roasting, grinding spices, and coffee substitutes.. 5. Flavoring extracts, syrups and cordials used in bottling industries 6. Flour, feed and grist mills 7. Meat packing, packing house products and by-products.. 10. Rice mills, cleaning and polishing, not including rice flour 12. Sugar-beet, including refining, molasses recovery.. 16. Food preparations, not elsewhere specified.. IRON AND STEEL INDUSTRIES Subdivisions 1. Agricultural implements 2. Automobiles and auto parts, including bicycles and motorcycles and parts. Motor trucks and motor truck parts " 3. Blast furnace products 4. Boilers, evaporating pans, oil tanks, and silos... |