part of the return made in such person's behalf. It, too, must be filed at least thirty days before the return is due. In this latter respect, however, the individual affected can avail himself or herself of filing such a statement directly with the Collector of Internal Revenue, to be considered with the return made in his or her behalf under the withholding provision. Should the claim for exemptions and deductions not be filed in time to become parts of the return of income, there would remain to the person affected only the right of application for a refund of the tax after the payment of the same. Income from Bonds.-The normal tax of one per cent must be withheld from payments of interest upon bonds, mortgages, or deeds of trust, or similar obligations of corporations, whether payable annually or at shorter or longer periods, even though such interest does not exceed $3,000. Incomes from Foreign Sources. This requirement applies also to coupons, checks or bills of exchange in payment of interest upon the bonds of foreign countries, upon foreign mortgages and the stocks and bonds of foreign corporations, regardless of the amount or how often due. (NOTE-Here it should be noted that the taxpayer should not be confused by the necessity of withholding the tax upon the dividends of foreign corporations, in view of the provision exempting the dividends of domestic corporations from either the withholding requirement or from consideration in the assessment of the normal income tax against individuals. The difference must be apparent. In the case of the foreign corporation the government of the United States can tax only the part of the dividends due residents of the United States or citizens of the United States residing abroad. In the case of the domestic corporation the government can levy and collect the normal tax upon the dividends by a direct assessment against the corporation.) The withholding provision in respect to foreign payments affects all making such collections, and every dealer in coupons representing foreign interest or dividends, except that dealer who purchases the coupons from a banker or another dealer in such coupons, must abide by it. Tax on Corporations.-Domestic and Foreign.-For those corporations organized in the United States the normal income tax will be levied upon the entire net income; but for those organized under the laws of a foreign country upon the net income accruing from business transacted and capital invested in the United States. Those Exempt.-The following exceptions among corporations are specified as exempt from the tax: 1. Labor organizations. 2. Agricultural and horticultural associations. 3. Mutual savings banks not having capital stock represented by shares. 4. Fraternal beneficiary societies and orders. 5. Domestic building and loan associations. 6. Mutual cemetery companies. 7. Religious, charitable, scientific and educational associations. 8. Chambers of commerce, boards of trade, and civic organizations in general. Corporation's Taxable Income. The net income of any domestic. corporation will be ascertained by deducting from gross income the following items: 1. All ordinary and necessary expenses for maintenance and operation, including rent. 2. All losses actually sustained and not compensated for by insurance or otherwise. Here will be considered a reasonable allowance for depreciation by use, wear and tear of property, if any. In the case of mines the allowance will be figured as heretofore noted in determining the net income of persons. 3. Amount of interest accrued and paid within the year on indebtedness to an amount of such indebtedness not exceeding one-half the sum of its interest-bearing indebtedness and its paid-up capital at the close of the year. Or, if no capital stock, the amount of interest paid within the year on an amount of its indebtedness not exceeding the amount of the capital employed in the business at the close of the year. In the case of banks, loan and trust companies the interest paid on deposits. or money received for investment and secured by certificates. As respects indebtedness wholly secured by collateral which is the subject of sale in the ordinary business of the corporation, the total interest secured and paid. 4. All taxes paid on assessments levied under the authority of the United States, or any state, or foreign government. Income of Foreign Corporations.-The net income of corporations existing under the laws of a foreign country will be computed in practically the same way, the law taking cognizance only of the gross income accrued during the taxable year from business transacted and capital invested within the United States. The deductions, likewise, will be based wholly on operations within the United States. Collection of Tax.-Returns of incomes, under oath, must be in the hands of the Collector of Internal Revenue not later than March first. The tax will be due June 1st, and will become delinquent June 30th, when a penalty of five per cent will accrue with interest at the rate of one per cent a month. While the law fixes the calendar year as the taxable year, it allows any corporation the right to make its own fiscal year its taxable year. Insurance Companies.-Insurance companies in making returns can deduct from gross income the net addition, if any, required by law to be made within the taxable year to reserve funds; also the sums other than dividends paid on policy and annuity contracts. Mutual fire insurance companies need not make returns of any portions of premium deposits returned to policy-holders, but must make returns for taxation of all income from other sources, plus those por tions of the premium deposits retained by the companies for purposes other than for loss, expenses, and reinsurance reserves. Mutual marine insurance companies can deduct amounts repaid policy-holders on account of premiums paid or on account of interest accruing on such amounts between the time of becoming due and payment. Life insurance companies need not include that portion of any premium paid back or credited to a policy-holder, or treated as an abatement of premium. Other Important Provisions.-Public Utilities Exempt.-The law provides that states and their political subdivisions are exempted from payment of the tax on any income that accrues to them from the operation of public utilities, or the exercise of any governmental function. This exemption does not, however, apply to the income derived from any public utility by the person or corporation operating it. Public Bonds not Taxed.-In the computation of net income the interest upon the obligations of a state or any political subdivision of a state, also upon the obligations of the United States, is excluded. This covers public bonds in general. Persons Exempt.-Exempt from the tax are the salaries of the President of the United States, all federal judges, and all state, county and municipal officers and employees. Partners are Individuals.-In dealing with corporate taxpayers the law makes special exception of partnerships and holds that the persons in a partnership shall be liable for the tax only in their individual capacity. Must Get License.-All persons, firms or corporations undertaking the collection of foreign incomes must obtain a license by application to the Collector of Internal Revenue. Undivided Profits.--Undivided and undistributed profits will be considered in ascertaining the net income of persons. Accumulation of profits for the purpose of evading the law will not avail because the fact that profits are allowed to accumulate beyond the reasonable needs of a business will be regarded as prima facie evidence of a fraudulent purpose. No Double Taxation.-Double taxation of corporation dividends is prevented by assessing the normal income tax on such dividends against the corporations and not against the individuals receiving them. It will be noted, however, that when corporation dividends contribute to individual incomes subject to the additional tax they enter into the computation of net incomes. The Tax for 1913.-The tax for the year 1913 will be collected for that part of the calendar year beginning March 1st and ending December 31st. All deductions and exemptions will be figured on a five-sixths basis in order to arrive at five-sixths of the net income, which, for 1913, will be regarded as the taxable income. FEDERAL INCOME TAX LAW. The Income Tax Law is contained in Section II of "An Act to Reduce Tariff Duties and to provide Revenue for the Government, and for other purposes" (H. R. 3321), approved October 3, 1913, and so far as the Income Tax is concerned, effective November 1, 1913. So much of Subdivision "S" of Section IV of the Tariff Act as relates to the continuation in force of the Corporation Excise Tax is also included. A. Subdivision 1. Normal Income Tax.-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 elsewhere. Subdivision 2. Additional Tax. In addition to the income tax provided under this section (herein referred to as the normal income tax) there shall be levied, assessed, and collected upon the net income of every individual an 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, jointstock companies, or associations however created or organized, formed or fraudulently availed 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 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. Net Income Defined. 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 whatever, including the income from but not the value of property acquired by gift, bequest, devise, or descent: Provided, That the proceeds of life insurance policies paid upon the death of the person insured or payments made by or credited to the insured, on life insurance, endowment, or annuity contracts, upon the return thereof to the insured at the maturity of the term mentioned in the contract, or upon surrender of contract, shall not be included as income. Deductions. That in computing net income for the purpose of the normal tax there shall be allowed as deductions: First, the necessary expenses actually paid in carrying on any business, not including personal, living, or family expenses; second, all interest paid within the year by a taxable person on indebtedness; third, all national, State, county, school, and municipal taxes paid within the year, not including those assessed against local benefits; fourth, losses actually sustained during the year, incurred in trade or arising from fires, storms, or shipwreck, and not compensated for by insurance or otherwise; fifth, debts due to the taxpayer actually ascertained to be worthless and charged off within the year; sixth, a reasonable allowance for the exhaustion, wear and tear of property arising out of its use or employment in the business, not to exceed, in the case of mines, 5 per centum of the gross value at the mine of the output for the year for which the computation is made, but no deduction shall be made for any amount of expense of restoring property or making good the exhaustion thereof for which an allowance is or has been made: Provided, That no deduction shall be allowed for any amount paid out for new buildings, permanent improvements, or betterments, made to increase |