or wife, must make a return. If a husband and wife living together have an aggregate net income of $2,000 or over each shall make a return unless the income of each is included in a single joint return. If a taxpayer is unable to make his own return it must be made by an agent or the guardian or other person in charge of his person or property.

RETURNS BY PARTNERSHIPS (Sec. 224)

Every partnership must make return, showing specifically the items of its gross income and the deductions allowed. It must include the names and addresses of persons who would be entitled to share in the net income if distributed and the amount each would receive. The return must be sworn to, by any one of the partners.

FIDUCIARY'S RETURN FOR ESTATE OR TRUST (Sec. 225)

Every fiduciary (except receivers appointed by law in possession of part only of the property of an individual) must make return for the individual, estate or trust if the net income of such individual is $1,000 or over if single or if married and not living with wife or husband, or $2,000 or over if married and living with husband or wife, or if the net income of the estate or trust is $1,000 or over, or if any beneficiary is a non-resident aiien. A return made by one of two or more joint fiduciaries is a sufficient compliance.

CHANGE OF ACCOUNTING PERIOD — RETURNS (Sec. 226)

If a taxpayer changes from a fiscal to calendar year, he must make a separate return for the period between the close of his last fiscal year and the following Dec. 31; if from calendar to fiscal year, make a separate return for the period between the close of the last calendar year and the date designated as the close of the fiscal year. If the change is from one fiscal year to another make return for the period between the close of former and date designated as close of new fiscal year. In first return on fiscal year basis, cover the period between Jan. 1 of calendar year in which such fiscal year ends, and end of such fiscal year.

WHEN AND WHERE TO FILE RETURNS (Sec. 227)

(a) Returns must be made on or before the 15th day of the third month following the closr of the fiscal year, or if made for the calendar year, on or before March 15. The commissioner may grant reasonable extension if good cause exists, but he will keep a record of extensions and the reason therefor. No such extension can be made for more than 6 months except in cases of taxpayers who are abroad.

(b) Make returns to the collector for the district in which is located the legal residence or principal place of business of the taxpayer, or, it he has neither in the U. S. then to the collector at Baltimore, Md.

IF THE TAX IS UNDERSTATED (Sec. 228)

If the collector or deputy has reason to believe the income is understated, he will give due notice to the taxpayer to show cause why it should not be increased, and if proved that the amount is understated, may increase it. The taxpayer may furnish testimony to prove any relevant facts and if dissatisfied with the collector's decision may appeal to the commissioner.

THE CORPORATION INCOME TAX

THE RATES (Sec. 230)

(a) In lieu of the corporation income taxes imposed by the 1916 and 1917 Revenue Acts, there shall be paid for each taxable year on the net income of every corporation, a tax at following rates:

1. For the calendar year 1918, 12% of the net income in excess of the credits provided in sec. 236 (and which are fully explained on page 12).

2. For each calendar year thereafter 10% of such excess amount.

(b) For the purposes of the Act of March 21, 1918, providing for the operation of the transportation systems while under Federal control, five-sixths of the tax imposed by paragraph (1) above, and four-fifths of the tax imposed by paragraph (2) above, shall be treated as levied by an Act in amendment of Title I of the Revenue Act of 1917.

EXEMPTIONS - CONDITIONAL AND OTHERS

(Sec. 231)

Following organizations are exempt from the corporation income tax:

1. Labor, agricultural, or horticultural organizations;

2. Mutual savings banks not having a capital stock represented by shares;

3. Fraternal beneficiary societies, orders or associations, (a) operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating under the lodge system, and (b) providing for the payment of life, sick, accident, or other benefits to the members or their dependents.

4. Domestic building and loan associations and co-operative banks without capital stock organized and operated for mutual purposes and without profit;

5. Cemetery companies owned and operated exclusively for the benefit of members;

6. Corporations organized and operated exclusively for religious, charitable, scientific, or educational purposes, or for the prevention of cruelty to children or animals, no part of whose net earnings benefit any private stockholder or individual; 7. Business leagues, chambers of commerce, or boards of trade, not organized for profit and no part of whose net earnings benefit any private stockholder or individual;

8. Civic leagues or organizations not organized for profit but operating exclusively for the promotion of social welfare;

9. Clubs organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, no part of whose net earnings go to any private stockholder or member;

10. Farmers' or other mutual hail, cyclone or fire insurance companies, mutual ditch or irrigation companies, mutual or co-operative telephone companies, or like organizations of a purely local character whose income consists solely of assessments, dues, and fees from members to meet expenses.

11. Farmers', fruit growers', or like associations, organized and operated as sales agents to market products of members and turning back to them the proceeds, less selling expenses, on the basis of the quantity of the produce furnished by them.

12. Corporations organized for the exclusive purpose of holding title to property, collecting the income and turning it over, less expenses to an organization itself exempt from income tax.

13. Federal land banks and national farm loan associations as provided for in the Federal Farm Loan Act of July 17, 1916.

14. Personal service corporations.

"NET INCOME" OF A CORPORATION DEFINED

(Sec. 232)

In case of a corporation subject to the corporation income tax, "net income" means the gross income less the deductions allowed. The net income is computed on the taxpayer's annual accounted period. (See secs. 212 and 226.)

"GROSS INCOME" OF A CORPORATION DEFINED (Sec. 233)

(a) The "gross income" of a corporation subject to the income tax (under sec. 230), means the gross income (as defined in sec. 213), except that

1. In case of life insurance companies do not include in “gross income" such portion of any actual premium received from an individual policy-holder as is paid back or credited to or treated as an abatement of premium of such policy holder in the taxable year.

2. Mutual marine insurance companies will include the gross premiums collected and received, by them, less amounts paid for reinsurance.

(b) Gross income of a foreign corporation includes only the gross income from sources in the U. S., including interest on bonds, notes or other obligations of residents, corporate or otherwise, dividends from resident corporations, and amounts received (although paid under contract for the sale of goods or otherwise) as profits in the manufacture and disposition of goods in the U. S.

DEDUCTIONS ALLOWED CORPORATIONS (Sec. 234)

(a) A corporation is allowed in computing its income tax, the following deductions:

1. All ordinary and necessary expenses paid or incurred in the business, including reasonable salaries or other compensation for personal services actually rendered, and including rentals and other payments required as a condition to the continued use or possession of property, to which the corporation has not taken or is not taking title, or in which it has no equity;

2. Interest paid or accrued on its indebtedness except on that incurred or continued to purchase or carry obligations (other than U. S. obligations issued after Sept. 24, 1917) the interest on which is wholly exempt from this tax as income to the taxpayer, or, in case of a foreign corporation, the proportion of such interest which its gross income from sources in the U. S. bears to its gross income from all sources.

Deduction of Taxes Paid

3. Taxes paid or accrued in the year imposed by the U. S., except income, war-profits and excess profits taxes; or by any of its possessions, except income, war-profits and excess profits taxes allowed as a credit under sec. 238; or by any state or territory, or any county, school district, municipality, or other taxing subdivision of any state or territory, not including those against local benefits which tend to increase the value of the property assessed; or in case of a domestic corporation, by any foreign country, except income, war profits and excess profits taxes allowed as a credit under sec. 238; or in case of foreign corporation, by any foreign country (except income, war-profits and excess profits taxes and taxes against local benefits which tend to increase the value of the property) on the property or business. In case of so-called "tax free" bonds, no deduction for payment of taxes is allowed:

4. Losses sustained in the taxable year and not compensated for by insurance or otherwise; 5. Debts ascertained to be worthless and charged off in the taxable year.

6. Dividends from a corporation taxable under this title, and dividends from a personal service corporation out of profits on which income tax has been imposed by Congress;

7. Reasonable allowance for exhaustion, wear and tear of property used in the trade or business including a reasonable allowance for obsolescence.

Amortization of Costs on War Plants.

8. On buildings, machinery, equipment, or other facilities constructed, erected, installed or acquired, on or after April 6, 1917, for the production of articles contributing to the prosecution of the present war and in the case of vessels constructed or acquired on or after such date for transporting articles or men contributing to the war's prosecution, there is allowed a reasonable deduction for the amortization of such part of the cost borne by the taxpayer, but not again including any amount otherwise allowed as a deduction in computing net income. Any time within 3 years after the close of the war the commissioner may, and at the taxpayer's request must, re-examine the return; if he finds the deduction originally allowed is incorrect, the taxes for the year or years affected will be redetermined; any tax found due must be paid on demand, or if overpaid, will be credited or refunded.

Depletion and Depreciation-Losses in 1919-1920 Deducted.

9. In case of mines, oil and gas wells, other natural deposits and timber, a reasonable allowance for depletion and for depreciation of improvements, according to the peculiar conditions in each case, based on cost including cost of development not otherwise deducted: Provided, that

In case of properties acquired prior to March 1, 1913, the fair market value (or the taxpayer's interest therein) on that date will be taken in lieu of cost up to that date; also, in case of mines, oil and gas wells, discovered by the taxpayer on or after March 1, 1913, and not acquired by purchase of a proven tract or lease, where the fair market value is materially disproportionate to the cost, the depletion will be based on the fair market value at the date of discovery, or within 30 days thereafter. In all the above cases the reasonable allowance will be made under regulations prescribed by the commissioner. In case of leases the deductions will be equitably apportioned between the lessor and lessee;

Insurance Companies' Deductions.

10. In case of insurance companies, in addition to the above: the net addition required by law to be made in the taxable year to reserve funds (including in case of assessment insurance companies the actual deposit of sums with State or Territorial officers as additions to guarantee or reserve funds); and the sums other than dividends paid in the taxable year on policy and annuity contracts;

11. In case of corporations issuing policies covering life, health and accident insurance combined in one policy issued on the weekly premium payment plan continuing for life and not subject to cancellation, in addition to the above, such portion of the net addition (not required by law) made within the year to reserve funds as the commissioner finds to be required for the protection of holders of such policies only.

12. In case of mutual marine insurance companies, in addition to deductions allowed in 1 to 10 inclusive, amounts repaid to policy holders on account of premiums previously paid by them, and interest paid on such amounts between the ascertainment and payment thereof;

13. In case of mutual insurance companies (other than mutual life or mutual marine) requiring their members to make premium deposits to provide for losses and expenses, there shall be allowed, in addition to deductions 1 to 10 inclusive (unless otherwise allowed under such paragraphs), the premium deposits returned to their policyholders and the premium deposits retained for the payment of losses, expenses and reinsurance reserves.

Preceding Year Losses Deductible

14 (a). At time of filing return for the taxable year 1918 a taxpayer may file a claim in abatement based on the fact he has sustained a substantial loss (whether or not actually realized by sale or other disposition) resulting from any material reduction (not due to temporary fluctuation) of the value of the inventory for such year, or from actual payment after the close of such year of rebates in pursuance of contracts, on sales made in such year. In such case payment of the tax covered by the claim will not be required until the claim is decided, but the taxpayer must accompany his claim with a bond in double the amount of the claim, with sureties satisfactory to the commissioner, to pay the tax, with interest. If any part of the claim is disallowed, the remainder of the tax due must be paid on demand, with interest at 1% a month, from the time it would have been due had no claim been filed. If shown that the loss has been sustained, then in com⚫puting the income tax, deduct the amount of such loss from the net income.

If no claim is filed but it is shown to the commissioner's satisfaction that in 1919 the taxpayer sustained a substantial loss of the kind above described, the amount of such loss shall be deducted from the net income for 1918, and the tax imposed for such year shall be redetermined. Any amount found due the taxpayer will be credited or refunded (under sec. 252).

(b) In case of a foreign corporation the deductions for such losses will be allowed only if and to the extent they are connected with income from a source in the U. S.; and the apportionment and allocation as to sources of income in the U. S. will be determined under the regulations.

ITEMS CORPORATIONS CANNOT DEDUCT (Sec. 235)

The items which a corporation cannot deduct in computing net income are the same as those specified in sec. 215, applying to individuals.

CREDITS ALLOWED CORPORATIONS (Sec. 236)

The following credits are allowed corporations in figuring its corporation income tax only. (a) Interest on U. S. obligations and bonds issued by the War Finance Corporations which is included in gross income under sec. 233;

(b) Any war profits or excess profits taxes for the same taxable year.

Provided: In case of a corporation making return for a fiscal year beginning in 1917 and ending in 1918, in computing the tax for the first taxable year it will be the sum of: (1) the same proportion of a tax for the entire period computed under the Act of 1916 as amended by the Act of 1917 and under the Act of 1917 (Title I) which the portion of such period falling in 1917 is of the entire period, and (2) the same proportion of a tax for the entire period computed under this title at the rates for the calendar year 1918 which the portion of such period falling in 1918 is of the entire period.

The tax computed under Title II of the 1917 Act will be credited against the net income computed for the entire period under Title I of the 1916 Act as amended by the 1917 Act, and under Title I of the 1917 Act, and the tax computed for the entire period under Title II of this Act at the rates for the calendar year 1918 shall be credited against the net income computed for the entire period under this title; and

(c) In the case of a domestic corporation, $2,000.

WHEN TAX IS PAID AT THE SOURCE (Sec. 237)

If a taxable foreign corporation is not engaged in business in the U. S. and has no place of business here, a tax of 10% will be deducted and withheld at the source. (The items of income on which the 10% is withheld are enumerated in sec. 221; also the manner of returning and paying the tax.) On interest on so-called "tax free" bonds the deductions and withholding shall be 2%. HOW TO TAKE CREDIT FOR TAXES PAID (Sec. 238)

A domestic corporation will be credited with any income, war-profits and excess-profits taxes paid to a foreign country on income from sources therein, or to any U. S. possession. If accrued taxes when paid differ from the amounts claimed as credits by the corporation or if any tax paid is refunded, the corporation should at once notify the commissioner who will redetermine the tax due under the income tax and the war and excess-profits tax titles for the year or years affected, and the taxes found due must be paid on demand, or if overpaid, will be credited or refunded. In case of such tax accrued but not paid, the commissioner as a condition precedent to allowance of this credit may require the corporation to give bond, conditioned for payment of any tax found due on such redetermination.

To obtain this credit the taxpayer must furnish evidence of the total income from sources in such foreign country or in such U. S. possession.

If a domestic corporation makes a return for a fiscal year beginning in 1917 and ending 1918 only that proportion of this credit shall be allowed which the part of such period in 1918 bears to the entire period.

CORPORATION RETURNS— WHO MUST MAKE THEM?

(Sec. 239)

Every corporation subject to tax, and every personal service corporation must make a return, sworn to by the president, vice president, or other principal officer and by the treasurer or assistant treasurer. The return of a foreign corporation with no place of business, here, must be made by its agent. Receivers, trustees in bankruptcy, or assignees operating the business of corporations, must make returns. (Returns under this section are subject to the provisions of secs. 226 and 228. When made under 226 the credit of $2,000 specific exemption will be reduced to the same ratio to the full credit as the number of months covered by the return bears to 12 months.)

CONSOLIDATED RETURNS REQUIRED (Sec. 240)

(a) Corporations which are affiliated within the meaning of this section, must, under regulations, make a consolidated return of income and invested capital for the income, war profits and excess-profits taxes, and the taxes will be computed on such return. Provided, That there shall be taken out of such consolidated net income and invested capital the net income and invested capital of any such affiliated corporation organized after Aug. 1, 1914, and not successor to a then existing business, 50% or more of whose gross income consists of gains, profits, commissions or other income derived from a government contract or contracts made between April 6, 1917, and Nov. 11, 1918, both dates inclusive. In such case the corporation so taken out shall be. separately assessed on the basis of its own invested capital and net income and the remainder of such affiliated group shall be assessed on the basis of the remaining consolidated invested capital and net income.

On a consolidated return, the total tax will be computed in the first instance as a unit and then assessed on the respective affiliated corporations in such proportion as may be agreed upon among them, or, if there is no agreement, then on the net income assignable to each. In computing the income tax only one specific exemption of $2,000 will be allowed; in computing the

war-profits credit only one specific exemption of $3,000; in computing the excess-profits credit only one specific.exemption of $3,000 is allowed.

(b) Two or more domestic corporations are deemed to be affiliated if one corporation owns directly or controls through closely affiliated interests, or by a nominee or nominees, substantially all the stock of the other or others; or, if substantially all the stock of two or more corporations is owned or controlled by the same interests.

(c) For the purposes of sec. 238 (credit for taxes) a domestic corporation which owns a majority of the voting stock of a foreign corporation is deemed to have paid the same proportion of any income, war profits and excess-profits taxes paid (but not including taxes accrued) by such foreign corporation during the taxable year to any foreign country or to any U. S. possession on income from sources without the U. S. which the amount of any dividends (not deductible under sec. 234) received by such domestic corporation from such foreign corporation in the taxable year bears to the total taxable income of such corporation upon or with respect to which such taxes were paid; Provided, that in no such case shall the amount of the credit for such taxes exceed such dividends (not deductible under sec. 234) received by such domestic corporation in the taxable year.

RETURNS — TIMES AND PLACE FOR FILING (Sec. 241)

(a) A corporation's return must be made on or before the 15th day of the third month following the close of the fiscal year, or if made for the calendar year, then on or before March 15. (b) It must be made to the collector of the district where the principal place of business, principal office or agency is located. If it has none of these in the U. S., then to the collector at Baltimore, Md.

TAXES PAYABLE IN FOUR INSTALLMENTS (Sec. 250)

Except where the tax is paid at the source, it shall be paid in four installments of one-fourth each; the first to be paid at the time fixed for filing the return; the second on the 15th of the third month; the third on the 15th of the sixth month, and fourth on the 15th of the ninth month, after the time fixed for filing the return. If an extension is granted the time for payment of the first installment shall be postponed until the date of the expiration of the period of the extension, but the time for payment of the other installments shall not be postponed unless the commissioner so provides in granting extension. In any case where time for payment of an installment is at the request of the taxpayer thus postponed, there will be added to the installment, interest at 11⁄2 of 1% per month from the time it would have been due if no extension had been granted, until paid. If an installment is not paid when due, the whole amount of tax unpaid becomes due and payable upon notice.

The tax may be paid in one payment; in which case it must be paid on or before the time fixed for filing return, or where an extension of time for filing the return has been granted on or before the expiration of the period of such extension.

Penalties For Negligence— Accuracy Necessary-Other Penalties.

If the amount paid is less than due the taxpayer must, on notice, pay the difference and if the understatement in the return was not due to his fault, there is no penalty; but if it was due to his negligence, but without intent to defraud, 5% of the deficiency will be added to the tax, plus interest at 1% a month on the deficiency of each installment from the time it was due. If the understatement is false or fraudulent with intent to evade the tax, then, in lieu of the penalty provided by law (RS 3176), for such cases but in addition to other penalties provided by law, 50% of the deficiency will be added as part of the tax.

Except in case of false or fraudulent returns, the tax due must be determined in 5 years after the return was due or made. No suit to collect tax can be begun after 5 years from date when return was due or made. In case of fraud there is no limit on the time in which action may be taken, or the tax collected.

If the tax is unpaid after the due date and for 10 days after notice and demand by the collector, 5% of the amount due, plus interest at 1% a month will be added. This does not apply to estates of insane, deceased or insolvent persons. The 5% will not be added where any amount is subject to a bona fide claim for abatement, but the interest on such amount will be at 2 of 1% a month.

Instructions Printed on Return Form Sufficient Demand.

Instructions printed on the return will be sufficient notice of the date the tax is due, sufficient demand, and the computation sufficient notice of the amount.

If the commissioner finds a taxpayer designs to leave the country suddenly or remove his property, or conceal himself or property, to defeat the tax, he will declare his taxable period ended, give notice, and demand immediate payment.

Collectors will, upon request, give a receipt for taxes, and whenever a debtor pays taxes on account of payments made or to be made to separate creditors the collector will give a separate receipt for the tax paid on account of each debtor. This will be sufficient evidence in favor of the debtor to justify him in withholding the amount from his next payment.