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Banks and
Trust
Companies

Exception where Bonds Guaranteed

Free from Tax

Taxes

Foreign
Companies

Corporate

Provided, that in case of indebtedness wholly secured by collateral the subject of sale in the ordinary business of such company, the total interest secured and paid within the year on any such indebtedness may be deducted as a part of its expenses of doing business.

In the case of a bank, banking association, loan or trust company, interest paid within the year on deposits or on moneys received for re-investment and secured by interest-bearing certificates of indebtedness issued by such bank, banking association, loan or trust company.

In the case of bonds or other indebtedness which have been issued with a guaranty that the interest payable thereon shall be free from taxation, no deduction for the payment of the tax shall be allowed.

Fourth.-Taxes paid within the year imposed under the authority of the United States or of any state or territory thereof, or imposed by the government of any foreign country.

There are similar provisions for corporations and companies organized under the laws of a foreign country relating to their business transacted and capital invested within the United States.

Corporations and companies are permitted to Fiscal Year designate the last day of any month of the year as the day of the closing of its fiscal year, and are entitled to have the tax computed upon the basis of the net income ascertained for the year ending on the day so designated in the year pre

ceding the date of assessment, instead of upon the basis of the calendar year preceding the date of assessment. Notice of such designation must be given to the collector of the district in which its principal office is located not less than thirty days prior to the date of filing its annual report.

Returns are required to be made on or before Corporate the 1st day of March, 1914, and the 1st day Returns of March in each year thereafter, or, in the event of a corporation's having designated a fiscal year, within sixty days after the close of such fiscal

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In computing net corporate income there is Holding no provision for deduction of dividends upon Companies stock of other corporations held.

The full text of the Law follows.

1 For contents of return see provisions of the law.

THE

FEDERAL INCOME TAX LAW1

SECTIONS OF THE TARIFF ACT, APPROVED
BY THE PRESIDENT OCTOBER 3, 1913, THAT
PROVIDE FOR AN INCOME TAX

Individual
Normal Tax

Individual

The bill as given in the Conference Print, H. R. 3321

SECTION II.

A. Subdivision 1. That there shall be levied, assessed, collected and paid annually upon the entire net income arising or accruing from all sources in the preceding calendar year to every citizen of the United States, whether residing at home or abroad, and to every person residing in the United States, though not a citizen thereof, a tax of 1 per centum per annum upon such income, except as hereinafter provided; and a like tax shall be assessed, levied, collected, and paid annually upon the entire net income from all property owned and of every business, trade, or profession carried on in the United States by persons residing else

where.

Subdivision 2. In addition to the income tax proAdditional or vided under this section (herein referred to as the norSuper Tax mal income tax) there shall be levied, assessed, and collected upon the net income of every individual an

1 The bill as printed contains a number of typographical errors which have been reproduced.

additional income tax (herein referred to as the additional tax) of 1 per centum per annum upon the amount by which the total net income exceeds $20,000 and does not exceed $50,000, and 2 per centum per annum upon the amount by which the total net income exceeds $50,000 and does not exceed $75,000, 3 per centum per annum upon the amount by which the total net income exceeds $75,000 and does not exceed $100,000, 4 per centum per annum upon the amount by which the total net income exceeds $100,000 and does not exceed $250,000, 5 per centum per annum upon the amount by which the total net income exceeds $250,000 and does not exceed $500,000, and 6 per centum per annum upon the amount by which the total net income exceeds $500,000. All the provisions of this section relating to individuals who are to be chargeable with the normal income tax, so far as they are applicable and are not inconsistent with this subdivision of paragraph A, shall apply to the levy, assessment, and collection of the additional tax imposed under this section. Every person subject to this additional tax shall, for the purpose of its assessment and collection, make a personal return of his total net income from all sources, corporate or otherwise, for the preceding calendar year, under rules and regulations to be prescribed by the Commissioner of Internal Revenue and approved by the Secretary of the Treasury. For the purpose of this additional tax the taxable income of any individual shall embrace the share to which he would be entitled of the gains and profits, if divided or distributed, whether divided or distributed or not, of all corporations, joint stock companies or corporations however created or organized, formed or fraudulently availed

Individual
Net Income

of for the purpose of preventing the imposition of such tax through the medium of permitting such gains and profits to accumulate instead of being divided or distributed; and the fact that any such corporation, joint stock company, or association, is a mere holding company, or that the gains and profits are permitted to accumulate beyond the reasonable needs of the business shall be prima facie evidence of a fraudulent purpose to escape such tax; but the fact that the gains and profits are in any case permitted to accumulate and become surplus shall not be construed as evidence of a purpose to escape the said tax in such case unless the Secretary of the Treasury shall certify that in his opinion such accumulation is unreasonable for the purposes of the business. When requested by the Commissioner of Internal Revenue, or any district collector of internal revenue, such corporation, joint stock company, or association shall forward to him a correct statement of such profits and the names of the individuals who would be entitled to the same if distributed.

B. That, subject only to such exemptions and deductions as are hereinafter allowed, the net income of a taxable person shall include gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from professions, vocations, businesses, trade, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in real or personal property, also from interest, rent, dividends, securities, or the transaction of any lawful business carried on for gain or profit, or gains or profits and income derived from any source

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