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The Income Tax on Individuals (Concluded)
Taxable Interest on Obligations of the United
Credits Allowed Nonresident Aliens
Computing Income on Annual Basis
The Income Tax on Corporations
Returns for a period of Less Than Twelve Months
Time and Place for Filing Returns
Balance Sheets and Working Papers
Profit from Sale of Capital Assets
Income from Miscellaneous Sources
The Income Tax on Corporations (Concluded)
Computation of Corporation Taxes
1924 Revenue Act
INCOME TAX LEGISLATION
Income Taxation is not a recent development. It dates back to the colonial period when in 1646 a law was enacted by the Massachusetts Bay Company whereby the produce of estates was taxed. Since that time many of the states have enacted laws taxing incomes. Following the financial depression of 1837, which left most of the states heavily in debt, income tax laws were enacted in several of the states. At the present time income tax laws are in force in many of the states.* These laws are patterned after the Federal income tax laws and are intended to produce income which accrues to the benefit of the state whereas the income produced by the Federal tax laws accrues to the benefit of the United States. The first Federal income tax law in the United States was enacted in 1861 during the Civil War. It was several times amended and finally expired by limitation at the end of the year 1871.
Congress adopted another income tax law in 1894 as a part of the Wilson Tariff Bill, but it was held to be unconstitutional by the Supreme Court of the United States the following year, (Pollock vs. Farmer's Loan and Trust Company, 157 U. S. 429,) on the ground that it was a direct tax and was not, in pursuance of the Constitution, apportioned among the States.
In 1909 Congress enacted a third income tax law imposing a tax on corporations. This law was worded somewhat differently from the Law of 1894, and the Supreme Court upheld it on the ground that it imposed an excise tax instead of a direct tax.
Sixteenth Amendment. In order to remove any doubt as to the power of Congress to levy taxes on incomes of any nature, the Sixteenth Amendment to the Constitution was adopted on February 25, 1913. This Amendment provides that “Congress shall have power to levy and collect taxes on incomes from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."
*The following states have enacted income tax laws which are in effect at the present time: Arkansas, Connecticut, Massachusetts, Missouri, Montana, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Oregon, South Carolina, Virginia and Wisconsin. Copyright 1925, South-Western Publishing Co.
In pursuance of the authority granted by this Amendment, Congress enacted the Income Tax Law of October 3, 1913, which imposed a tax on the incomes of both individuals and corporations, and which superseded the Law of 1909 in so far as it applied to incomes accrued subsequent to March 1, 1913.
The Revenue Act of September 8, 1916 constituted a new income tax law which was made retroactive to January 1, 1916, and this superseded the Law of 1913. This Law was, in turn, amended and supplemented by the Law of October 3, 1917 effective as of January 1, 1917, which, in addition to the former tax on the incomes of individuals and corporations, imposed an excess profits tax on the incomes of individuals, partnerships, and corporations.
The Revenue Act of 1918, which became a law February 24, 1919, was retroactive to January 1, 1918. It imposed a tax at increased rates on the incomes of individuals and corporations and an excess profits tax on the incomes of corporations. It also imposed a war profits tax on the incomes of corporations for the year 1918. It did not impose the excess profits tax on the incomes of individuals and partnerships as did the Law of 1917.
The Revenue Act of 1921 became a law on November 23, 1921 and was retroactive to January 1, 1921. This Act was, in many respects, similar to the 1918 Act though it contained many entirely new provisions and many of the old provisions were so modified in the process of revision that there were fundamental differences in principle, scope and application. This law imposed normal and surtaxes on the incomes of individuals and normal and excess profits taxes on the incomes of corporations. However, in 1922 the Excess Profits Tax Law was repealed, effective as of January 1, 1922,
The Revenue Act of 1924 was approved by the President and became a law on June 2, 1924. This Act supersedes the Revenue Act of 1921. While the general plan of this Act is similar to the plan of the previous Acts of 1918 and 1921, there are many new provisions and numerous changes in the old provisions. Perhaps the outstanding feature of this law is the reduction in the rates of the normal and surtaxes on the incomes of individuals and the increase in amount of income exempt from surtax. The 1924 Act, which constitutes our present Income Tax Law, is the basis of the discussion which follows.
THE INCOME TAX ON INDIVIDUALS
Certain individuals are required to file returns or statements of income for each taxable year. The purpose of this Unit is to explain the conditions under which returns should be filed, the basis upon which the income should be computed and the penalties which are imposed for failure to file returns when required to do so.
Returns. (a) The following individuals shall each make under oath a return stating specifically the items of his gross income and the deductions and credits allowed under this title
(1) Every individual having a net income for the taxable year of $1,000 or over, if single, or if married and not living with husband or wife;
(2) Every individual having a net income for the taxable year of $2,500 or over, if married and living with husband or wife; and
(3) Every individual having a gross income for the taxable year of $5,000 or over, regardless of the amount of his net income.
(b) If a husband and wife living together have an aggregate net income for the taxable year of $2,500 or over, or an aggregate gross income for such year of $5,000 or over
(1) Each shall make such a return, or
(2) The income of each shall be included in a single joint return, in which case the tax shall be computed on the aggregate income.
(c) If the taxpayer is unable to make his own return, the return shall be made by a duly authorized agent or by the guardian or other person charged with the care of the person or property of such taxpayer.
(Section 223—1924 Act*) In accord with the above provisions of the Law, every individual, under the following conditions, is required to file a return:
(1) If single and the net income for the taxable year amounts to at least $1,000.00;
(2) If single and the gross income for the taxable year amounts to at least $5,000.00;
(3) If married but not living with husband or wife and the net income for the taxable year amounts to at least $1,000.00; (4)
If married but not living with husband or wife and the gross income for the taxable year amounts to at least $5,000.00;
(5) If married and living with husband or wife and the net income for the taxable year amounts to at least $2,500.00;
*This is quoted from the 1924 Revenue Act which constitutes our present Income Tax Law. Frequent reference will be made to this Act. A complete copy of the Revenue Act may be secured from the Government Printing Office at Washington, D. C., for io cents. Copyright 1925, South Western Publishing Co.
(6) If married and living with husband or wife and the gross income for the taxable year amounts to at least $5,000.00.
It is necessary to file returns under any of the conditions here outlined regardless of whether or not any tax is to be paid. It will frequently happen that the net income or gross income will exceed the amounts specified in the above provisions and still no tax will be assessed. This will be better understood following the discussion of "deductions" and "credits".
A return is merely a statement prepared in compliance with the Law which is intended to reveal the amount of taxable income and whether or not any tax is to be paid the Government. Official forms for making returns are furnished by the Treasury Department. These may be secured through the office of the local Collector of Internal Revenue or from substations which are usually established by the collector to accommodate taxpayers during the period in which returns are to be filed. The official forms furnished by the department must be used for filing returns. However, if for any reason the necessary prescribed forms cannot be secured in time for filing the return, the individual may make a statement of his gross income and deductions in some other form and if filed within the prescribed time may be filed as a tentative return. This will relieve him from liability to penalties but the tentative statement must be replaced by an official return in proper form without unnecessary delay.
The collector will, in so far as possible, furnish proper forms for filing returns. These are usually mailed direct to the taxpayer. However, failure to receive a blank form from the collector will not excuse anyone irom making a return An individual who is required to make a return and who does not receive the prescribed form should apply to the local collector for an official form in ample time to allow him to prepare his return and file it on or before the last day of the time allowed for filing returns. The return may be made by an agent when by reason of illness, absence or nonresidence the person liable for the return is unable to make it. The agent assumes the responsibility for making the return and incurs liability to the specific penalties provided for erroneous, false or fraudulent returns.
A copy of the return should be retained for future reference by the individual who files a return. He will, undoubtedly, have occasion to refer to the previous returns when making out his return for the current year. He may also be called upon by the Treasury Department to furnish additional information or to explain some of the items appearing on his return. Such requests are frequently made by the department sometimes many months after the return has been filed It is, therefore, advisable for everyone who makes a return to permanently retain a copy of it.
Whether or not an individual is the head of a family or has dependents is immaterial in determining his liability to file a re