Cornell University Law Library THE GIFT OF Allan H. Treman, Attorney at Law Ithaca, New York DateMar.c.h....8.., 194.8 Cornell University Library KF 6369.F93 A treatise on the federal '"Come tax law 3 1924 020 038 711 Cornell University Library The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924020038711 A TREATISE ON THE FEDERAL INCOME TAX LAW OF I9J3 INCLUDING THEREIN A Commentary on the Act Itself, together with an Appendix Containing the Textlof the Federal Income Tax Law of October 3rd, 1913, and the Treasury Regulations in Relation Thereto, Together with Text of the Following Income Tax Enactments: Act of August 5th, 1 861 ; Act of July 1st. 1 862 ; Act of March 3rd, 1 863 ; Act of June 30th, 1 864 ; Act of March 3rd. 1 865 ; Act of July 1 3th, 1 866; Act of March 2nd. 1867; Act of July 14th, 1870 BY THOMAS GOLD E|10ST, Ph.D. OF THE NEW YORK CITY BAR Author^^of General Treatise on the Law of Guaranty Insurance; the Incorporation andOrganization of Corporations ; Federal Income Tax Law, etc. ALBANY, NEW YORK MATTHEW BENDER & COMPANY 1913 Copyright, 1913 By MATTHEW BENDER & COMPANY DEDICATED TO HON. JOHN L. KENNEDY OF THE OMAHA BAR PREFACE. The purpose of tlie author in presenting a treatise on the Federal Income Tax Law, approved October 3, 1913, is to pro- vide both the profession and the layman in a condensed and easily accessible form veith a text book on a subject which from this time forth will undoubtedly be of great interest not only to lawyers, but to business men as well. It goes without saying that the various provisions of the act will furnish ground for an immense amount of litigation which will continue until such time as the more or less obscure and ambiguous phraseology of certain portions of the act shall have received proper construction by the courts. Wherever pertinent, reference has been made to decisions of the United States courts bearing upon sections of the earlier income tax acts together with reference to rulings of the Treasury Department and opinions of the Attorney-General relative to these same acts. Occasionally decisions of the English courts presenting a construction of the English income acts are helpful, and these have been referred to in such cases. It is the hope of the author in writing a book of this character not only to present to the legal profession, but to Federal officials and the public generally, a work which they will find correct, useful and convenient. THOMAS G. EBOST, • New Yoek CriY, October 7, 1913. [V] TABLE OF CONTENTS. CHAPTEK I. THE FEDERAL INCOME TAX LAW OF 1913. PAGE. Section 1. History of the Earlier Income Tax Laws 1 2. The Sixteenth Amendment to the United States Constitution 2 3. The Federal Income Tax Act of 1913 — Construction of 2 4. Nature of the Federal Income Tax 4 5. Constitutionality of the Act 5 CHAPTER II. SCOPE OP THE FEDERAL INCOME TAX LAW AS AFFECTING CITIZENS OF THE UNITED STATES. Section 6. General Discussion of the Act with Reference to the Intent of Congress in Enacting the Same 7 7. Property Affected by the Tax 8 8. Persona Affected by the Tax 8 9. Who are Citizens of the United States Within the Meaning of the Act 8 10. Definition of " Entire Net Income " 10 11. Definition of "Arising or Accruing " 10 12. Meaning of " Persons Residing in the United States or Re- siding Elsewhere " 11 13. Rate of Taxation Prescribed by the Act 11 14. Definition Between Normal Income Tax and Additional Income Tax or Surtax 12 15. Statutory Definition of Net Income 13 16. Meaning of " Gains " 13 17. Meaning of " Profit " 14 18. Meaning of " Income " 15 19. Meaning of Income Derived from Salaries 15 20. Meaning of Income Derived from Wages 16 21. Meaning of Compensation for Personal Service 16 22. Meaning of " Profession " 17 23. Meaning of " Vocations " 17 24. Meaning of " Business " 17 25. Meaning of " Trade " 17 26. Meaning of " Commerce " 17 27. Meaning of " Sales " ' 18 28. Meaning of phrase " Dealings in Property, Whether Real or Personal, Growing Out of the Ownership or Use of or Interest in Real or Personal Property " 18 [vii] viii Table of Contents. FAOE. Section 29. Meaning of " Interest " 20 30. Meaning of " Rents " 21 31. Meaning of " Dividends " 21 32. Meaning of " Securities " 22 33. Meaning of phrase " Transaction in Any Lawful Business Carried on for Gain or Profit " 22 34. Meaning of phrase " Gains or Profits and Income Derived from Any Source Whatever, Including the Income from, but not the Value of Property Acquired by Gift, Devise or Descent " 22 35. The Proceeds of Life Insurance Paid upon the Death of the Person Insured, or Payments Made by or Credited to the Insured on Life Insurance Endowment or Annuity Con- tracts upon the Return Thereof to the Insured at the Maturity of the Term Mentioned in the Contract, or upon the Surrender of the Contract, Shall Not be In- cluded as Income 24 CHAPTEE III. STATUTORY DEDUCTIONS PERMITTED IN COMPUTING INCOME. Section 36. Text of the Act with Reference to Deductions 28 37. Deductions for Necessary Expenses Actually Paid in Carry- ing on Any Business, Not Including Personal, Living or Family Expenses 28 38. Deductions for Interest Paid Within the Year by a Taxable Person on Indebtedness 31 39. Deductions for All National, State, County, School and Municipal Taxes Paid Within the Year, Not Including Those Assessed Against Local Benefits 31 40. Deductions for Losses Actually Sustained During the Year Incurred in Trade or Arising from Fire, Storm or Ship- wreck, and Not Compensated by Insurance or Otherwise. 32 41. Deductions for Debts Due to the Taxpayer Actually Ascer- tained to be Worthless and Charged Off Within the Year. 34 42. Deductions by Way of 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, Five Per Centum of the Gross Value at the Mine of the Output for the Year for Which Com- putation is Made 34 43. Deductions Not Permitted for Any Amount Paid Out for New Buildings, Permanent Improvements or Betterments Made to Increase the Value of Any Property or Estate. . . 35 44. Deductions of the Amount Received as Dividends upon the Stock from the Net Earnings of Any Corporation, Joint-stock Company, Association or Insurance Company, Which is Taxable upon Its Net Income 36 Table of Contents. IX PAGE. Section 45. Deductions for the Amount of Income, the Tax upon Which Has Been Paid or Withheld from Payment at the Source . 36 46. Deduction of $3,000 from the Amount of Income of All Single Persons Subject to Normal Tax 37 47. Special Deductions Permitted to Married Men and Women. 37 CHAPTER IV. THE TAX LEVY. Section 48. The Normal Tax 39 49. The Additional or Surtax 39 50. Additional or Surtax Levied on Income over $20,000 and up to $50,000 40 51. Additional or Surtax Levied on Income over $50,000 and up to $75,000 40 52. Additional or Surtax Levied on income over $75,000 and up to $100,000 40 53. Additional or Surtax Levied on income over $100,000 and up to $250,000 41 54. Additional or Surtax Levied on Income over $250,000 and up to $500,000 41 55. Additional or Surtax Levied on Income in Excess of $500,000. 41 56. No Special Provision as to Bailroad Corporations in Alaska. 41 CHAPTER V. WITHHOLDING INCOME AT THE SOURCE. Section 57. Statutory Provisions Requiring Certain Kinds of Income to be Withheld and the Tax Thereon to be Paid at the Source 42 58. Purpose of the Requirement 49 59. Objectionable Features of the Requirement 49 60. How the Requirement Operates in Practice 49 61. Withholding Normal Tax in Case of Interest upon Bonds, Mortgages, etc.. Though Less Than $3,000 in Amount. ... 55 62. Special Provision as to Landlords and Tenants 57 63. How Parties Whose Income is Withheld at Its Source Can Obtain the Benefit of Deductions and Exemptions 57 64. License Required from Firms Engaged in Collection of Foreign Payments 58 CHAPTER VI. HOW NET INCOME IS COMPUTED. Section 65. How Net Income is Computed for Purpose of the Normal Tax 60 66. How Net Income is Computed for Purpose of Additional or Surtax 60 X Table of Contents. PAGE. Section 67, Evasion of Payment of Additional Tax Through the Medium of Incorporation 62 68. Exclusion of Interest upon Obligations of a State or Any Political Subdivision Thereof 66 69. Exclusion of Interest upon the Obligations of the United States or Its Possessions 68 70. Exclusion of the Compensation of the Present President of the United States During the Term for Which He Has Been Elected and of the Judges of the Supreme and Inferior Courts now in OfSce 69 71. Exclusion of Compensation of All Officers and Employees of a State or Any Political Subdivision Thereof, Except When Paid by the United States Government 69 72. No Return of Income Derived from Dividends Required of Persons Liable for Normal Income Tax Only 70 CHAPTEE VII. INCOME TAX AS APPLIED TO ALIENS. Section 73. Text of Income Act Applicable to Aliens 71 74. Resident Aliens Subject to Income Tax in the Same Manner as Citizens of the United States 72 75. Who are Non-resident Aliens 1 72 76. Meaning of Property Owned by Non-resident Aliens 74 77. Meaning of Business, Trade or Profession Carried on in the United States by Non-resident Aliens 74 78. Method of Computing Tax in Case of Aliens 74 79. How May the Benefit of Exemptions and Deductions be Obtained by Non-resident Aliens 1 75 CHAPTEE VIII. THE INCOME TAX AS APPLIED TO CORPORATIONS. Section 80. The Federal Corporation Tax Law of August 5, 1909, is Sub- stantially Re-enacted in the Income Tax Laws of 1913.. 77 81. Text of That Portion of the Income Tax Law of 1913 Applicable to Corporations 78 CHAPTEE IX. INCOME TAX RETURNS. Section 82. Income Tax Returns; When to be made 90 83. By Whom Required to be Made 90 84. Return by Oath or Affirmation 90 85. To Whom Return Must be Made 90 86. Form of Return 91 87. What Returns Must Contain 91 88. Returns by Guardians, Trustees, etc 92 Table of Contents. xi FAOE. Section 89. Return by Co-partnerships 93 90. Eeturns in Case of Minors or Insane Persons or Absentees . . 93 91. Returns by Parties Required by the Act to Withhold Income at Its Source 93 92. Verification of Lists by Parties Required by the Act to With- hold Income at Its Source 94 93. Increase and Making of Return by Collector or Deputy Collector 94 94. Penalty for Failure to Make Return at the Time Specified in the Act 95 95. Penalty for Making False or Fraudulent Returns 95 96. Publicity of Income Tax Returns 96 CHAPTEK X. IJfCOME TAX ASSESSMENTS. Section 97. When Tax Assessments Must be Made 98 98. Notice of Amount of Assessments 98 99. When Assessments Become Due and Payable 98 100. Assessments by Personal Return 99 101. Penalty for Non-payment of Taxes on or Before June 30th. . 99 102. Method of Review of Assessment; Claims for Abatement or Refund of Taxes 101 103. To Whom Payment Should be Made 101 104. Payment of Tax on Income Withheld at Source 102 CHAPTEE XL COLLECTION AND PAYMENT OF THE TAX. Section 105. Demand of Payment 103 106. Duty of Collectors of Internal Revenue to Give Receipts.. 114 107. Discovery 116 108. Entry of Taxpayers' Premises 116 109. To What Extent is the Tax a Lieu , 117 110. Enumeration of Statutory Methods for Collecting Tax. ... 119 111. Levy upon and Sale of Personal Property 119 112. Action of Debt 121 113. Powers of the Secretary of the Treasury in the Collection of Tax 122 114. Powers of the Commissioner of Internal Revenue in the Collection of Tax 124 115. Powers of Collectors of Internal Revenue in the Collection of the Income Tax 126 116. Jurisdiction of United States Court in Income Tax Matters. 129 APPENDIX A. Text of the Income Tax Law of October 3, 1913 131 xii Table of Contents. APPENDIX B. PAGE. Text of Income Tax Act of August 5, 1861 160 APPENDIX C. Text of Income Tax Act of July 1, 1862 163 APPENDIX D. Text of Income Tax Act of March 3, 1863 171 APPENDIX E. Text of Income Tax Act of January 30, 1864 173 APPENDIX F. Text of Income Tax Act of March 3, 1865 185 APPENDIX G. Text of Income Tax Act of July 13, 1866 189 APPENDIX H. Text of Income Tax Act of March 8, 1867 195 APPENDIX I. Text of Income Tax Act of July 14, 1870 199 APPENDIX J. Text of Income Tax AQ,t of August 28, 1894 205 APPENDIX K. Internal Revenue Rules and Regulations Relative to Income Tax of 1913.. 215 Index 225 THE FEDERAL INCOME TAX LAW OF 1913. CHAPTER I. The Federal Income Tax Law of 1913. See. 1. History of the Earlier Income Tax laws. The first income tax ever passed by the Federal Congress was the act of August 5, 1861 (12 Stat, at Large, 309, 311), which imposed a tax of 3 per cent, on the excess of incomes over $800. Before any taxes could be collected under this act it was repealed by the act of July 1, 1862 (12 Stat, at Large, 473, 475). This latter act provided for the levying of an income tax of 3 per cent. upon all excess of annual incomes between $600 and $10,000, and 5 per cent, on the excess of net income over $10,000. Other income tax acts passed by Congress are the following: Act of March, 1863 (12 Stat, at Large, 718, 723) ; act of June, 1864 (13 Stat, at Large, 281, 285) ; act of March, 1865 (13 Stat, at Large, 479, 481) ; act of March, 1866 (14 Stat, at Large, 4, 5) ; act of July, 1866 (14 Stat, at Large, 137, 140) ; act of March; 1867 (14 Stat, at Large, 477, 480) ; act of July, 1870 (16 Stat, at Large, 256, 261). The constitutionality of the foregoing acts had apparently been fully settled by the decisions of the United States Supreme Court in Eylton v. United States (3 Dallas 171) ; Veazie Bank v. Fenno (8 Wall. 533) ; Springer v. United States (102 U. S. 586). Thereafter, on August 28, 1894, after an interregnum of many years, a new income tax was passed (28 Stat, at Large, chap. 349). This act was, in the case of Pollock v. Farmers' Loan & Trust 2 Fedeeal Income Tax Law. Company (157 U. S. 429; 39 L. E. 759), declared to be uncon- stitutional, on the ground that a tax on the rents or income of real estate is a direct tax, and as such, under section 2 of article 1 of the United States Constitution, must be apportioned among the several States, according to their respective numbers. It was also held that the act was invalid so far as it sought to impose a tax upon the income received from municipal bonds, on the theory that such a provision constituted a tax on the power of the States and their instrumentalities to borrow money. Sec. 2. The Sixteenth Amendment to the XTuited States Constitution. In order to avoid any attack upon the constitutionalty of future income tax laws, the sixteenth amendment to the United States Constitution was adopted early in the year 1913. It reads as follows : "Article XVI. The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census enumeration.'' The passage of this amendment removes the constitutional objections to the levying of income taxes, which were sustained by the ifnited States Supreme Court in Pollock v. Farmers' Loan & Trust Company (157 U. S. 429; 39 L. E. 759). Sec. 3. The Federal Income Tax Act of 1913 — Construction of. The Federal Income Tax Law constitutes section 2 of the tariff bill which was signed by the President of the United States on the 3d day of October, 1913. It is entitled "An Act to Eeduce Tariff Duties and to Provide Revenue for the Government and for Other Purposes." The full text of section 2 of the act will be found in the appendix in the exact form in which it finally became a law. In constructing the various provisions of the Federal Income Tax Law of 1913, it should be borne in mind that successive acts of Congress on the subject of income taxes are to be construed as in pari materia. (U. S. v. Smith, I Saw. 277.) Mr. Dowell, in his work on the English income tax laws, has presented some rules of construction that he thinks should apply History of the Eaeliee Income Tax Laws. 3 in the case of inoome tax acts, which meet with the writer's full approval. They are as follows : "A taxing act Is to be construed as other Acts are construed. The intention of enactments is to be gathered from the words used to which a fair and reasonable construction must be given, not leaning in favor of one side or the other. " This rule may now be regarded as established beyond dispute. "In 1869, the late Earl Cairns, in delivering judgment in the House of Lords, in a case relating to probate duty (u) said: " 'As I understand the principle of all fiscal legislation, it is this : If the person sought to be taxed comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however, apparently within the spirit of the law the case might otherwise appear to be. In other words, if there be admissible, in any statute, what is called an equitable construction, certainly such construc- tion is not admissible in a taxing statute, where you can simply adhere to the words of the statute.' " (u) Partington v. Att. Gen. (1869), L. E. 4 E. & I. App. H. L. 100, at p. 122). " In 1881 the late Lord Justice Cotton, in his judgment in the Court of Appeals, in a case relating to income tax (Gilbertson v. Fergusson (1881), 7 Q. B. D. 562, at p. 572; 1 Tax Cas. 501, at p. 519) said: " ' I think it is now well settled that in construing these revtenue acts, as well as other Acts, we ought to give a fair and reasonable construction, and not to lean in favour of one side or the other, on the ground that it is a tax imposed upon the subject, and therefore ought not to be enforced unless it comes clearly within the words. That is the rule which has been laid down by the House of Lords in regard to the Suc- cession Duty Acts, and I think it a correct rule.' " In the same year Lord Blackburn, in delivering judgment in the House of Lords in another case relating to income tax (Coltness Iron Co. v. Black (1881), 6 App. Cas. 315, at p. 330; 1 Tax Cas. 287, at p. 316) said: " ' No tax can be imposed on the subject without words in an Act of Parliament clearly showing an intention to lay a burden on him. But when an intention is suflBciently shown, as it is, I thinic vain, to specu- late on what would be the fairest and most equitable mode of levying that tax. The object of those framing a Taxing Act is to grant her Majesty a revenue; no doubt they would prefer, if it were possible, to raise that revenue equally from all, and, as that cannot be done, to raise it from those on whom the tax falls with as little trouble and annoyance and as equally as can be contrived; and when any enactments for the purpose can bear two interpretations, it is reasonable to put that con- struction on them which will produce these eflfects. But the object is 4 Fedeeal Income Tax Law. to grant a revenue at all events, even though a possible nearer approxi- mation to equality may be sacrificed in order more easily and certainly to raise that revenue, and I think the only safe rule is to look at the words of the enactments and see what is the intention expressed by those words.' " In the case of Colquhoun v. Brooks ( 1889) , 14 App. Coses 493, 2 Tax Cases 490) in the House of Lords, with a view to ascertain whether it was the intention of the Legislature to use the words of charge in the widest sense, their lordships entered upon an elaborate investigation of the provisions of the Income Tax Acts, Lord Herschell passing under review the whole system of the existing Acts, while Lord MacNaughten extended his researches through the earlier Acts in pari materia from which the existing Acts are more or less copied. In the result the House came to the conclusion that it was impossible, in consequence of the absence of the necessary machinery to carry out the interpretation of the words of charge in the widest sense, and that, therefore, they were bound to conclude that it was the intention of the legislature not to use them in that sense. That being so, finding, in the Act, a provision of machinery to carry out a more limited interpretation of the words, they considered that they were bound to conclude that it was the intention to use the words in this sense." Sec. 4. Nature of the Federal Income Tax. The Federal Income Tax of 1913 is a comprehensive law, framed with the evident intent of compelling the collective wealth of the country to contribute their just proportion of the taxes. It seems to remedy in a measure the crying abuses which exist in con- nection with the collection of personal property taxes. It is based not upon the principle that every person shall pay the same pro- portionate part of his income to the government by way of an income tax, but it is framed on the theory that the larger the income, the larger the percentage thereof should be which the individual is compelled to turn over to the government by way of income tax. In a word, the new act attempts to equalize taxation in proportion to ability to pay. Heretofore the main criticism directed against income tax acts has been twofold: First, Aat income tax legislation fails to differentiate between earned and unearned income. That is, between the income produced by the wage earner, the salaried man, the tradesman, the farmer, the manufacturer, or those engaged in the arts and professions, on the one hand, and the income received from investments or from property accumulated by ancestors and transmitted to descendants, on the other. History of the Eakliee Income Tax Laws. 5 The second great objection to income tax laws has heretofore heen the ease with which payment has been evaded. Both of these grounds of criticism have been to a large extent at least removed under the provisions of the Federal Income Tax Law of 19.13. By the passage of the act a new system of government finance has been introduced in this country. It represents in part at least a new system of raising the necessary governmental revenues. By means of the graduated Income Tax Law unearned incomes are far more heavily taxed than earned incomes. This for the reason that the so-called earned incomes seldom exceed $20,000 in amount, which is subject only to the payment of the normal tax of 1 per cent. After the $20,000 limit is reached, the amount of the taxation increases gradually through the medium of the addi- tional or surtax until the maximum of $500,000 is reached, after which there are no further increases. The elasticity of the system is in itself one of its strong points. It may be easily increased or diminished in accordance with the needs of the government. By means of the drastic provisions relative to withholding income at its source the likelihood of suc- cessful evasion of the payment of the tax is reduced to a minimum. This last mentioned device (withholding the income at its source) is borrowed from the English Income Tax Laws. The weakest point in the entire act is to be found in the clause which attempts to prevent the formation of corporations for the purpose of taking title to the real and personal property of indi- viduals with a view to evading the payment of the surtax. (See act, sec. A, sub. 2, lines 28 to 57.) As to the merits of the act as a whole, it may be asserted that it does credit to those who framed it. With some wholesome amendments that appear certain to be enacted later on, it promises to remain permanently on the statute books. Sec. 5. Constitutionality of the Act. In view of the adoption of the sixteenth amendment to the Federal Constitution (see ante section 2) it would seem to be superfluous to discuss the constitutionality of the Federal Income Tax Act of 1913, on the first of the grounds upon which the Federal Income Tax of 1894 was declared unconstitutional. To 6 FEDEUAi Income Tax Law. wit: That, being a direct tax, it mtist be apportioned among the States. The other ground upon which that act was declared unconstitutional (as being a tax upon the States or their instru- mentalities) has been fully met by that section of the act which provides that in computing net income there shall be excluded the interest upon obligations of a State or any political subdivision thereof. Also, by that provision which excludes in the computation of taxable income, the compensation of all officers and employees of a State or any political subdivision thereof. (For discussion of questions that may be hereafter raised as to the constitutionality of the act, see the following cases : Patton v. Brady, 184 U. S. 608, 46 Law Ed. 607 ; Ex parte Ives Fed. Cas. 7114 ; Flint v. Stone Tracey Co. et al, 220 U. S. 107, 55 Law Ed. 389 ; Pollock v. Farmers Loan & Trust Co., 157 U. S. 429, 39 Law Ed. 759; C. K O. & T. P. E. R. Co. v. Kentucky, 115 U. S. 321, 29 Law Ed. 414; B. G. Ey. Co. v. Pennsylvania, 134 U. S. 232, 33 Law. Ed. 892.) Fedebat. Income Tax Laws as Affecting Citizens. CHAPTER II. Scope of the Federal Income Tax Laws as Affecting Citizens of the United States. Sec. 6. General Discussion of the Act with Reference to the Intent of Congress in Enacting the Same. In the language of the chairman of the ways and means com- mittee of the House of Representatives, " the tax upon incomes is levied according to ability to pay, and it would be difficult to devise a tax fairer or cheaper of collection. Congress should eliminate the inequalities and abuses of the existing systems of tariff taxation, reduce the customs rates to a sound revenue basis ■ — placing maximum rates on luxuries and minimimi rates, or none at all, on the necessaries of life — and levy an income tax to equalize the tax burden and to give elasticity and productivenesa to our revenue system." Sec. 7. Property Affected by the Tax. It should be carefully borne in mind that the new Federal Income Tax is in no sense a tax upon property. Neither is it a tax upon principal, but only upon income. It is measured by the gains, profits and income derived from all sources. Under- the sweeping provisions of the act, no source of income, unless specifically exempt from the operations of the law, can escape taxation. The subject-matter, however, is limited as to time by the following provisions of the act, to wit: That the tax shall be computed upon the remainder of said net income of each person subject thereto, accruing during each preceding calendar year ^ ending December 31st, provided, however, that for the year end- ing December 31, 1913, said tax shall be computed on the net income accruing from March 1 to December 31, 1913, both dates inclusive, after deducting five-sixths only of the specific exemp- tions and deductions hereinafter provided for. (See act, sec. D, lines 1 to 9 ; see also 1 Int. E. E. 172, 2 I. E. E. 54.) 8 Federai. Income Tax Law. If the taxpayer dies before the time appointed by law for mak- ing the return upon which the tax is to be presented, then the return must be made and the tax paid by the executor or adminis- trator. (Mardell v. Pierce, Fed. Cas. 9008.) See. 8. Persons Affected by the Tax. The persons affected by the income tax enactment of 1913 are divided into two general classes: First. Every citizen of the United States, whether residing at home or abroad; also, all per- sons residing in the United States, though not citizens thereof. Second. All persons residing without the United States but owning property therein or carrying on some business, trade or profession in the United States. (Act, sec. A, sub. 1, lines 1-11.) There can be no question but what the entire income of every citizen of the United .States, whether residing within the country or abroad, is subject to the operation of the act. The same state- ment applies to aliens residing in the United States. It is only nonresident aliens whose taxable income is limited to property owned or business, trade or profession carried on by them in the United States. In all cases involving aliens it is necessary to ascer- tain the following facts: First, whether the alien resides within the United States, or resides outside of its jurisdiction. Second, it must be determined whether they own property within the United States within the meaning of the act. Third, it must be deter- mined whether they carry on any business, trade or profession within the United States within the meaning of the act. All of the foregoing three inquiries being questions of fact it is impracticable if not impossible, to make an exhaustive definition of what constitutes residence within the United States, property owned within the United States or business, trade or profession carried on within the United States. All of these questions will however be given separate consideration in a subsequent chapter of this work. (See post, chapter VII.) Sec. 9. Who are Citizens of the United States Within the Meaning of the Act. The act provides (section A, lines 1-4) that there shall be " levied, assessed, collected and paid annually " a tax in the Fedeeal Income Tax Laws as Affectia'g Citizens. 9 amount specified in the act, 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. In the language of the United States Supreme Court (U. S. v. Cruikshank, 92 U. S. 542, 93 L. E. 588) : " Citizens are members of the political community to which they belong. They are the people who compose the community and who in their associated capacity have established or submitted themselves to the dominion of a government for the promotion of their welfare and protection of their individual as well as their collective rights." Chancellor Kent defines " citizens " as follows : " Citizens under our Constitution and laws, mean every inhabitant born within the United States or naturalized under the laws of Congress. The possession of political rights is not essential to citizenship. Every citizen and freeman is endowed with certain rights and privileges to enjoy which no written statute or law is required. These are fundamental or natural rights recognized among all free people. (U. S. v. Morris, 125 Fed. 322.) " For the purposes of definition it is provided (section H) that the words " United States," as used in the act, shall be construed to include any territory, Alaska, District of Columbia, Porto Kico and the Philippine Islands when such construction is necessary to carry out its provisions. The word " territory " as here used will imquestionably include the Hawaiian Islands. The act specifically provides (sec. M, lines 1—14) that the income tax shall be operative in Porto Eico and the Philippine Islands provided " that the administration of the law and the collection of the taxes imposed in Porto Rico and the Philippine Islands shall be by the appropriate internal revenue officers of those governments, and all revenues collected in Porto Kico and the Philippine Islands thereunder shall accrue intact to the general governments thereof respectively : And provided, further, that the jurisdiction in this section conferred upon the district courts of the United States shall, so far as the Philippine Islands are con- cerned, be vested in the courts of the first instance of said islands : And provided further, that nothing in this section shall be held to exclude from the computation of the net income the compensa- tion paid any official by the governments of the District of 10 Federal Income Tax Law. Columbia, Porto Kico and the Philippine Islands or the political subdivisions thereof." Sec. 10. Definitions of "Entire Net Income." The wording of the act is 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." " Income " may be defined as the monetary return from labor, services, business or property of any kind. (See Appeal of Braun, 105 Pa. 114.) " Net income " of the character referred to in the act is the amount of such income remaining after deducting therefrom the items specified in the act, which are hereinafter referred to as statutory deductions. (See Jones & Nimick Mfg. Co. v. Common- wealth, 69 P. F. Smith, 1, 37 ; In re Hemphill's Estate, 36 Atl. 409, 180 Pa. 95 ; Beeton v. Simpson, 21 Atl. 34, 48 JST. J. Eq. 17 ; Earl V. Rowe, 35 Me. 414, 58 Am. Dec. 714; Gray v. Darlington, 15 Wall. 63 ; Dollar Sav. Bank v. U. S., 19 Wall. 227 ; U. S. v. Smith, 1 Saw. 277, Fed. Cas. 16, 341 ; Tompkins v. E. R, 15 Fed. Rep. 6; see also 3 Int. E. R. 118, 140; 5 I. E. E. 138; 7 I. E. E. 59.) Sec. 11. Definition of "Arising or Accruing." Inasmuch as the act uses both the words " arising " or " accru- ing " in direct connection with the phrase " entire net income," it would appear that the framers of the law regarded these words as having somewhat different meanings. The word " arising " is in its meaning in many respects equiva- lent to " originating." Among the most common definitions of the word " arise " are " to proceed," " to issue," and " to spring." (See In re Bogart, Fed. Cas. 1, 596.) Thus it would appear that the word " arising " has reference to the source of the income, and has no direct connection with the question as to beneficial ownership thereof. " Accruing," however, indicates vesting of ownership. Income accrues to a party when it ceases to be the property of another and becomes the property of said party. (See Napa Hospital v. Yuba County, 138 Cal. 378, 71 Pac. 450.) Federal Income Tax Laws as Affecting Citizens. 11 In the language of the court in Allen v. Armstrong (58 N, Y. App. Div. 427, 68 N. Y. Supp. 1079), " accrue is the possession of a present enf orcible right. Thus ' profits ' have accrued when they are paid, or when the right to enforce them presently exists. Profits may not be said to have accrued until they have become fixed and payabla" Sec. 12. Meaning of Persons Besiding Within the United States. Aliens residing in the United States are subject in every respect to the same income tax that is levied upon citizens of the United States. It will undoubtedly become a practical question for the execu- tive department of the government to decide, as to who are " resi- dents " within the meaning of the act. In other words, to deter- mine when a person ceases to be a visitor or transient and become a resident of some particular locality. It has been suggested that " residence " and " domicile " have practically identical meanings. This is not true: " ' Domicile ' and ' residence ' though often used as synonymous have in law two distinct meanings. * * * The essential distinction between ' resi- dence ' and ' domicile ' is this : The first involves the intent to leave when the purpose for which he has taken up his abode ceases; the other has no such intent — the abiding is animo manendi. One may see a place for the purpose of pleasure, business or health; if his intent be to renmin, it becomes his domicile; if his intent be to leave as soon as his purpose is accomplished, it is his residence. Perhaps the most satisfactory definition is that one is a resident of a place from which his departure is indefinite as to time and definite as to purpose; and for this purpose he has made the place his temporary home." (Brisenden v. Chamberlain, 53 Fed. 307, 311; see post, § 75.) Sec. 13. Rate of Taxation Prescribed by the Act. "With respect to the rate upon which the Federal Income Tax shall be levied we find the following provisions (Act, sec. A, subd. 1 lines 1-11) : First, a normal tax of 1 per cent, upon all income in excess of the statutory exemption ($3,000 in the case of a single person, $4,000 in the case of married ; see post, section 48). This 1 per cent, is levied upon all income irrespective of amount over and above the amount of income exempted by law. The amount of this normal tax is the same in the case of both citizens and aliens. 12 Federal Income Tax Law. I addition to the normal tax just referred to, there is required to be levied and assessed and collected upon the net income of every individual (whether citizen or alien) an additional income tax (or surtax) of 1 per cent per annum upon the amount by which the total net income exceeds $20,000, and does not exceed $50,000 ; and 2 per cent, per annum upon the amount by which the total net income exceeds $50,000 and does not exceed $75,000; 3 per cent per annum upon the amount by which the total net income exceeds $75,000 and does not exceed $100,000 ; 4 per cent, per annum upon the amount by which the total net income exceeds $100,000 and does not exceed $250,000; 5 per cent, per annum upon which the total net income exceeds $250,000 and does not exceed $500,000; and 6 per cent, per anmun upon the amount by which the total net income exceeds $500,000. (Act, subd. 2, lines 1-17.) Sec. 14. Distinction Between Normal Income Tax and Additional In- come Tax or Surtax. The act makes a very clear distinction between the normal tax and the additional or surtax. The normal tax is applicable to all net income whatsoever, provided the same exceeds the amo\int which is exempted from taxation. {See post, section 48.) On the other hand, the additional or surtax is only applicable to net incomes, of a fixed amount, and varies as that increases or diminishes. Thus, for example, we will assume that a single man has an annual net income of $1,000,000 over and above all exemptions and deductions. On this amount he would have to pay a normal tax of $10,000. On the amount of his income from $20,000 to $50,000 he would have to pay a surtax (in addition to the normal tax) of $300. On his income from $50,000 to $75,000 he would pay an additional tax of $500 ; on his income from $75,000 to $100,000 he would pay an additional tax of $750; on his income from $100,000 to $250,000 he would pay an additional tax of $6,000 ; on his income from $250,000 to $500,000 he would pay a tax of $12,500 ; on his income from $500,000 to $1,000,000 he would pay a tax of $30,000. This would make the total income tax which a person enjoying an income of $1,000,000 would be required to pay the national government amount to $60,050. Federal Income Tax Laws as Affectistg Citizens. 13 Sec. 15. Statutory Definition of Net Income. In the language of the act (sec. B, lines 1-19) : " The net income of a taxable person shall include gains, profits and incomfei derived from salaries, wages or compensation for per- sonal 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 in- come 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 the surrender of the contract, shall not be included as income." Sec. 16. Meaning of " Gains." It might be argued that as Congress, in defining the meaning of " net income," has seen fit to employ the words gains, profits and income, therefore that these three words have a different and distinct meaning one from the other. However that may be, it seems apparent to the writer that the three words were used for the purpose of including therein several kinds of pecuniary com- pensation received by individuals from the sources referred to in the same clause of the act in which the words " gains," " profits " and " income " occur. That is, from salaries, wages and com- pensation for personal services, from professions, vocations, busi- ness, trade or commerce, sales or dealings in property, or from interest, rents, dividends and securities. (iSee Gresham Life Ass. Soc. V. Styles, 62 L. J. 41, 3 Tax Cases 185.) The United States Supreme Court in Gray v. Darlington (82 TI. S. 63, 65 ; 21 L. E. 45) had occasion to construe the meaning of the word " gains," as used in the income act of 1867, to mean such pecuniary return as may be realized from a business trans- 14 Federal Income Tax Law. saction begun and completed during the preceding year. (See also Dollar Sav. Bank v. U. S., 19 WaU. 227 ; U. S. v. Smith, 1 Saw. 277; Tompkins v. E. E., 15 Fed. Eep. 6; see also 3 I. E. E. 118, 140; 5 I. E. E. 138; 7 I. E. E. 59.) Sec. 17. Meaning of " Profits." " Profit " is the gain made on any business or investment when both the receipts and disbursements are. taken into consideration. (See People v. Niagara Co. Supr's, 4 HiU, 20, 23 ; Sioux City & P. E. E. Co. V. TJ. S., 3 Sup. Ct. 565, 110 U. S. 205, 28 L. E. 120; Eyster v. Centennial Board of Finance, 94 U. S. 500, 503, 24 L. E. 188; Bates .v. Porter, 15 Pae. 732; Burt v. Eattle, 31 Ohio iSt 116.) In the language of the Oregon Supreme Court " net profits " (as used in a contract providing that a party who received a sum equal to one-third of the net profits) means the gain which accrues on an investment after deducting expenses and losses. The words define themselves. They mean what shall remain as the clear gain of any business venture, after deducting the capital invested in the business, the expense incurred in its conduct, and the losses sustained in its prosecution. * * * In ascertaining the net profits of a business, if we take the capital invested, the expense of running it, and the losses incurred in its prosecution, which last element necessarily includes such amounts as are to be treated as bad and uncollectible, and deduct from the account of stock and outstanding accounts now freed from bad accounts, and treated as outstanding, accounts collectible, the dif- ference will be net profits. (McClusky v. Klosterman, 25 Pac. 366, 20 Ore. 108, 10 L. E. A. 785; see also Grant Locomotive Works, 3 Atl. 162, 40 N. J. Eq. 114.) Mere advance in value in no sense constitutes the " profits " specified in the Income Law as profits of the owner for the year in which the sale of the property was made. Such advance con- stitutes and can be treated merely as increase of capital. (Gray V. Darlington, 82 U. S. [15 Wall.] 63; 21 L. E. 45.) " In manufacture, agricidture and ordinary business, the word ' profit ' ordinarily means the excess of returns over expenditures and may or may not, according to circumstances, include in the returns any increase in value of the capital and in the expendi- Federal Income Tax Laws as Affecting Citizens. 16 tures any depreciation of capital. In a more scientific sense it relates to that excess which remains after deducting from the returns not only the operating expenses and depreciation of capital but also interest on the capital employed." (Mayer v. JSTethersole, 71 App. Div. 383, 75 N. Y. Supp. 987; see also Merchants Ins. Co. V. McCartney, 12 I. E. E. 122 ; Schuylkill Nav. Co. v. Elliott, 21 I. E. E. 342; Gray v. Darlington, 15 Wall. 63; Dollar Sav. Bank v. U. S., 19 Wall. 227 ; U. S. v. Smith, 1 Saw. 277 ; Tompkins v. E. E., 15 Fed. Eep. 6; 3 I. E. E. 118, 140, 5 I. E. E. 138, 7 I. E, E. 59.) Sec. 18. Meaning of " Income." It is undoubtedly true that " profits " and " income " are some- times used as synonymous terms ; but strictly speaking, " income " means that which comes in or is received from any business or investment of capital, without reference to the outgoing expendi- tures ; while " profits " generally mean the gain which is made upon any business or investment of capital when both receipts and payments are taken into account. " Income," when applied to the affairs of individuals, expresses the same idea that revenue does when applied to the affairs of a state or nation ; and no one would think of denying that our government has any revenue because the expenditures for a given period may exceed the amount of receipts. (People v. Supervisors, 4 Hill 20.) In Appeal of Sims (44 Pa. [8 Wright] 345) it was stated that the word " income " means the gains which proceed from property, labor or business. (See also In re Murphy, 80 IST. Y. Supp. 530, 80 App. Div. 238 ; see also Gray v. Darlington, 15 Wall. 63 ; Dol- lar Sav. Bank v. U. S., 19 Wall. 227; U. S. v. Smith, 1 Saw. 277; Tompkins v. E. E., 15 Fed. Eep. 6; see also 3 I. E. E. 118, 140, 5 I. E. E. 138, 7 I. E. E. 59.) Sec. 19. Meaning of Income Derived from Salaries. Salary formerly had reference to the fixed and stated remunera- tion attached to the holding of a public position or oifice. (Bell v. Indian Live Stock Co., Texas, 11 S. W. 344, 346.) As used in the Income Tax Act it probably denotes the compensation of per- sons occupying not only official positions, but private employment 16 Federal Income Tax Law. of a more elevated and prominent situation. The term implies more or less continuity in service as distinguished from day labor or piece work. (See Dayton v. Ewart, 28 Mont. 153, 72 Pac. Eep. 420.) Sec. 20. Meaning of Income Derived from Wages. The common definition of wages is hire or reward. That is, paid or stipulated for services, hut chiefly for services like manual labor. (Matter of Stryker, 158 K Y. 526, 53 K E. 525.) It has been stated that the term indicates inconsiderable pay received from a low degree of employment, (Myers v. City of New York, 69 Hun, 291, 23 N. Y. Supp. 484.) Sec. 21. Meaning of Compensation for Personal Service. Under the wording of the act (see section B, lines 3-4), com- pensation for personal service must necessarily be given a very broad and comprehensive meaning. Thus it would include the compensation paid to persons either in a regular or occasional employment of whatever kind and in whatever form paid. It would include the perquisites appertaining to a position, which are referred to in the English Act. (See Tennant v. Smith, 61 L. J. P. C. 11, 66 L. T. 327; Herbert v. McQuade, 2 K B. 761, 84 L. T. 661.) In the words of Lord Watson : " Perquisites do not come within the category of profits, because that word in its ordinary acceptation appears to denote something acquired and which the acquirer becomes possessed of to his advantage — in other words, money, or that which can be turned to pecuniary account." (Tennant v. Smith, 61 L. J. P. C. 11, 66 L. T. 327.) It might well be contended that the phrase " compensation for personal service " is the equivalent of the word " earnings." As such it implies that the sum due shall be claimed for the personal services of the claimant, and that it shall not involve to any sub- stantial extent, recompense for materials furnished; but earnings need not result from the work done under the direction of another, nor from manual labor. (Dayton v. Ewart, 72 Pac. 420, 28 Mont. 153.) The compensation paid for the personal service may be either in money or money's worth. Federal Income Tax Laws as Affecting Citizens. 17 Sec. 22. Meaning of " Profession." The word " profession " has reference to employment, requiring a learned education as a necessary prelimination to the practice thereof. For example, such as the profession of law, medicine, theology and dentistry. It is well stated that the word implies a professed attainment in special knowledge, as distinguished from mere skill and practical dealings with affairs. (See TJ. S. v. Laws, 163 U. S. 258, 41 L. E. 151 ; see also. Miller v. Kirkpatriek, 29 Pa. 226.) Sec. 23. Meaning of " Vocations." " Vocations " etymologically means calling from which the per- son pursuing the same derives income. It would seem to include both the liberal and applied arts which require protracted study in order to master and apply. (See Partridge v. Mallandine, L. R. 18, Q. B. D. 276.) Sec. 24. Meaning of " Business." " Business " has been defined as that which engages the time and attention or labor of anyone for the purpose of profit or im- provement ; that which is his personal concern or interest ; constant employment, regular occupation. (Trustees of Columbia College V. Lynch, 47 How. Pr. [K Y.] 273.) Sec. 25. Meaning of " Trade." The word " Trade " as used in the Income Tax Act, has refer- ence to the exchange of commodities for other commodities or for money ; the business of buying, selling and dealing by way of sale or exchange. (See U. S. v. Cassidy, 67 Fed. 698 ; State v. "Worth, 116 N". C. 1007, 21 S. E. 204; Queen Ins. Co. v. State, 86 Texas 250, 24 S. W. 397 ; see Attorney Gen. v. Borrodaile, 1 Price Exch. 148.) Sec. 26. Meaning of " Commerce." " Commerce " consists of intercourse and traffic and includes the transportation of persons and property and the navigation of public waters for that purpose. (U. S. v. Cassidy, 67 Fed. 698.) It has also been defined as an exchange of commodities. (See 18 Fedebai, Income Tax Law. Passenger Cases, 48 U. S. 283, 12 L. E. 702.) As osed in the Income Tax Act it undoubtedly has special reference to the busi- ness of exporting and importing, and in addition thereto has ref- erence to the business carried on by steamships, railways, street railways, bus lines, express business, and trucking and navigation companies. Sec. 27. Meaning of " Sales." A sale is a transmutation of property for a pecuniary considera- tion. (Williamson v. Berry, 49 U. S. 544, 12 L. E. 1170 ; Darnell V. Morehouse [N. Y.], 36 How. Pr. 511.) In the earlier income acts there have been several decisions ren- dered which throw some light as to the meaning of the word " sales." Thus, in United States v. Smith, 1 Saw. 207, it was held, that a transfer of stock for a promissory note, or an exchange thereof for lands which are sold within the year for collectible promissory notes, is to be considered as a sale of such stock for cash. On the other hand, it was held that a bona fide exchange of stock for other property is not a sale thereof from which proceeds are derived liable to taxation as income. (Idem.) In another case (United States v. Shillinger, Federal Cases No. 16228) it was held that the amount of a promissory note taken in 1871 on a sale in that year of a patent right not maturing or paid until 1872 was not taxable as income for 1871. Sec. 28. Meaning of Phrase, " Dealings in Property, Whether Real or Personal, Growing Out of the Ownership or Use of or Interest in Real or Personal Property." The foregoing clause would seem clearly to have special refer- ence not to any income derived from dealing in either real or per- sonal property as a business, but rather such annual profit as might accrue to an individual through his ownership, use or possession of a vested or contingent interest in real or personal property, and as such would include the gain or profit (within the preceding calendar year at least) from sales of real or personal property by the ovsrners as well as from exchange of property by trade or barter. (See Saunders v. Eussell, 78 Tenn. 293, 297; also Mer. Ins. Co. v. Fedeeal Income Tax Laws as Affecting Citizens. 19 McCartney, 12 I. R E. 122; 2 I. E. E. 44; 3 I. E. E. 3; 6 I. E. E. 124.) It may be observed here that the word " dealing " is not infre- quently used as the legal equivalent of the word " trading." In rieckner v. U. S. Bank (8 Wheat. 338, 352, 5 L. E. 63), the court observed that the words " dealing " and " trading " are used as equivalent in meaning, and they are connected with goods, wares and merchandise and commodities, which words in mercantile lan- guage are always used with reference to corporeal substances and never to choses in action. In the present instance, the peculiar wording of the act would unquestionably suffice to make the words " dealings " embrace the gains, profit or income derived from the sale, granting, or leasing of any interest whatsoever in lands. On the immediate question now before us the case of Grace v. Darling- ton (82 U. S. 63, 15 Wallace 63), dealing with similar provisions is one of the earlier income acts is most instructive. The opinion in that case reads as follows: " In 1865 the plaintiff, being the owner of certain United States treasury notes, exchanged them for United States five-twenty bonds. In 1869 he sold these bonds at an advance of $20,000 over the cost of the treasury notes, and upon this amount the assistant assessor of the United States for the collection district in Pennsylvania, within which the plaintiff resided, assessed a tax of five per cent, alleging it to be gains, profits and income of the plaintiff for that year. On appeal to the assessor of the district, and to the Commissioner of Internal Revefiue, this assessment was aiBrmed, and it was transmitted to the defendant, as collector of the district, for enforcement. Upon the latter's demand the tax was paid by the plaintiff under protest, and the present action was brought to recover back the money. " The question presented is whether the advance in the value of the bonds during this period of four years, over their cost, realized by their sale was subject to taxation as gains, profits or income of the plaintiff for the year in which the bonds were sold. The answer which should be given to this question does not, in our judgment, admit of any doubt. The advance in the value of property, during a series of years can, in no just sense, be con- sidered the gains, profits or income of any one particular year of the series, although the entire amount of the advance be at one time turned into money by a sale of the property. The statute looks, with some exceptions, for sub- jects of taxation only to annual gains, profits and income. Its general language is ' that there shall be levied, collected and paid annually upon the gains, profits and income of every person ' derived from certain specified sources a tax of five per cent, and that this tax shall be ' assessed, collected and paid upon the gains, profits and income for the year ending the 31st of December next preceding the time for levying, collecting and paying said tax.' (14 Stat, at L., pp. 477, 478, sec. 13.) This language has only one meaning, 20 Fedeeal Income Tax Law. and that is, that the assessment, oolleetion and payment prescribed are to be made upon the annual products or income of one's property or labor, of such gains or profits as may be realized from a business transaction begun and completed during the preceding year. There are exceptions, as already intimated, to the general rule of assessment thus prescribed. One of these exceptions is expressed in the statute, and relates to profits upon sales of real property, requiring, in the -estimation of gains, the profits of such sales to be included where the property has been purchased, not only within the preceding year, but within the two previous years. Another exception is implied from the provision of the statute which requires all gains, profits and income derived from any source whatever, in addition to the sources enumerated, to be included in the estimation of the assessor. The estimation must, therefore, necessarily embrace gains and profits from trade and com- merce, and these, for their successful prosecution, often require property to be held over a year. In the estimation of gains of any one year, the trade and merchant will, in consequence, often be compelled to include the amount received upon goods sold over their cost, which were purchased in a previous year. Indeed in the estimation of the gains and profits of a trading or commercial business for any one year, the result of money transactions have generally to be taken into account which originated previously. Except, how- ever, in these and similar cases, and in cases of sales of real property, the statute only applies to such gains, profits and income as are strictly acqui- sitions made during the year preceding that in which the assessment is levied and collected. " The mere fact that property has advanced in value between the date of its acquisition and sale does not authorize the imposition of the tax on the amount of the advance. Mere advance in value in no sense constitutes the gains, profits or income specified by the statute. It constitutes and can be treated merely as increase of capital. " The rule adopted by the oflicers of the revenue in the present case would justify them in treating as gains of one year the increase in the value of property extending through any number of years, through even the entire century. The actual advance in value of property over the cost may, in fact, reach its height years before its sale ; the value of the property may, in truth, be less at the time of the sale than at any previous period in ten years, yet, if the amount received exceed the actual cost of the property, the excess is to be treated, according to their views as gains of the owner for the year in which the sale takes place. We are satisfied that no such result was intended by the statute. Sec. 29. Meaning of " Interest." " Interest " is compensation, usually reckoned by percentage, and is paid by the borrower to the lender for the loan, use or forbearance of money. (Beach v. Peabody, 188 111. 75, 58 'N. E. 679 ; see also Howard v. Bates Co., 45 Fed. 276 ; Mar. Ins. Co. V. McCartney, 12 I. R. R. 122 ; Barnes v. R. R. Co., 17 Wall. 294; Stockdale v. Ins. Co., 20 Wall. 323; R. R. Co. v. U. S., Federal Income Tax Laws as Affecting Citizens. 21 101 U. S. 542 ; U. S. v. E. E. 113 U. S. 711 ; FoUey v. Fletcher, 3 H. & N. 769.) So far as the inclusion of interest was concerned, the Income Tax Act of August 18, 1894, was quite similar to the Income Tax Act of 1913. Under regulations of the Internal Eevenue Department set out in the bulletin issued December 13, 1894, we find the following under regulation IV, subdivision 11 : "The interest accrued during the year on notes, bonds or other evidences of indebtedness, if good and collectible at the end of the year, should be returned as income, whether actually collected or not. Dividends and interest payable in 1894 should be returned as income for that year, no matter when declared." The new act provides that the gains, profits and income derived from interest shall be treated as income. This will probably re- sult in a ruling of the Treasury Department that interest that has accrued during the preceding tax year, but is not paid until a later period, shall constitute taxable income the same as interest actually paid. Sec. 30. Meaning of " Rents." The word " rents " as here used, has special reference to the pecuniary return paid by tenants to landlords for the use and occupation of lands, tenements and hereditaments. (See Delaney V. Aulen, 84 N. Y. 16, 19 ; see also Burroughs v. Carther, 66 Md. 171, 7 Atl. 243 ; West v. Hughes, 2 Am. Dec. 539 ; Mitchell v. Mitchell, 10 Md. 234; McLaughlin v. Barnum, 31 Mo. 452; Worthington v. Hiss, 70 Md. 172, 16 Atl. 534; 6 I. E. E. 130.) Sec. 31. Meaning of "Dividends." " Dividends," as here used, has particular reference to income derived from the holding of corporate stock, in the form of cash or stock dividends duly declared by the board of directors o£ said corporation. (See Mer. Ins. Co. v. McCartney, 12 I. E. E. 122 ; Barnes v. E. E., 17 Wall. 294 ; 'Stockdale v. Ins. Co., 20 Wall. 323; E. E. Co. v. TJ. S., 543; U. S. v. E. E., 113 U. S. 711.) 22 Federal Income Tax Law. Under the provisions of one of the prior income acts, it was held (N. Y. C. & H. E. E. Co. v. Bailey, Federal Cases 10203) that stock certificates issued by the railroad company to repre- sent earnings as invested in construction equipment were not taxable as scrip dividends. It was also decided in Magee v. Denton et al. (Federal Cases 8943) that a dividend declared will form a part of the taxable income of a stockholder though he has not called for and received it. It is very clear that so-called " stock dividends " constitute income and not additions to one's capital. (See Lowry v. T. L. & T. Co., 172 K Y. 137, 64 N. E. 796.) Sec, 32. Meaning of " Securities." The term " securities " in its broadest sense, embraces bonds, mortgages, debentures, notes, stock and other evidences of debt or of property. (Thayer v. Wathen, 44 S. W. 906, 17 Tex. Civ. App. 382. As to taxability of promissory notes, bank accounts, etc., see U. S. v. Frost, Federal Cases 15172.) Sec. 33. Keaning of Phrase, " Transaction of any lawfnl Business Carried on for Gain or. Profit." This phrase is intended to cover any occupation carried on by individuals for profit not included in the lines of employment specified previously in the act. (See section B, lines 1-9.) Sec. 34. Meaning of the Phrase, " Gains or Profits and Income De- rived from any Source Whatever, Including the Income From, But Not the Value of Property Acquired by Gift, Devise or Descent." This clause, like the one mentioned in the preceding section, is intended to cover any possible sources of income accruing to the individual subject to the tax arising out of the ownership of property, whether real or personal, not covered by any preced- ing definition of sources of income. It specifically provides that there shall be included in all income tax returns the income from, but not the value of any property acquired by gift, devise or be- quest or descent. The word " gift " as here used, refers to real Fedbeal Income Tax Laws as Affecting Citizens. 23 or personal property acquired by the person subject to the tax without the giving of some valuable consideration therefor. This would include all transfers of real and personal property, either in consideration of love and affection or for some merely nominal consideration, or without any consideration whatsoever. The term " bequest " relates to testamentary devises of per- sonalty. (In re Fetrow's Estate, 58 Pa. 8, P. F Smith 424, 427 ; Still V. Spear, 45 Pa. [9 Wright] 168, 171.) The word " devise " is ordinarily applied to a term used in a will to denote a gift of real property. (Oothout v. Rogers, 59 Hun 97.) The word " descent " in its technical legal meaning, denotes the transmission of real estate or some interest therein, on the death of the owner intestate, and by inheritance to some person, according to certain rules of law. In such meaning it is distin- guished from " transmission by devise " which is technically by purchase; also from the transmission of personal property the title to which passes to the administrator after the payment of all debt and claims against the estate, and is governed by certain rules of distribution. (Hudnall v. Ham, 49 N. E. 985, 987, 172 111. 76.) This provision of the act is to be carefully distinguished from an inheritance or succession tax by reason of the fact that it is levied not on the value of property acquired by gift, devise or descent, but only upon the income arising therefrom. (See 1 I. E. R. 140, 139, 156, 188, 196, 2 I. R. R. 44, 3 I. R. R. 140, 188, 4 I. R. R. 46, 47.) In ex parte Ives (Federal Cases 7114), it was held that the undivided earnings of incorporated companies need not be listed as income in the returns of stockholders. (See however, post, section 67.) The Attorney-General of the United States in an opinion ren- dered under one of the earlier income tax acts. (21 Op. Atty. Gen. 112), held that in construing the new Income Tax Law mileage and commutation of quarters paid to officers of the United States army will be considered as parts of the incomes of such officers, and are to be added to their income in order to ascertain the total income. 24 FEDEEAi Income Tax Law. Sec. 35. The "Proceeds of Life Insurance 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 the Surrender of the Contract, Shall not be Included as Income." The Act provides tliat 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 an- nuity contracts, upon, the return thereof to the insured at the maturity of the term mentioned in the contract, or upon the surrender of the contract, shall not be included as income. (See Act, section B, lines 13-19; see also 4 I. R. R. 47.) Therefore all so-called dividends paid to policyholders at the maturity of the term mentioned in its policy, and any sum realized from the surrender of the policy at any time, or payments made by way of endowment or annuities, are excluded from computa- tion as income in the computation of the tax. In addition to the foregoing, attention should be called to the provisions of section G of the act (lines 248-301), which relates to what constitutes taxable income of insurance corporations. These clauses read in. part as follows: (b) Such net income shall be ascertained by deducting from the gross amount of the income of such corporation, joint-stock company or association, or insurance company, received within the year from all sources, (first) all the ordinary and necessary expenses paid within the year in the maintenance and operation of its business and properties, including rentals or other pay- ments required to be made as a condition to the continued use or possession of property; (second) all losses actually sustained within the year and not compensated by insurance or otherwise, including a reasonable allowance for depreciation by use, wear and tear of property, if any; and in the case of mines a reason- able allowance for depletion of ores and all other natural deposits, not to exceed 5 per centum of the gross value at the mine of the out- put for the year for which the computation is made ; and in case of insurance companies the net addition, if any, required by law to be Statutory DEDtrcTiosrs Peemitted in Computing Income. 25 made within the year to reserve funds and the sums other than the dividends paid within the year on policy and annuity con- tracts: Provided, That mutual fire insurance companies re- quiring their members to make premium deposits to provide for losses and expenses shall not return as income any portion of the premium deposits returned to their policyholders, but shall re- turn as taxable income all income received by them from all other sources plus such portions of the preanium deposits as are retained by the companies for purposes other than the payment of losses and expenses and reinsurance reserves: Provided further. That mutual marine insurance companies shall include in their return of gross income gross premiums collected and received by them, less amounts plaid for reinsurance, but shall be entitled to include in deductions from gross income, amounts repaid to policyholders on account of premiums previously paid by them and interest paid upon such amounts between the ascertainment thereof and the payment thereof, and life insurance companies shall not include as income in any year such portion of any actual premium received from any individual policyholder as shall have been paid back or credited to such individual policyholder, or treated as an abatement of premium of such individual policyholder, within such year. 26 Fedeeax Income Tax Law. CHAPTER III. Statutory Deductions Permitted in Computing Income. See. 36. Text of the Act With Reference to Deductions. The Act provides (section B, lines 20-Yl), as follows: " That in computing net income for the purpose of the normal tax there shall be allowed as deductions: First, the necessary ex- penses 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 busi- ness, not to exceed in the case of mines, 5 per centum of the gross value at the mines of the output for the year for which the com- putation is made; Provided, That no deduction shall be allowed for any amount paid out for new buildings, permanent improve- ments, or betterments, made to increase the value of any property or estate; seventh, the amount received as dividends upon the stock or from the net earnings of any corporation, joint stock company, association or insurance company which is taxable upon its net income as hereinafter provided; eighth, the amount of in- come, the tax upon which has been paid or withheld from pay- ment at the source under the provisions of this section, provided that whenever the tax upon the income of a person is required to be withheld and paid at the source as hereinafter required, if such annual income does not exceed the sum of $3,000, or is not fixed or certain, or is indefinite, or irregular as to amount or time of accrual, the same shall not be deducted in the personal return of such person." Statutory Deductions Peemitted in Computing Income. 27 " That in computing net income under this section there shall be excluded the interest upon the obligations of a State or any political subdivision thereof, and upon the obligations of the United States or its possession; also the compensation of the present President of the United States during the term for which he has been elected and of the judges of the supreme and inferior courts of the United States now in office and the compensation of all officers and employees of a State or any political subdivision thereof." In addition to the foregoing specific deductions permitted to individuals in computing the amount of their income, it should be carefully borne in mind that under other sections of the act (See Act, section B, lines 66-64) it is permissible to exclude the follow- ing sources of income, all of which are exempt from taxation : 1st. Interest upon the obligations of a state or any political subdivision thereof. 2d. Interest upon the obligations of the United States or of its possessions, the principal and interest of which are now exempted by law from Federal taxation. 3d. Exclusion of compensation of the present President of the United, States during the term for which he has been elected, and of the judges of the supreme and inferior courts of the United States now in office. 4th. Exclusion of compensation of all officers and employees of a state or any political subdivision thereof, except when paid by the United States Government. All of these several deductions will be considered at length here- after. (See Chapter VI, post, sections 65-72.) With respect to the deductions permitted to the taxpayer in com- puting his net income, it seems to be evident that they are framed clearly with the intention that the capital of the individual must be kept intact, in order, doubtless, that the amount of revenue derived therefrom may not be diminished. Still, again, the act is framed on the just and equitable prin- ciple that taxable income should be ascertained by setting against the gross income earned, the cost of earning it. (See Gresham Life Ins. See. v. Styles, 3 English Tax Cases 193.) 28 Federal Income Tax Law. Sec. 37. Deductions for Necessary Expenses Actually Paid in Carry- ing on any Business not Including Personal, living or Family Expenses. Section B of the Act provides (lines 21-23) that in computing net income for the purpose of the normal tax, there shall be allowed as deductions : First, the necessary expenses actually incurred in carrying on any business, not including personal, living or family expenses. The purpose of the f ramers of the Act in only permitting deduc- tions for expenses actually incurred in carrying on any business, and excluding personal, living or family expenses, was for the rea- son that the specific exemption of $4,000 from taxable income was supposed to be sufficient to provide personal, living and family expenses. The word " business," as here used, should be given a very broad and liberal interpretation. It would unquestionably apply to any occupation carried on independently for purposes of livelihood or profit. In other words, it would include all in- dependent professional work or vocations, as well as all lines of business carried on by principals and not by subordinates. Undoubtedly a great deal of both the time and attention of the Commissioner of Internal Kevenue, as well as of the courts, will be taken up in determining what are and what are not necessary expenses actually paid in carrying on any business. Without at- tempting any more comprehensive definition, it may be said that the following clearly come within the meaning of such necessary expenses. First, labor, clerk hire and and salary expenses. Par- ticularly those that form part of the so-called " overhead expenses " of the ordinary business concern. Second, rent. Third, cost of raw material, and the cost of goods, wares and merchandise bought within the preceding calendar year. Fourth, cost of insurance. Fifth, cash paid for light, heat or power for use in business. Sixth, legal expenses. Seventh, traveling expenses necessary to the busi- ness either of principal or subordinates. Eighth, incidental ex- penses, such as stationery, postage, janitor service, towel service, drinking water service, etc. Ninth, repairs to plant, machinery, office furniture, etc. Tenth, upkeep of horses, vehicles and auto- mobiles used in the business. Eleventh, cost of procuring new business in the way of commissions, cash or gifts. Twelfth, judg- Statutohy Deductions Peemitted in Computing Income. 29 merits paid within the year on causes of action arising out of the carrying on of the business on which the tax is to be assessed. In connection with the foregoing, the following reference may be made to rulings of the Treasury Department under earlier in- come acts as well as to certain decisions of the English courts. It has been held that railroad fare to and from the place of business by a person living at a distance from his office may be deducted. (See 7 I. K. E. 60; see also 5 I. E. E. 155, 1 I. I. I. 130, 149, 154, 172, 197, 3 I. E. E. 102, 4 I. E. E. 46, 5 I. E. E. 115, 125, 154, 7 I. E. E. 58, 59, 60.) An interesting case occurred in England involving a novel ques- tion in this connection (Granite Supply Association v. Kitton, 43 Scotch L. E. 65). Here a corporation moved their business dur- ing the calendar year and sought to deduct the entire cost of mov- ing as constituting a necessary expense of the business. The court in deciding that such expense could not be deducted, spoke as follows : " The cost of transferring the plant from one set of premises to another more commodious set of premises, is not an expense incurred for the year in which the thing is done, but for the general interests of the business. Suppose a person be imprudent enough not to insure hi^ premises, and they are burned down, and he has to replace the building, he could not be allowed to charge the new building against the income of the year." In Arizona Copper Company v. Smiles (29 Scotch L. E. 134), it appeared that a corporation borrowed money for the purpose of its business and agreed to pay therefor a bonus of ten per cent. The court held that the bonus could not be deducted as part of the necessary expenses of the business. Lord Davey laid down the following general rule relative to what constitutes necessary expenses in connection with any busi- ness (Strong & Co. V. Woodfield, 5 Tax Cases 219) as follows: " It is not enough that disbursement is made in the course of, or is con- nected with, the trade, or is made out of profits of the trade. It must be made for the purpose of earning the profits." (See also Dillon v. Corporation, 1 Q. B. 575; Russell v. Aberdeen Bank, 13 App. Cases 418; Tennant v. Smith, 61 L. J. P. C. 11; Charlton v. Commissioners, 27 Scotch L. R. 647.) The Income Tax Act of August 18, 1894, so far as deduction of expenses was concerned, was similar to the present act. Under 30 Eedekal Income Tax Law. Regulations of the Internal Eevenue Department issued December 13, 1894, we find the following (Regulation 4, subdivision 2) : " Expenses for medical attendance, store accounts, family supplies, wages of domestic servants, cost of board, room or house, rent for family or personal use, are not expenses that can be deducted from the gross profits or income in making annual returns. It vpas manifestly the legislative intention that the $4000 exemption from the payment of the income tax should cover all the above enumerated expenses, and all personal expenses for the maintenance of the family and household of the taxpayer receiving the benefit of the exemption." Regulation 4, subdivision 9 of the Regulations of the Internal Revenue Department issued December 13, 1894, reads as follows: " Costs of suit and other legal proceedings arising from ordinary business may be treated as other expenses of such business, and may be deducted from the gross profits thereof for the year only in which such proceedings were had and determined." There is certain to follow a great deal of litigation as to what constitutes necessary expenses paid in carrying on any business, as distinguished from those expenses which may properly be termed personal. It is not difiicult to determine the line of de- marcation between living and family expenses and the expenses incident to the carrying on of a business. On the other hand, it will be found not infrequently a matter of great difficulty to draw the line between a necessary business expense and one that may be properly termed personal. To be a proper subject for deduc- tion, the expenses in question must be attended by the following material requisites : First, it must be necessary. That is, required by circumstances which rendered proper the outlay; one that is convenient, usual or adapted to the proper end or customary under similar circumstances. (See Sargent v. Le Plata County, 21 Col. 158, 40 Pac. 366; Babbitt v. Selectmen, 51 Mass. 530; U. C. & G. W. Co. V. City of Cartersville, 142 Mo. 101, 43 .S. W. 625 ; Knowles v. Beaty, 14 Fed. Cases 787 ; H. & IST. R. R. Co. v. Grant, Fed. Cas. No. 6139.) Second. The expense in question must have been actually paid in carrying on a line of business. Third. The expense must not come within the category of per- sonal, living or family expenses. (See Whitney v. Whitney, 63 Hun 59, 18 IST. Y. Supp. 3 ; Bundy v. Newton, 65 Hun 619, 19 Statutory Deductions Permitted ik Computing Income. 31 K Y. Supp. 734; People v. Gimst, 37 N. Y. Misc. Rep. 430, 75 K Y. Supp. 290 ; In re Waldheimer, 84 JST. Y. App. Div. 366, 82 N. Y. Supp. 916. See generally as to what constitute necessary expenses, Treas. Eeg. March 29, 1910, No. 1606.) Sec. 38. Deductions for Interest Paid Within the Year by a Taxable Person on Indebtedness. Any person subject to the provisions of the income tax may offset against his gross income for the calendar year all interest actually paid by him on bona fide indebtedness, owing from him to some third party, providing such payment has been made within the preceding calendar year. (Act, section B, lines 23-25 ; see also E. E. V. U. S., 108 U. S. 228.) The foregoing provision as to deduction of interest applies only to individuals. Corporations are only allowed to deduct interest accrued and paid within the year on their indebtedness to an amount not exceeding one-half of the sum of their interest-bearing indebtedness and their paid-up capital stock outstanding at the close of the year, or if no capital stock, the amount of interest paid within the year on the amount of their indebtedness not exceed- ing the amount of capital employed m the business at the close of the year. (Act, section G, lines 96-103.) Sec. 39. Deductions for All National, State, County, School and Municipal Taxes Paid Within the Year, Not Including Those Assessed Against Local Benefits. This provision of the Act permits deductions for all possible kinds of tax paid, save and excepting those cases where the tax is assessed against local benefits received by the taxpayer and which form the basis of the special assessment. (Act, section B, lines 25-27.) " Local benefits," as here used, is the equivalent of " local im- provements." In Illinois Central Eailroad Company v. Decature, 154 111. 173, 176, a public improvement was defined as one which by reason of being confined to a locality enhances the value of adjacent property as distinguished from benefits diffused by it over the municipality. (See also Eogers v. St. Paul, 22 Minn. 494, 32 Fedebai- Income Tax Law. 1 I. K. E. 150, 1 I. R. R. 154, 155, 196, 2 I. R. R. 36, 61, 92, 155, 3 I. R. R. 109, 172, 4 I. R. R. 46, 61, 5 I. R. R. 123, 188.) The Income Tax Act of August 18, 1894, so far as deduction for taxes was concerned, is similar to the Federal Income Tax Act of 1913. Under Regulations of the Internal Revenue Department issued December 13, 1894, we find the following: " Regulation IV, Subdivision 4. The national, State, county, school and municipal taxes deductible from incomes comprise such internal-revenue taxes as have not been included in the expenses of the business, and all such State, county, school and municipal taxes as are assessed ratably upon all persons liable to such assessment; but assessments made upon the real estate of a particular locality on account of street improvements, sewerage, street grade, or other improvements intended to benefit the particular property included in said locality, are not considered as taxes which may be deducted from incomes." Sec. 40. Deductions for Losses Actually Sustained During the Year Incurred in Trade or Arising From Fires, Storms or Ship- wreck and Not Compensated For By Insurance or Other- wise. The Income Tax Law of 1913 provides that there may be de- ducted in computing net income for the purposes of the normal tax, losses actually sustained during the year, incurred in trade or arising from fires, storms, or shipwreck, and not compensated for by insurance or otherwise. (Act, section B, lines 27-30.) Here again we meet with a clause of the Act which cannot fail to furnish a frequent source of litigation. It will center around the question, What are losses sustained in trade within the meaning of the Act ? In the first place the loss sought to be deducted must he one directly connected with or arising out of the particular line of trade in which the taxpayer is engaged. It would include losses by fire, burglary, embezzlement, shipwreck or tornado, so long as the per- son suffering the loss is not protected therefrom by insurance. But would it include losses incurred by speculation with the funds secured from the income received by the taxpayer from some line of legitimate business? The English Act covers this point by specifically providing that " no deduction shall be made for any loss not connected with or arising out of such trade manufacture or concern." (See Income Tax Act of 1842, section 3 ; see also Brown v. Watt, 23 Sc. Law Rep. 403 ; Smith v. W. B. Co., 2 Tax Statutoey Deductions Peemitted in Computing Income. 33 Cases 357; Inland Revenue v. W. S. Co., 44 Sc. L. Rep. 715; G. S. Association v. Kilton, 73 Se. L. Rep. 65.) It may be helpful in this connection to call attention to two English cases referred to by Mr. Dowell in his excellent work on the English Income Tax Laws as follows : "A company to extend its business opened a manufactory and fitted machinery. That part of the business did not answer and the company closed the manufactory and removed a portion of the machinery elsewhere. Sub- sequently the company re-opened the manufactory on a smaller scale. The company considered that a portion of the original cost of constructing the factory and fitting the machinery was lost to them, and claimed a deduction in respect thereof. Olaim disallowed, the loss being a loss of capital. (Smith Y. Westinghouse Brake Co. (1888), 2 Tax Cases 357.) "A steamship owned by a steamship company and value at £37,000 was insured with underwriters at £34,500, the company taking the risk of loss to the amount of £2,500. The company transferred from revenue account to their insurance fund out of annual profits, a sum equivalent to the amount of premium that would have been payable to an underwriter on a risk of £2,500. The steamship was wrecked and became a total loss, and the com- pany received the sum of £34,500 from the underwriters. The company claimed in ascertaining their profits to deduct the said sum of £2,500 (less the amount received as salvage) as being the amount of the risk undertaken by them and transferred from their insurance fund to capital account. Held, that the company were not entitled to make the deduction in question, the loss being a loss of capital. (Per Lord McLaren, 44 Sc. L. R. p. 771): ' This is not marine insurance in the legal sense of the term, because there is no contract of insurance, but only a reservation of a sum out of the profits of the business to provide for future losses.' (Inland Revenue v. Western Steamship Co., 44 Sc. L. Rep. 715.)" This section of the Income Tax Act of 1913 is substantially in the same form that it appears in the Act of August 28, 1894 (section 38). Therefore, the regulations of the Internal Revenue Department, as set out in the bulletin issued December, 1894, is instructive on this point. Regulation IV, subdivision 6, reads as follows: "In estimating the amount of taxable income, only such losses as shall have been actually BiifFered, and the amount of which has been definitely ascertained during the year covered by the return can be deducted from the gross profits for that year. No deduction will be allowed for any losses not specifically described and set forth in the annual return of the person or corporation claiming the deduction." (See R. R. Co. v. U. S., 108 U. S. 277; U. S. v. Central Nat. Bank, 10 Fed. Rep. 612, 15 Fed. Rep. 222, 14 Op. Atty.-Gen. 643.) 34 Federal Income Tax Law. Sec. 41. Deductions for Debts Due to the Taxpayer Actually Ascer- tained to be Worthless and Charged Off Within the Year. The Act permits the taxpayer to deduct from his income all debts due to him actually ascertained to be worthless and charged off within the tax year. (Act, section B, lines 30-31.) So far as debts ascertained to be worthless are concerned, the Income Tax Act of 1894 is similar to the Federal Income Tax Act of 1913. Under Eegulations of the Internal Eevenue Department, issued December 13, 1894, we find the following: Regulation IV, Subdivision 12. " Debts which were contracted during the year 1894, but found in said year to be absolutely worthless, may be deducted from the income of the creditor in his annual return for said year, but such debts cannot be considered or returned as worthless until after legal proceedings to recover the same have proved fruitless, or it clearly appears that the debtor is insolvent, and that proceedings to collect the debt would avail nothing. In making the deduction for worthless debts, the person claiming the same must set forth in his return that the facts as above stated exist in connection with the debt returned as worthless. Ko debts contracted prior to the year for which return is made can be deducted." (See U. S. V. Frost, Fed. Cases No. 15172, 9 I. R. R. 41; U. S. v. Meyer, 1 Deady 127.) Under the foregoing Treasury regulation, if applied to the Act of 1913, in order to permit of the charging off of a debt as worth- less, it would be necessary either to reduce it to judgment and have execution thereon returned unsatisfied, or else show that the debtor is insolvent and that legal proceedings against him would be fruitless of results. Sec. 42. Deductions by Way of Reasonable Allowance for the Ex- haustion, Wear and Tear of Property Arising Out of Its Use or Employment in the Business, Not to Exceed in the Case of Mines, Five Per Centum of the Gross Value at the Mine of the Output for the Year for Which the Computation is Made- The taxpayer is permitted to deduct from his gross income from all sources a " reasonable allowance for the exhaustion, wear and tear of property arising out of its use or employment in the busi- ness, 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 Stattttoet Deductions Peemitted in Computing Income. 35 computation is made, but no deduction shall be made for any amount of expense of restoring property or making good the ex- haustion thereof, for which an allowance is or has been made." (See Act, section B, lines 31-38.) Just what constitutes a reasonable allowance for depreciation of fixtures, plant, machinery, equipment and office furniture is largely a matter of conjecture, to be decided in its final analysis by those best versed in the customs and knowledge of any particu- lar line of business. By limiting the amount of allowable depre- ciation in mines to 5 per cent, of the gross value at the mine, of the output for the year for which the computation is made, a fruit- ful source of litigation was thereby wisely avoided. The reason for not permitting any deduction to be made for the expense of repairs to the property, or making good the exhaustion thereof, was to prevent opportunity for getting a double deduction for the same sort of expenses. That is, asking for an allowance for repairs or replacing worn out material as an expense of the busi- ness, and then asking that another allowance be made for the same item as depreciation. (See K. K. Co. v. U. S., 106 U. S. 277; People V. Davenport, 30 Hun (K Y.) 177; N. E. T. Co. v. Eaton, 140 Mass. 532, 4 N. E. 69.) Sec. 43. Deductions Not Permitted For Any Amount Paid Oat for New Buildings, Permanent Improvements or Better- ments Hade to Increase the Value of Any Property or Estate. No deductions are permitted under the Act for new buildings, permanent improvements, or betterments provided they are made to increase the value of any property or estate. (Act, section B, lines 38-45.) The words "new buildings" need no definition. Permanent improvements may be defined as something done or put upon land by the occupant which he cannot remove either because it has become physically impossible to separate it from the land, or in contemplation of law, it has been annexed to the soil and become a part of the freehold. (Stark v. Starr, 22 Fed. Cas. No. 13307, 1 Sawyer 15.) Betterments may be defined to be a species of improvement upon lands by the occupant, such as draining, levelling, raising, building or fencing. Eepairs may be 36 Federal Ihcome Taz Law. distinguished from the foregoing by limiting them to materials used and labor furnished for the purpose of preventing any object or thing employed in the business to become useless or to depre- ciate. (See 5 I. E. R. 130. See 1 I. E. E. 140, 2 id. 61, 5 id. 130, 6 id. 18.) Sec. 44. Deductions of the Amount Beceired as Dividends Upon the Stock or From the Net Earnings of Any Corporation Joint Stock Company, Association or Insurance Company, Which is Taxable Upon Its Net Income. In order to avoid the charge of levying double taxation, the taxpayer is permitted to deduct from his taxable income all divi- dends received by him upon the stock or from the net earnings of any corporation, joint stock company, association, or insurance company, which is itself taxable under the Act upon its net income. (Act, section B, lines 37-40.) Congress thereby evidenced its intention not to tax the same income twice, to wit, once as part of the net earnings of a corporation and again as part of the income of the individual who received a portion of these same net earn- ings from the corporation by way of dividends. Sec. 45. Deductions for the Amount of Income the Tax Upon Which Has Been Paid or Withheld From Payment at the Source. The Act provides (section B, lines 45-54) that in computing net income for the purposes of the normal tax there shall be allowed as deductions, the amount of income the tax upon which has been paid or withheld from payment at the source under provisions of the Act hereinafter referred to; (see post^ sections 57-64) ; provided. That whenever the tax upon the income of a person is required to be withheld and paid at the source, if such net in- come does not exceed the sum of $3,000, or is not fixed or certain, or is indefinite or irregular as to amount or time of accrual, the same shall not be deducted in the personal return of such person. Here again the purpose of Congress is to avoid double taxation. If the income is paid at the source, then, of course, the purposes of the Act are accomplished, so far as the payment of the normal tax is concerned. Statutoet Deductions Permitted in Computing Income. 37 Sec. 46. Deduction of $3,000 from the Amount of Income of All Single Persons Subject to Normal Tax. The Act provides that there shall be deducted from the amount of the net income of each person subject to the tax the sum of $3,000, (Act, section C, lines 1-10.) In all caises, however, where the income tax of a person is withheld and deducted and paid or to be paid at the source, such person shall not receive the benefit of the deduction and exemptions allowed in section of the act (referred to above and in section 47 post) except by an application for refund of the tax, unless he shall not less than thirty days prior to the day on which the return of his income is due, file with the person who is required to withhold and pay the tax for him, a signed notice in writing claiming the benefit of such exemption, and therefore no tax shall be withheld upon the amount of such exemption. Provided, That if «iiy person for the purpose of obtaining any allowance or reduction by virtue of a claim for exemption, either for himself or for .any other per- son, knowingly makes any false statement or false or fraudulent representation, he shall b© liable to a penalty of $300 ; nor shall any person under the foregoing conditions be allowed the benefit of any deductions provided for in section B of the Act (Act, sec- tion B, lines 20-54), unless he shall, not less than thirty days prior to the day on which the return of his income is due, either file with the person who is required to withhold or pay the tax for him, a true and correct return of his annual gains, profits and income from all other sources, and also the deduction asked for, and the showing thus made shall then become a part of the return to be made in his behalf -by the person required to withhold and pay the tax, or likewise make application for deductions to the collector of the district in which return is made or to be made for him. (Act, section D, lines 63-69; see also section 90, post.) Sec. 47. Special Deductions Permitted to Harried Men and Women. The Act provides that there shall be deducted from the amount of the net income of each person subject to the tax, the sum of $3,000, plus $1,000 additional if the person making the return be a married man with a wife living with iim, or plus the sum 38 Fedekat. Income Tax Law. of $1,000 additional if the person making the return be a mar- ried woman with a husband living with her, but in no event shall this additional exemption of $1,000 be deducted by both a hus- band and wife. (Act, section C, lines 1-10. 1 I. E., K. 149, 156, 171, 188, 2 I. R. R. 61.) The Act further provides that only one deduction of $4,000 shall be made from the aggregate income of both husband and wife when living together. The Tax Levy. 39 CHAPTER IV. The Tax Levy. Sec. 48. The Normal Tax. In United States v. Tilden, (24 I. E. K. 103), the Court ob- served " That a scheme of taxation like that found in the Fed- eral statutes, where there is imposed by the statute a fixed tax by a percentage of the amount of the money, the elements for ascertaining which are definitely designated in the statute, or a fixed tax on a given amount on the designated object or subject of tax, is a very different scheme of taxation from that which pre- vails generally in the states where power is confided to public officers to value property, real or personal, and to affix the per- centage of the tax thereon." In the present act the normal tax is levied at the rate of 1 per centum upon the entire taxable net income of the taxpayer. (Act, section A, lines 1—7.) Sec. 49. The Additional or Surtax. Every person subject to the additional or surtax is required, for the purpose of its assessment and collection, to make a per- sonal return of his entire 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. (Act, section A, lines 22^28.) The " additional " or surtax here referred to is that imposed only upon incomes in excess of $20,000. All the provisions of the Act relating to individuals who are to be chargeable with the normal income tax, so far as they are ap- plicable and are not inconsistent with subdivision 2 of section A, are applicable to the levy, assessment and collection of the addi- tional tax. (Act, section A, lines 17-22.) For the purpose of this additional tax the taxable income of any individual shall em- brace the share to which he would be entitled of the gains and 40 Fedeeal Income Tax Law. profits, if divided or distributed, whether divided or distributed or not, of all corporations, joint-stock 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 than 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 evi- dence of a purpose to escape the said tax in such case unless the Secretary of the Treasury shall certify that in his opinion such acciunulation 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. (Act, section A, lines 28-51 ; see post, section 67.) Sec. 50. Additional or Snrtax Levied on Incomes Over $20,000 and ITp To $50,000. Upon the total net income which exceeds $20,000 and does not exceed $50,000, there is levied an additional or surtax of 1 per centum. Sec. 51. Additional or Surtax Levied on Incomes Over $50,000 and Not Exceeding $75,000. Upon the total net income which exceeds $50,000 and does not exceed $75,000, there is levied an additional or surtax of 2 per cent. Sec. 62. Additional or Surtax Levied on Incomes Over $75,000 and Not Exceeding $100,000. Upon the total net income which exceeds $75,000 and does not exceed $100,000, there is levied an additional or surtax of 3 per cent. The Tax Levy. 41 Sec. 53. Additional or Surtax Levied on Incomes Over $100,000 and Not Exceeding $250,000. Upon the total net income which exceeds $100,000 and does not exceed $250,000, there is levied an additional or surtax of 4 per cent. Sec. 54. Additional or Surtax Levied on Incomes Over $250,000 and Not Exceeding $500,000. Upon the total net income which exceeds $250,000 and does not exceed $500,000, there is levied an additional or surtax of 5 per cent. Sec. 55. Additional or Surtax Levied on Incomes over $500,000. Upon the total net income which exceeds $500,000, there is levied an additional or surtax of 6 per cent. Sec. 56. No Special Provision as to Bailroad Corporations in Alaska. In the Tariff Bill as passed by the Senate, it was provided that there shall be levied and collected an additional tax of 4 per centum per annum on the net income of railroad corporations doing business in Alaska upon business done in Alaska, which shall be in lieu of the license tax of $100 per mile per annum now imposed by law. This provision of the bill was stricken out in coufereuca 42 Fedeeal Income Tax Law. CHAPTER V. Withholding Income at the Source. Sec. 57. Statutory Provisions Bequiring Certain Kinds of Income to be Withheld and the Tax Thereon to be Paid at the Source. The Act provides as follows: All persons, firms, companies, copartnerships, corporations, joint-stock companies or associations, and insurance companies, except as hereinafter provided, in whatever capacity acting, hav- ing the control, receipt, disposal, or payment of fixed or determin- able annual or periodical gains, profits, and income of another person subject to tax, shall in behalf of such person deduct and withhold from the payment an amount equivalent to the normal income tax upon the same and make and render a return, as afore- said, but separate and distinct, of the portion of the income of each person from which the normal tax has been thus withheld, and containing also the name and address of such person or stat- ing that the name and address or the address, as the case may be, are unknown : Provided, That the provision requiring the normal tax of individuals to be withheld at th« source of the income shall not he construed to require any of such tax to he withheld prior to the first day of Novemher, nineteen hundred and thirteen: Provided further. That in either case above mentioned no return, of income not exceeding $3,000 shall be required. (Act, sec. D, lines 39-52.) All parsons, firms, copartnerships, companies, corporations, joint-stock companies or associations, and insurance companies, in whatever capacity acting, including lessees or mortgagors of real or personal property, trustees acting in any capacity, ex- ecutors, administrators, agents, receivers, conservators, employers, and all officers and employees of the United States having the control, receipt, custody, disposal or payment of interest, rent, salaries, wages, premiums, annuities, compensation, remunera- Withholding Income at the Souece. 43 tion, emolumentg, or other fixed or determinable annual gains, profits, and income of another person, exceeding $3,000 for any taxable year, other than dividends on capital stock, or from the net earnings of corporations and joint-stock companies or associa- tions subject to like tax, who are required to make and render a return in behalf of another, as provided herein, to the collector of his, her, or its district, are hereby authorized and required to deduct and withhold from such annual gains, profits, and income such sum as will be suificient to pay the normal tax imposed thereon by this section, and shall pay to the officer of the United States Government authorized to receive the same; and they are each hereby made personally liable for such tax. In all cases where the income tax of a person is withheld and deducted and paid or to be paid at the source, as aforesaid, such person shall not receive the benefit of the deduction and exemption allowed in paragraph C of this section, except by an application for refund of the tax unless he shall, not less than thirty days prior to the day on which the return of his income is due, file with the person who is required to withhold and pay tax for him, a signed notice in writing claiming the benefit of such exemption and thereupon no tax shall be withheld upon the amount of such exemption: Provided, That if any person for the purpose of dbtaining any allowance or reduction by virtue of a claim for such exemption, either for himself or for any other person, knowingly makes any false s.tatement or false or fraudulent representation, he shall be liable to a penalty of $300; nor shall any person under the fore- going conditions be allowed the benefit of any deduction provided for in subsection B of this section unless he shall, not less than thirty days prior to the day on which the return of his income is due, either file with the person who is required to withhold and pay tax for him a true and correct return of his annual gains, profits, and income from all other sources, and also the deduc- tions asked for, and the showing thus made shall then become a part of the return to be made in his behalf by the person re- quired to withhold and pay the tax, or likewise make application for deductions to the collector of the district in which return is made or to be made for him: Provided further. That if such person is a minor or insane person, or is absent from the United 44 Fedeeal Income Tax Law. States, or is unable owing to serious illness to make the return and application above provided for, the return and application may be made for him or her by the person required to withhold and pay the tax, he making oath under the penalties of this Act that he has sufficient knowledge of the affairs and property of his beneficiary to enable him to make a full and complete return for him or her, and that the return and application made by him are full and complete: Provided further. That the amount of the normal tax hereinbefore imposed shall be deducted and withheld from fixed and determinable annual gains, profits, and income derived from interest upon bonds and mortgages, or deeds of trust or other similar obligations or corporations, joint-stock com- panies or associations, and insurance companies, whether payable annually or at shorter or longer periods, although such interest does not amount to $3,000, subject to the provisions of this sec- tion requiring the tax to be withheld at the source and deducted from annual income and paid to the Government; and likewise the amount of such tax shall be deducted and withheld from coupons, checks, or bills of exchange for or in payment of interest upon bonds of foreign countries and upon foreign mortgages or like obligations (not payable in the United States), and also from coupons, checks, or bills of exchange for or in payment of any dividends upon the stock or interest upon the obligations of for- eign corporations, associations, and insurance companies engaged in business in foreign countries; and the tax in each case shall be withheld and deducted for and in behalf of any person subject to the tax hereinbefore imposed, although such interest, dividends, or other compensation does not exceed $3,000, by any banker or person who shall sell or otherwise realize coupons, checks, or bills of exchange drawn or made in payment of any such interest or dividends (not payable in the United States), and any person who shall obtain payment (not in the United States), in behalf of another of such dividends and interest by means of coupons, checks, or bills of exchange, and also any dealer in such coupons who shall purchase the same for any such dividends or interest (not payable in the United States), otherwise than from a banker or another dealer in such coupons; but in each C8.se the benefit of the exemption and the deduction allowable under this section may Withholding Income at the Souecb. 45 be had by complying with the foregoing provisions of this para- graph. (Act, section E, lines 19-98.) That the foregoing section of the Act is not in violation of the Federal Constitution is shown by a reading of the following cases, to wit: Michigan Central E. R. Company v. Slack, 100 TJ. S. 595, 25 L. E. 647; United States v. Erie Railroad Company, 106 U. S. 327, 27 L. E. 151. (See also Northern Central R. R. Co. V. Jackson, 74 U. S. 262, 19 L. E. 88; Haight v. R. R. Co., 6 Wall. 15; State Tax on Foreign Bonds, 82 U. S. 300, 2-1 L. E. 179). Justice Miller in the case of Michigan Central Railroad Com- pany V. Slack (ante) held that under a Federal acf permitting the deduction of the amount of the Federal tax from the amount due the bondholders of a corporation, " where the bondholder was subject to congressional legislation by reason of citizenship, resi- dence or situs of the property taxed, it was within the lawful power of Congress to authorize the withholding of the amount of the tax. " Whether " added Justice Miller, " as a question of inter- national law this declaration would relieve the corporation from the obligation to pay its foreign bondholders the full sum for which it contracted, we need not discuss ; for this court, on all sucTi subjects is bound by the legislative and political departments of its own government. The tax is laid by Congress on the net earn- ings, which are the results of the business of the corporation, on which Congress had clearly a right to lay it, and being lawfully assessed and paid it cannot be recovered back by reason of any inefficiency or ethical objection to the remedy over against the bondholder." Again, Justice Bradley in his opinion in the ease of United States V. Erie Railroad Company (ante) on this same question spoke as follows: " I concur in the judgment of the court in this case, but not for the reasons given in the case of the R. E. Co. v. Collector, 100 U. S. 595 (XXV., 647). I concurred in the judgment in that case as in this, on grounds essentially different from those given by the court. I always regarded the tax which, by the 122nd section of the Internal Revenu* Act of 1864 (13 Stat, at L. 284), was laid upon the interest payable on the bonds and upon the dividends declared on the stock, of railroad and other corporations, as a tax on the income pro tanto of the holders of such bonds and stock. (Stockdale v. Ins. 46 Federal Income Tax Law. Co., 20 Wall. 333 (87 U. S. XXII. 351); R. R. Co. v. Rose, 96 U. S. 78 (XXIV. 376). As to the Interest payable on bonds, it was not a tax upon the companies in respect of a debt owed by them, nor upon the property represented thereby. The property obtained by the proceeds of the loans represented by the bonds was taxable (if not taxed) in another form. That property consisted of the railroad tracks or canal, and other specific prop- erty of the companies respectively. If this property was not taxed directly, it was taxed indirectly by means of the duty of 2% per cent which was laid on their gross earnings. The tax laid upon their bonds was intended to afiFect the owners of the bonds, and whilst the companies were directed to pay it, they were authorized to retain the amount from the installments due to the holders, whether citizens or aliens. The objection that Congress had no power to tax non-resident aliens is met by the fact that the tax was not assessed against them personally, but against the rem, the credit, the debt due to them. Congress has the right to tax all property within the jurisdiction of the United States, with certain exceptions not necessary to be noted. The money due to non-resident bondholders in this case was in the United States — in the hands of the Company — before it could be trans- mitted to London, or other place where the bondholders resided. Whilst here it was liable to taxation. Congress by the internal revenue law, by way of tax, stopped a part of the money before its transmission, namely: 5 per cent of it. Plausible grounds for levying such a tax might be assigned. It might be said that the creditor is protected by our laws in the enjoyment of the debt; that the whole machinery of our courts and the physical power of the government are placed at his disposal for its security and collection. " Whether taxation thus imposed would be respected by foreign governments if the creditor could bring before their courts the debtor Company or its property, does not concern us in considering the question now presented. There is nothing in the Constitution, which authorizes this court, or any other court, to disaflSrm the power of Congress to lay the tax. Congress is its own judge of the propriety or expediency of laying it. " Indeed, so far as the power of Congress is concerned, regarded in reference to any power the courts have to limit or restrain it, I see no reason why Congress may not lay a tax upon any property on which the government can lay its hands, whether within or without the jurisdiction of the United States. If, in imitation of the duties levied by Denmark upon vessels pass- ing through the Cattegat Sound, Congress should levy a duty upon all vessels passing through the Strait of Florida, I do not know of any power which the Courts possess to prevent it. It might create complications with foreign governments, it is true, and involve the country in war; but Congress has the power, if it chooses, to take the responsibility of creating, or giving occasion to such complications. The responsibility rests upon it alone. " So in taxing money due from citizens of the United States to foreign citizens, any complications arising with the governments to .which the latter are subject. Congress alone has the responsibility, and is the only department of our government which has a right to take such a responsibility. In the Foreign-Held Bond Cases, 15 Wall (82 U. S. XXI., 146, 164, 179) the State Legislature had laid a tax on the interest payable on the bonds of all cor- porations floing business in the State, and authorized the companies to retain the amount out of the interest payable to the bondholders without regard to Withholding Income at the Souece. 47 their residence or nationality. I concurred in the judgment rendered in that case on the ground that the State, in passing such a law, applicable to pre- existing contracts, exceeded its just powers under our form of government, and that the law, in its effect upon non-resident bondholders, impaired the obligation of the contract. " Considering, therefore, that if Congress chooses to take the responsibility of levying such a tax as the one in question, the courts have no power to control its action, or to give any relief to parties affected by it, I concur in the judgment of reversal." The United States Supreme Court in Michigan Central Rail- road Company V. Slack, Collector, (100 TJ. S. 595), had occasion to consider a certain section of the Income Tax of 1866 (14 Stat, at Large, sec. 138). The opinion in this case reads as follows : " The tax in question was assessed under Section 122 of the Internal Revenue Law, as amended by the Act of 1866, 14 Stat, at L. 138. What is pertinent to this case reads as follows: ' Any railroad, canal, turnpike, canal navigation or slack water com- pany, indebted for any money for which bonds or other evidences of indebtedness have been issued, payable in one or more years after date, upon which interest is stipulated to be paid, or coupons representing the interest, or any such company that may have declared any dividend in scrip, or money due or payable to its stockholders, including non-resi- dents, whether citizens or aliens, as part of the earnings, profits, income or gains of such company, and all profits of such company carried to the account of any fund, or used for construction, shall be subject to and pay a tax of five per centum on the amount of all such interest or coupons, dividends or profits, whenever and wherever the same shall be payable, and whatsoever party or person the same may be payable, including non-residents, whether citizens or aliens; and said com- panies are hereby authorized to deduct and withhold from all payments on account of any interest or coupons, and dividends due and taxable as aforesaid, the tax of five per centum; and the payment of the amount of said tax so deducted from the interest, or coupons, or dividends and certified by the president or treasurer of said company, shall discharge said company from that amount of the dividend or interest, or coupon on the bonds, or other evidences of indebtedness so held by any person or party whatever except where said companies have contracted other- wise.' (14 Stat, at L. 138.) " The agreed statement on which the case was tried shows that the tax was for interest paid by the Company on sterling bonds in London, which bonds were issued long before the Internal Revenue Law was enacted, and it is, perhaps, fairly to be inferred from the statement that the bonds were held at the time by foreigners. " It is on this latter feature of the case that resistance to the tax is founded. It is urged that it is a tax on the property, if property it may be called, of persons not subject to the jurisdiction of this government, and, therefore, beyond the power of Congress to levy or enforce. 48 Federat, Income Tax Law. "That the tax was actually collected without resistance, and the present suit is brought to recover it back, is sufficient answer to the assertion that it could not be enforced. " Whether Congress, having the power to enforce the law, has the authority to levy such a tax on the interest due by a citizen of the United States to one who is not domiciled within our limits, and who owes the government no allegiance, is a question which we do not think necessary to the decision of this case. The tax, in our opinion, is essentially an excise on the business of the class of corporations mentioned in the statute. The section is a part of the system of taxing incomes, earnings and profits adopted during the late war, and abandoned as soon after that war was ended as it could be done safely. The corporations mentioned in this section are those engaged in fur- nishing road-ways and water-ways for the transportation of persons and property, and the manifest purpose of the law was to levy the tax on the net earnings of such companies. How were these ' earnings, jtrofits, incomes or gains' to be most certainly ascertained? In every well conducted corpo- ration of this character these profits were disposed of in one of four methods, namely, distributed to its stockholders as dividends, used in construction of its roads or canals, paid out for interest on its funded debts, or carried to a reserve or other fund remaining in the hands of the Company. Looking to these modes of distribution as the surest evidence of the earnings which Congress intended to tax and as less liable to evasion than any other, the tax is imposed upon all of them. The books and records of the company are thus made evidence of the profits they have made, and the Corporation Itself is made responsible for the payment of the tax. "Manifestly such a mode of ascertaining the net earnings of the Company would not be complete unless the sums paid as interest on their bonded debts were taken into account. " Of course it was competent for Congress to tax only the earnings after deducting this interest paid on their debt, or to treat the sum so paid asi part of the net earnings, and paid out of them as dividends are. It adopted the latter policy. " It results from this course of observation that the tax was not laid on the bondholder who received the interest, but on the earnings of the corporation which paid the interest. "It is very true that the Act went further and declared that, except when the Company had contracted otherwise, it might deduct this tax irom the amount due the bondholders. And where the bondholder was subject to Congressional legislature by reason of citizenship, residence or situs of the property taxed, it was within the lawful power of Congress to do so. WJiether, as a question of international law, this declaration would relieve .the Corpo- ration from the obligation to pay its foreign bondholder the full sum for which it contracted, we need not discuss; for this court, on all such subjects, is bound by the legislative and political departments of its own government. The tax is laid by Congress on the net earnings, which are the results of the business of the corporation, on which Congress had clearly a right to lay it; and being lawfully assessed and paid, it cannot be recovered back by reason of any inefficiency or ethical objection to the remedy over against the bondholder." Withholding Income at the SotrECE. 49 Sec. S8. Purpose of the Bequirement. The provision of the act requiring certain classes of income to be withheld at the source is modeled upon the English Income Act, and is intended to prevent evasion of the tax and to render more easy and effectual the collection thereof from those who should he required to pay the same. It should he carefvlly noted thai the provisions of this act relative to withholding irhcome at its source only apply to the\ normal tax and have no application whatever to the additional or surtax levied upon incomes in ex- cess of $20,000. When it comes to the matter of collecting the surtax, the Grovemment undertakes to collect the tax directly from the recipient. (See Act, section E, lines 141, 142.) Sec. 59. Objectionable Features of the Bequirement. While the good that will result in greatly increased revenue to the government will largely counterbalance the bad features of the provisions of the Act, requiring the withholding of certain income at the source, it still remains true that there will be found objections to this particular feature of the law. These objections will be raised first, by those persons required to withhold the tax from funds in their hands who are subject to additional financial responsibility as well as to increased necessity of bookkeeping by reason* of the requirements of the law. On the other hand, the persons entitled to moneys belonging to them and withheld at the source will, in their turn, raise a serious objection. This for the reason that in order to entitle them to the deductions and ex- emptions authorized by the Act as well as to obtain a refund of tax paid on their account, they are required to go to a great deal of trouble and oftentimes expense, in obtaining such re- ductions or refund. (See Act, section E, lines 43—53, 58-79.) Then again, there is the danger of a retention of the tax by parties who are iinancially irresponsible, which might result in loss both to the government and the tax payer. Sec. 60. How the Bequirement Operates in Practice. The provisions of the Federal Income Tax Law requiring that the normal tax on certain income shall be withheld at the source is new to this generation. There is no other portion of the new 4 50 Federal Income Tax Law. Income Tax Law more Tincertain in its scope, operation and effect than this section, which requires the withholding of the normal tax on certain kinds of income at the source. In the professional, as well as in the lay mind, has been created much uncertainty as to the scope, meaning and operation of the portion of the Act here referred to. In the interest of both the profession and the public at large, the following questions and answers are presented, which it is hoped, will present in a clear and logical manner the salient features of this important part of the Federal Iricome Tax Law of 1913. It will also serve to show how the requirement in ques- tion will operate in actual practice. Question I. What classes of persons are required to withKold the normal tax (1 per cent.) upon income at its source? Answer. Other conditions being present (as to character and amount of income) the following are the only classes of persons required to withhold the normal income tax at its source: Dis- bursing officers and employees of the United' States ; trustees, when acting in any trust capacity; lessees of real or personal property; mortgagors of real or personal property, executors, ad- ministrators, agents, receivers, conservators, employers, guardians, and fiduciaries holding positions of private trust. Question II. On what hind of income must the normal tax thereon he withheld at the sou/rce? Answer. The normal income tax required to be withheld at the source is applicable, in the case of fiduciaries to the net in- come of the person for whom they act, coming in their custody, control, or management between January first and- December first of any year. In the case of all other parties, it is applicable to those having, during the same period of time, the control, re- ceipt, disposal or payment of fixed or determinable annual or peri- odical gains, profits, or income of any person, including therein payment of interest, rent, salaries, wages, premiums, annuities, compensation, remuneration, emoluments or other fixed or de- terminable annual gains, profits and income of another person. The provision of the Act requiring the withholding and pay- ment of the normal tax at the source, is not applicable to income Withholding Income at the Source. 51 received from dividends on capital stock, or from the net earn- ings of corporations and joint-stock companies or associations which are, themselves subject to the payment of the normal tax. In determining whether the net income of any person exceeds $3,000, income from the sources last mentioned must be excluded. Question III. What amount of income is subject to the pro- visions of the law requiring the withholding and payment of the normal tax thereon at the source? Answer. Except in the cases referred to below, only the amount of the normal tax on incomes exceeding $3,000, for any one person between January 1st and December 1st of any one calendar year, is required to be withheld and paid at the source. The exceptions referred to are the following: Irrespective of the amount of the income received during any one year, the normal tax (of 1 per cent.) must be deducted and withheld from fixed "and determinable annual gains, profit and income derived from interest upon- bonds and mortgages or deeds of trust, or other similar obligations of corporations, joint stock companies, or associations, or insurance companies, whether payable annually, or at shorter or longer periods. Likewise irrespective of the amount of income received during any one year, the normal tax (of 1 per cent.) must be deducted and withheld from coupons, cheeks, or bills of exchange for or in payment of interest upon bonds or foreign coimtries, and upon foreign mortgages or like obligations or bills of exchange, for or in payment of any dividend upon the stock or interest upon the obligations of foreign cor- porations, or associations, and insurance companies engaged in business in foreign countries. This last mentioned provision is applicable to any banker or person who shall sell or otherwise realize coupons, checks or bills of exchange drawn or made in payment of any such interest or dividends (not payable in the United States) and any person who shall obtain payment (not in the United States) in behalf of another of such dividends, andi interest, by means of coupons, checks or bills of exchange, andi lalso any dealers in such coupons who> shall purchase the same for any such dividends or interest (not payable in the United States) otherwise than through a banker or another dealer in such coupons. 52 Federal Income Tax Law. Question IV. What provisions as to time of accrual of income is found in the act, relative to withholding the tax on income at its soivrce? Answer. The only moneys received by persons subject to the provisions of the Act, requiring the retention of the normal tax on income at its source, are those received subsequent to October 31, 19.13. Question V. Does the Act require the withholding and payment at the source of the additional or surtax payable upon incomes in excess of $20,000 ? Answer. No. It only applies to the normal tax of 1 per cent. Question YI. If those required to withhold and pay tax at the source fail to do so, what is the penalty ? Answer. They become personally liable for the payment of the tax. Question VII. What is thet penalty for failure to pay the tax in behalf of the beneficiary on or before June ZOth. Answer. The penalty is the addition of the sum of 5 per centum on the amount of tax unpaid and interest at the rate of 1 per cen- tum per month on said tax from the time the same became due. Question VIII. What returns of income are required to be made, by parties subject to the provisions of the Act, requiring them to withhold the amount of the normal tax at its source ? Answer. Guardians, trustees, executors, administrators, and agents, receivers and conservators, and all persons, corporations or associations acting in any private fiduciary capacity, in all cases where the amount of income in their hands for any one person for :any one calendar year, exceeds $3,000, are required to make and render a return of the net income of the person for whom they act, coming into their custody or control or management. The Act provides that a return made by one or two or more joint guardians, trustees, executors, administrators, agents, receivers, and conserva- tors, or other persons acting in a fiduciary capacity, filed in the district where such person resides, or in the district where the will or other instrument under which he acts, is recorded, it being sufficient compliance with the requirements of the Act. Also, all Withholding Income at the Soubce. 53 persons, firms, coinpanies, copartnerships, corporations, joint-stock companies, associations, and insurance companies (except as other- wise specifically provided in the Act) in whatever capacity acting, having the control, receipt, disposal or payment of fixed or deter- minable annual or periodical gains, profits and income of any person subject to tax, where the same exceeds $3,000 in amount, must in behalf of such person make and render a return, but sepa- rate and distinct, of the income of each person from which the normal tax has been thus withheld, and containing also the name and address of such person, or stating that the name and address, or the address, as the case may be are unknown. However, -per- sons liable for the normal income tax only, on their own account or in behalf of another, are not required to make return of the income derived from dividends on the capital stock or from the net earnings of corporations, joint-stock companies, or associations, and insurance companies taxable upon their net income, under the provisions of the Act. But if the persons last mentioned are liable not only for the normal tax, but for the payment of the surtax as well, then a return of the income of the character just above referred to, must be made. Question. IX. Are returns and lists filed in behalf of bene- ficiary required to be verified? Answer. Yes, either upon oath or affirmation. Question X. Is it only those obligated to withhold and pay the normal tax at the source, who are required to mahe returns for others? Answer. Yes. Question XI. Are persons for whom a return has been made and the tax paid by the party obligated to withhold the income at the source, required to make a personal return? Answer. JSTo; unless such persons have other net income. But only one deduction of $3,000 can be made in the case of any such persons. Question XII. What is the penalty imposed for failure to make return in behalf of beneficiary 'on or before March the 1st? Answer. The penalty is a fine of not less than $20 or more than 54 Fedeeal Income Tax Law. $1,000. In addition to this the Commissioner of Internal Revenue is empowered, in case of the refusal to make a return or to verify the same to add 50 per centum to the tax. Question XIII. What is the penalty for making false or fraudu- lent returns in behalf of the beneficiary? Answer. The penalty is a fine not exceeding $2,000 or imprison- ment not exceeding one year or both at the discretion of the court with the costs of prosecution. In addition to this the Commis- sioner of Internal Revenue is empowered in the case of any false or fraudulent return to add 100 per centum to the tax. Question XIV. How is the exemption provided for in section C of the Act ($3,000 for single persons and $4,000 for married persons) to he secured hy a person whose income is withheld at the source? Answer. By filing at least thirty days prior to March 1st, with the person who is required to withhold and pay the tax for him, a signed notice in writing claiming the benefit of such exemption and thereupon no tax shall be withheld from the amount of such exemption. Question XV. How are the deductions provided for in section B of the Act (e. g., for -expenses, losses, bad debts, interest, taxes, etc.) to be secured by a person whose income is withheld at the source ? Answer. By filing at least thirty days prior to March 1st with the person who is required to withhold and pay the tax for him (or with the collector of the district in which return is made, or to be made for him), a true and correct return of his annual gains, profits and income from all other sources and also the deductions asked for and the showing thus made then becomes a part of the return to be made in his behalf by the person required to withhold and pay the tax. Question XVI. Under what co.nditions are persons withholding income tax at its source, permitted to make application for exemp- tions and deductions in behalf of the parties entitled to the same. Answer. If such parties be minors, or insane, or are absent from the United States or are imable on account of severe illness to Withholding Income at the Souece. 55 make the return and application for exemptions and deductions, then the return and application may be made for them by the person required to withhold and pay the tax, the latter making oath that he has sufficient knowledge of the affairs and property of his beneficiary to enable him to make a full and complete return for him and that the return and application so made are full and completa Question XVII. What persons are required to taJce out the Oovernment license required hy that portion of the Act relating to withholding income at its source? Answer. All persons, firms or corporations undertaking as a matter of business, or for profit, the collection of foreign payments of interest due upon bonds of foreign countries and upon foreign mortgages or like obligations, not payable in the United States, and upon the obligations of foreign corporations, associations and insurance companies engaged in business in foreign countries, and all persons, firms or corporations undertaking, as a matter of busi- ness for profit, the collection of dividends upon the stock of foreign corporations, associations and insurance companies engaged in business in foreign countries, by means of coupons, checks or bills of exchange, must obtain a license from the C, lines 17-19.) Under the act of August 28, 1894, it was held that the best criterion as to a person's residence is the place where he exercises his right of franchise, or where he is entitled so to exercise it. If the person subject to the tax has no vote, the tax is properly- assessable where the personal property tax is paid. (See 1 1. 1. E. 153.) Sec. 86. Form of Beturns. In the case of the normal tax the return must be made in such form as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall prescribe. Every person subject to the additional or surtax must for the purpose of its assessment and collection make a personal return under such rules and regulations as shall be prescribed by the Commissioner of Internal Revenue and approved by the Secretary of the Treasury. (See. D, lines 19-21 ; A, subd. 2, lines 22-28.) Sec. 87. What Returns Must Contain. So far as the normal tax is concerned, the return must set forth specifically the gross amount of income from all separate' sources, and from the total thereof deducting the aggregate items or ex- penses and allowances authorized in the act. In the case of persons liable for the normal income tax only on their own account or in behalf of another, returns are not required relative to income derived from dividends on the capital stock, or from the net earnings of corporations, joint stock companies or associations and insurance companies taxable upon their net income. In this connection another section of the act should be adverted to, which has reference to returns of incomes subject to the pay- ment of the surtax. It reads as follows : " 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 92 Fedbeal Income Tax Law. divided or distributed or not, of all corporations, joint-stock com- panies, or associations however created 'or organized, formed or fraudulently availed of for the purpose of preventing the imposi- tion 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 associations is a mere holding company that 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 cor- poration, joint-stock company, or association shall forward to him a correct statement as such profits and the names of the individuals who would be entitled to the same if distributed." (Act, sec. A, subd. 2, lines 28-51.) Sec. 88. Eeturiis, by Guardians, Trustees, etc. Guardians, trustees, executors, administrators, agents, receivers, conservators and all persons, corporations or associations acting in any fiduciary capacity shall make and render a return of the net income of the person for whom they act subject to this tax, coming into their custody or control and management, and be subject to all the provisions of the act which apply to individuals ; provided that a return made by one of two or more joint guardians, trustees, executors, administrators, agents, receivers and con- servators or other persons acting in a fiduciary capacity, filed in the district where such person resides or in the district where the will or other instrument is recorded under such regulation as the Secretary of the Treasury may prescribe, shall be a sufficient compliance with the requirements of the act. (Act, sec. D, lines 25-31.) It was held by the Commissioner of Internal Revenue under the act of August 28, 1894, that a minor, if he has no guardian, Income Tax Ketuens. 93 is under obligations to make the return himseK, and in case of his refusal so to do, then the Commissioner should make an independent assessment without penalty. (7 I. R. R. 59.) It has been held that where there is no legal guardian, the father, if living, is responsible for the return. (See 2 I. E. R. 68.) When a party subject to the income tax dies the return should be made by his legal representative. (See Mandell v. Pierce, 3 Cliff, 134; see 2 I. E. E. 68, 3 I. E. E. 172, 7 I. E. E. 10, 59.) Sec. 89. Return by Copartnerships. Any persons carrying on business in partnership are liable for the income tax only in their individual capacity, and the share of profits of a partnership to which any taxable person vrould be entitled if the same were divided, whether divided or otherwise, shall be returned for taxation and the tax paid under the pro- visions of the act, and any such firm when requested by the Commissioner of Internal Revenue, or any district collector, 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. (Act, sec. D, lines 58-68; see also 7 I. E. E. 10.) Sec. 90. Returns in Case of Minors or Insane Persons or Absentees. The act provides that if the person subject to the tax is a minor or an insane person, or is absent from the United States, or is unable, owing to serious illness, to make the return (and applica- tion for exemptions from income tax, or reduction of the amount subject to the tax) such return (and application) may be made for him or her by the person required to withhold and pay the tax, he making oath under the penalties of the act that he has sufficient knowledge of the affairs and property of his beneficiary to enable him to make full and complete return for him or her, and that the return or application made by him are full and complete. (Act, sec. E, lines 70-79.) Sec. 91. Returns by Parties Required by the Act to Withhold Income at Its Source. All persons, firms, companies, copartnerships, corporations, joint-stock companies or associations, and insurance companies. 94 Fedeeal INCOME Tax Law. except as hereinafter provided, in whatever capacity acting, hav- ing the control, receipt, disposal, or payment of fixed or deter- minable annual or periodical gains, profits and income of another person subject to tax, shall in behalf of such person deduct and withhold from the payment an amount equivalent to the normal income tax upon the same and make and render a return as afore- said, but separate ■and distinct, of the portion of the income of each person from which the normal tax has been thus withheld, and containing also the name and address of such person, or stating that the name and address, or the address, as the case may be, are unknown. (Act, sec. D, lines 39-52.) Provided that in either case above mentioned no return of income not exceeding $3,000 shall be required. Any person for whom return has been made or the tax paid or to be paid (by the party withholding the same at the source) shall not be required to make a return unless such person has other net income, but only one deduction of $3,000 shall be made in the case of any such person. (Act, sec. E, lines 22-43, 74-78.) Sec. 92. Verification of Eeturns by Parties Required by the Act to Withhold Income at Its Source, The collector or deputy collector shall require every list fui^ nished by persons required to withhold income at its source to be verified by oath or affirmation of the party rendering it. (Act, sec. I, lines 36-43, D, lines 78-80.) Sec. 93. Increase of and leaking of Betums by Collector or Deputy Collector. If the collector or deputy collector have reason to believe that the amount of any income return is understated, he shall give due notice to the person making the return to show cause why the amount of the return should not be increased, and upon proof of the amount understated may increase the same accordingly. If dissatisfied with the decision of the collector (or deputy col- lector) such person may submit the case with all the papers to the Commissioner of Internal Revenue for his decision and may fur- nish sworn testimony of witnesses to prove any relevant facts. (Act, sec. D, lines 80-89, see Magee v. Denton, 5 Blatch. U. S. 130.) Ietcomb Tax Ketuests. 95 In the case of refusal or neglect to make a return or in case of false or fraudulent return, the Commissioner of Internal Eevenue shall upon the discovery thereof, at any time within three years after said return is due, make a return upon information obtained as provided by law, and the assessment made by the Commissioner of Internal Revenue thereon shall be paid by such person or per- sons immedia,tely upon notification of the amount of such assess- ment, (Act, sec. E, lines 1-14.) Sec. 94. Penalty for Failure to Make Return at the lime Specified in the Act. Any person, corporation, joint-stock company, association or insurance company liable to make the return or pay the tax who shall refuse or neglect to make the return at the time or times specified in the act, shall be liable to a penalty of not less than $20 and not more than $1,000. (Act, sec. F, lines 1-6; see also U. .S. V. Ey. Co., 14 Fed. Eep. 284; U. S. v. Co., 8 Benedict, TJ. S. 269.) Under section 3176 of the Eevised Statutes (as amended by the Income Tax Act of 1913) the Commissioner of Internal Eevenue is empowered, in case of a refusal or neglect, except in cases of sickness or absence, to make a list or return or to verify the same, to add 50 per cent, to such tax. In case of neglect occasioned by sickness, or absence as aforesaid, the collector may allow such further time for making and delivering such list or return as he may deem necessary, not exceeding thirty days. The amount so added to the tax shall be collected at the same time and in the same manner as the tax, unless the neglect or falsity is discovered after the tax has been paid, in which case the amount so added shall be collected in the same manner as the tax ; and the list or return so made and subscribed by such collector or deputy collector shall be held prima facie good and sufficienit for all legal purposes. (Act, sec. I, lines 103-131.) Sec. 95. Penalty for Making False or Fraudulent Returns. Any person, or any officer of any corporation, required by law to make, render, sign or verify any return, who makes any false or fraudulent return or statement, with intent to defeat or evade the assessment required to be made, shall be guilty of a misde- 96 Fedeeal Income Tax Law. meanor, and shall be fined not exceeding $2,000 or be imprisoned not exceeding one year or both, at the discretion of the court, with the costs of prosecution. (Act, sec, F, lines 6—13.) Under section 3176 of the United States Kevised Statutes (as amended by the Income Tax Act of 1913) the Commissioner of Internal Revenue is empowered, in case of any return of a false or fraudulent list or valuation intentionally made, to add 100 per cent, to such tax. The amount so added to the tax shall be collected at the same time and in the same manner as the tax, unless the neglect or falsity of the return is discovered after the tax has been paid, in which case the amount so added shall be collected in the same manner as the tax ; and the list or return so made and subscribed by such collector or deputy collector shall be held prima facie good and sufficient for all legal purposes. (Act, sec. I, lines 103-131 ; see also in re Brown, 4 Fed. Cases, 330, 3 I. R. R. 60.) Sec. 96. Publicity of Income Tax Returns. The act provides that in the case of corporations, when the as- sessment shall be made, aa provided in this section (Gr), the re- turns, together with any correction thereof which may have been made by the commissioner, shall be filed in the ofiice of the Com- missioner of Internal Revenue and shall constitute public' records and be open to inspection as such: Provided, That any and all such returns shall be open to inspection only upon the order of the President, under rules and regulations to be prescribed by the Secretary of the Treasury and approved by the President : Pro- vided further J That the proper officers of any State imposing a general income tax may, upon the request of the governor thereof, have access to said returns or to an abstract thereof, showing the name and income of each such corporation, joint-stock company, association or insurance company, at such times and in such man- ner as the Secretary of the Treasury may prescribe. (Act, sec. G, sub. d, lines 318-331.) Under the Income Tax Act of 1894, the Internal Revenue Department made a ruling (10, I. R. R. 5) that income returns are not privileged communications, and that collectors have no right to withhold them as evidence. Under section 3167 of the United States Revised Statutes (as Income Tax Eetukns. 97 amended by the Income Tax Act of 1913), it is provided as follows : ' " It shall be unlawful for any collector, deputy collector, agent, clerk, or other officer or employee of the United States to divulge or to make known in any manner whatever not provided by law to any person the operations, style of work, or apparatus of any manufacturer or producer visited by him in the discharge of his official duties, or the amount or source of income, profits, losses, expenditures, or any particular thereof, set forth or disclosed in any income return by any person" or corporation, or to permit any income return or copy thereof or any book containing any abstract or particulars thereof to be seen or examined by any person except as provided by law; and it shall be unlawful for any person to print or publish in any manner whatever not provided by law any income return or any part thereof or the amount or source of income, profits, losses, or expenditures appearing in any income return ; and any offense against the foregoing provision shall be a misdemeanor and be punished by a fine not exceeding $1,000 or by imprisonment not exceeding one year or both, at the discretion of the court; and if the offender be an officer or employee of the United States he shall be dismissed from office and be incapable thereafter of holding any office under the Government." (Act, sec. I, lines 6-28; see also 10 I. E. K. 5.) 98 Fedekajl Income Tax Law. CHAPTER X. Income Tax Assessments. Sec. 97. When Tax Assessments Must be Made. The primary meaning of the term " assess " is to apportion the amount of a tax to be paid or contributed and from this meaning has arisen a secondary use of the word, signifying the valuation of property for the purpose of forming a basis upon which the tax is to be computed. (Allen v. McKay, 120 Cal. 332, 52 Pac. 828 ; see also Perry Co. v. S. M. & M. Ey. Co., 58 Ala. 546 ; Seymour V. Peters, 67 Mich. 415, 35 N. W. 62.) All income tax assess- ments must be made on or before the first day of June of each year. The assessment is required to be made by the Commissioner of Internal Revenue. (Act, sec. E, lines 1—4.) Sec. 98. Notice of Amount of Assessments. All persons are required to be notified of the amount for which they are respectively liable on or before the first day of June of each year. (Act, sec. E, lines 1-5; see 1 I. R. R. 113.) Sec. 99. When Assessments Become Due and Payable. All income tax assessments (except as noted below) are re- quired to be paid before the 30th day of June of each year except in cases of refusal or neglect to make such return, and in case of false or fraudulent returns, in which cases the Commissioner of Internal Revenue shall upon the discovery thereof at any time within thr-ee' years after said return is made, make a return upon information obtained as provided in section E or by existing law, and the as^ssment made by the Commissioner of Internal Revenue thereof shall be paid by such person or persons immediately upon such notification of the amount of such assessment. (Act, sec. E, lines 1-21.) In the case of any corporation, joint-stock company or associa- tion and insurance company, computing taxes upon the income of Income Tax Assessments. 99 the fiscal year which it may designate in the manner hereinbefore stated, the act provides (sec. F, lines 335-351) as to them, that they shall pay the taxes due under its assessment within 120 days after the date upon which it is required to file its list or return of income for assessment; except in cases of refusal or neglect to make such return, and in cases of false or fraudulent returns, in which cases the Commissioner of Internal Revenue shall, upon the discovery thereof, at any time within three years after said return is due, make a return upon information obtained as provided for in this section or by existing law, and the assessment made by the Commissioner of Internal Revenue thereon shall be paid by such corporation, joint-stock company or association, or insurance com- pany immediately upon notification of the amount of such assess- ment ; and to any sum or sums due and unpaid after the 30th day of June in any year, or after 120 days from the date on which the return of income is required to be made by the taxpayer, and after ten days' notice and demand thereof by the collector, there shall be added the sum of 5 per cent, on the amount of tax unpaid and interest at the rate of 1 per cent, per month upon said tax from the time the same becomes due. Sec. 100. Assessment by Personal Betnm. The act provides that the tax therein imposed upon annual gains, profits and income under the specific provisions of sections A, B, C, D and E of the act and not returned and paid under the provisions of section E of the act, shall be assessed by personal return under rules and regulations prescribed by the Commis- sioner of Internal Revenue and approved by the Secretary of the Treasury. (Act, sec. E, lines 135-140.) Sec. 101. Penalty for Nonpayment of Taxes on or Before June 30th. In the case of individuals it is provided that all persons shall be notified of the amount for which they are respectively liable on or before the first day of June of each successive year, and said assessments shall be paid on or before the thirtieth day of June, except in cases of refusal or neglect to make such return and in cases of false or fraudulent returns, in which cases the Commis- sioner of Internal Revenue shall, upon the discovery thereof, at 100 Federal Income Tax Law. any time within three years after said return is due, make a re^ turn upon information obtained as provided for in this section or by existing law, and the assessment made by the Commissioner of Internal Revenue thereon shall be paid by such person or per- sons immediately upon notification of the amount of such assess- ment ; and to any sum or sums due and unpaid after the thirtieth day of June in any year, and for ten days after notice and de- mand thereof by the collector, there shall be added the sum of 5 per centum on the amount of tax unpaid, and interest at the rate of 1 per centum per month upon said tax from the time the same became due, except from the estates of insane, deceased, or insol- vent persons. (Act, section E, lines 1-21.) In the case of corporations the act provides as follows: "All assessments shall be made and the several corporations, joint-stock companies or associations and insurance companies shall be notified of the amount for which they are respectively liable on or before the first day of June of each successive year and said assessment shall be paid on or before the thirtieth day of June: Provided, That every corporation, joint-stock company or association and insurance company, computing taxes upon the income of the fiscal year which it may designate in the manner hereinbefore provided, shall pay the taxes due under its assess- ment within one hundred and twenty days after the date upon which it is required to file its list or return of income for assess- ment ; except in cases of refusal or neglect to make such return, and in cases of false or fraudulent returns, in which cases the Commissioner of Internal Revenue shall, upon the discovery thereof, at any time within three years after said return is due, make a return upon information obtained as provided for in this section or by existing law, and the assessment made by the Com- missioner of Internal Revenue thereon shall be paid by such cor- poration, joint-stock company or association or insurance com- pany immediately upon notification of the amount of such assess- ment ; and to any sum or sums due and unpaid after the thirtieth day of June in any year or after one hundred and twenty days from the date on which the return of income is required to be made by the taxpayer and for ten days after notice and demand thereof by the collector there shall be added the sum of 5 per Income Tax Assessments. lOl^ centum on the amount of tax unpaid and interest at the rate of 1 per centum per month upon said tax from the time the same becomes due. (Act, section Q, lines 330-358; see also 10 I. E. R. 57.) Sec. 102. Method of Review of Assessment — Claims for Abatement or Refund of Taxes. Section 3220 of the Revised Statutes of the United States pro- vides as follows: " Tlie Commissioner of Internal Revenue, subject to regulations prescribed by the Secretary of the Treasury, is authorized on appeal to him made, to remit, refund and pay back all taxes erroneously or illegally assessed or collected, and all penalties collected without authority, and all taxes that appear to be unjustly assessed or excessive in amount, or in any manner wrongfully collected; also to repay to any collector or deputy collector the full amount of such sums of money as may be recovered against him in any court for any internal taxes collected by him, with the costs and expenses of suit; also all damages and costs recovered against any assessor, assistant assessor, collector, deputy collector or inspector in any suit brought against him by reason of anything done in the due performance of his official duty: Provided, that where a second assessment is made in case of a list, statement or return, which. In the opinion of the collector or deputy collector was false or fraudulent or contained any understatement or undervaluation, and such assessment shall not be remitted, nor shall taxes collected under such assessment be refunded or paid back unless it is proved that said list, state- ment or return was not false or fraudulent, and did not contain any under- statement or undervaluation." (See also Act, Sec. D, lines 85-89.) It should be further noted that all applications for refund of taxes erroneously charged or illegally collected against a person must be made to the Commissioner of Internal Revenue within two years from the date of such collection. (U. S. R. S., section 322i8 ; see generally Cheeseborough v. U. S., 192 U. S. 253 ; 24 Sup. Ct. Rep. 262.) (See Bailey v. R. R. Co., 22 Wall. 604.) Sec. 103. To Whom Payment Should Be Maie. All income taxes must be paid to the collector of the district in which return is made or required to be made by the taxpayer. That is in the case of citizens of the United States or resident aliens, to the collector of the district where they reside or have their principal place of business. In the case of nonresident 102 Fedekal Income Tax Law. aliens the payment is made to the collector of the district in the place where their principal business is carried on within the United States. (Act, section 10, lines 14-19; E, lines 59-60.) Sec. 104. Payment of Tax on Income Withheld at Source. In the case of all income, the tax on which is required to be withheld at its source, payment must be made to the collector of the district wherein the tax is withheld at its source, wherever that may be. Collection and Payment of the Tax. 103 CHAPTER XI. Collection and Payment of the Tax. Sec. 105. Demand of Payment. Under section 3172 of the United States Kevised Statutes (as amended by section I of the Income Tax Act of 1913), every collector shall from time to time cause his deputies to proceed through every part of his district and inquire in and concerning all persons therein v?ho are liable to pay any internal revenue tax and all persons owning and having the care and management of any objects liable to pay any tax, and make a list of such per- sons and enumerate such objects. In addition to the foregoing statutory provision, attention should be called to section L of the Income Tax Act which .pro- vides " that all administrative, special and general provisions of law, including the laws in relation to the assessment, remission collection and refund of internal revenue taxes not heretofore speciiically repealed and not inconsistent with the provisions of this section, are hereby extended and made applicable to all the provisions of this section and to the tax herein imposed." The special provisions of law here referred to are found in the United 'States Revised Statutes and read as follows: See. 3173. It shall be the duty of any person, partnership, firm, association or corporation, made liable to any duty, special tax or other tax imposed by law, when not otherwise provided for, in case of a, special tax, on or before the thirty-first day of July in each year, in case of income tax on or before the first day of March in each year, and in other cases before the day on which the taxes accrue, to make a list or return, verified by oath or affir- mation, to the collector or a deputy collector of the district where located, of the articles or objects, including the amount of annual income charged with a duty or tax, the quantity of goods, wares, and merchandise made or sold and charged with a tax, the several rates and aggregate amount, according to the forms and regulations to be prescribed by the commissioner of internal revenue, with the approval of the secretary of the treasury, for which such person, partnership, firm, association or corporation is liable; Provided that if any person liable to pay any duty or tax, or owning, possessing or having 104 Fedeeal Income Tax Law. the care or management of property, goods, wares and merchandise, articles or objects liable to pay any duty, tax or license, shall fail to make and exhibit a. list or return required by law, but shall consent to disclose the particulars of any and all the property, goods, wares and merchandise, articles and objects liable to pay any duty or tax, or any business or occu- pation liable to pay any tax as aforesaid, then, and in that case, it shall be the duty of the collector or deputy collector to make such list or return, which being distinctly read, consented to, and signed and verified by oath or affirmation by the person so owning, possessing or having the care and man- agement as aforesaid, may be received as the list of such person: Provided, further, that in case no annual list or return has been rendered by such person to the collector or deputy collector as required by law, and the person shall be absent from his or her residence or place of business at the time the collector or deputy collector shall call for the annual list or return, it shall be the duty of such collector or deputy collector to leave at such place of residence or business, with some one of suitable age and discretion, if such be present, otherwise to deposit in the nearest post office, a note or memo- randum addressed to such person, requiring him or her to render to such collector or deputy collector the list or return required by law within ten days from the date of such note or memorandum, verified by oath or affirma- tion. And if any person, on being notified or required as aforesaid, shall refuse or neglect to render such list or return within the time required as aforesaid, or whenever any peraon who is required to deliver a monthly or other return of objects subject to tax fails to do so at the time required, or delivers any return which in the opinion of the collector, is false or fraudu- lent, or contains any undervaluation or understatement, it shall be lawful for the collector to summon such person, or any other person having possession, custody or care of books of account containing entries relating to the business of such person, or any other person he may deem proper, to appear before him and produce such books, at a time and place named in the summons, and to give testimony or answer interrogatories, under oath respecting any objects liable to tax or the returns thereof. The collector may summon any person residing or found within the State in which his district lies, and when the person intended to be summoned does not reside and cannot be found within such State, he may enter any collection district where such person may be found and there make the examination herein authorized. And to this end he may there exercise all the authority which he might lawfully exercise in the district for which he was commissioned. (Act, section I, lines 36-102.) Sec. 3174. Such summons shall in all cases be served by a deputy collector of the district where the person to whom it is directed may be found, by an attested copy delivered to such person in hand, or left at his last and usual place of abode, allowing such person one day for each twenty-five miles he may he required to travel, computed from the place of service to the place of examination; and a certificate of service signed by such deputy shall be evi- dence of the facts he states on the hearing of an application for an attach- ment. When the summons requires the production of books, it shall be sufficient if such books are described with reasonable certainty. Sec. 3175. Whenever any person summoned under the two preceding sections neglects or refuses to obey such summons, or to give testimony, or to answer interrogatories, as required, the collectors may apply to the judge of the Collection and Payment of the Tax. 105 district court, or to a commissioner of the circuit court of the United States for the district within which the person so summoned resides for an attachment against him as for contempt. It shall be the duty of the judge or commis- sioner to hear the application, and if satisfactory proof is made to issue an attachment directed to some proper officer for the arrest of such person, and upon his being brought before him to proceed to a hearing of the case and upon such hearing the judge or commissioner shall have power to make such order as he shall deem proper, not inconsistent with existing laws for the punishment of contempts, to enforce obedience to the requirements of the summons, and to punish such person for his default or disobedience. Sec. 3176. When any person, corporation, company, or association refuses or neglects to render any return or list required by law, or renders a false or fraudulent return or list, the collector or any deputy collector shall make, according to the best information which he can obtain, including that derived from the evidence elicited by the examination of the collector, and on his own view and information, such list or return, according to the form pre- scribed, of the income, property and objects liable to tax owned or possessed or under the care or management of such person or corporation, company or association, and the Commissioner of Internal Revenue shall assess all taxes not paid by stamps, including the amount, if any, due for special tax, income or other tax, and in case of any return of a false or fraudulent list or valua- tion intentionally he shall add lOO per centum to such tax; and in case of a refusal or neglect, except in cases of sickness or absence, to make a list or return, or to verify the same as aforesaid, he shall add 50 per centum to such tax, in case of neglect occasioned by sickness or absence as aforesaid, the collector may allow such further time for making and delivering such list or return as he may deem necessary, not exceeding thirty days. The amount so added to the tax shall be collected at the same time and in the same manner as the tax unless the neglect or falsity is discovered after the tax has been paid, in which case the amount so added shall be collected in the same manner as the tax; and the list or return so made and subscribed by such collector or deputy collector shall be held prima facie good and sufficient for all legal purposes. (Act, section I, lines 103-131.) Sec. 3177. Any collector, deputy collector or inspector may enter in the day time any buildings or place where any articles or objects subject to tax are made, produced or kept within his district, so far as it may be necessary for the purpose of examining said articles or objects. And any owner of such building or place, or person having the agency or superintendency of the same, who refuses to admit such officer, or to suffer him to examine such article or articles, shall, for every such refusal, forfeit five hundred dollars. And when such premises are open at night, such officers may enter them while open in the performance of their official duties. And if any person shall forcibly obstruct or hinder any collector, deputy collector or inspector in the execution of any power and authority vested in him by law, or shall forcibly rescue or cause to be rescued, any property, articles or objects after the same shall have been seized by him, or shall attempt or endeavor so to do, the person so offending, except in cases otherwise provided for shall, for every such offense, forfeit and pay the sum of five hundred dollars or double the value of the property so rescued, or be imprisoned for a term not exceeding two years at the discretion of the court. 106 Eedeeal Income Tax Law. Sec. 3178. All persons required to make returns or lists of objects charged with an internal tax shall declare therein whether the several rates and amounts are stated according to their values in legal tender currency, or according to their values in coined money, and in case of neglect or refusal so to declare to the satisfaction of the collector receiving such returns or list, such officer shall make returns or lists for such persons so neglecting or refusing, as in cases of persons neglecting or refusing to make the returns or lists required by law, and the Commissioner shall assess the tax thereon, and add thereto the amount imposed by law in cases- of such neglect or refusal. And whenever the rates and amounts contained in the returns or lists are stated in coined money, the collector receiving the same shall reduce them to their equivalent in legal tender currency according to the value of such coined money in such currency for the time covered by such returns. Sec. 3179. Whenever any person delivers or discloses to the collector or deputy any false or fraudulent list, return, account or statement with intent to defeat or evade the valuation, enumeration or assessment intended to be made, or being duly summoned to appear to testify, or to appear and produce such books as aforesaid, neglects to appear or to produce said books, he shall be fined not exceeding one thousand dollars, or be imprisoned not exceeding one year, or both, at the discretion of the court with costs of prosecution. Sec. 3180. Whenever there are in any district any articles not owned or possessed by or under the care or control of any per&on within said district and liable to be taxed, and of which no list has been transmitted to the collector, as required by law, the collector or one of his deputies shall enter the premises where such articles' are situated, and shall take such view thereof as may be necessary and make lists of the same, according to the form prescribed. Said lists to be subscribed by such collector or deputy collector and shall be taken as sufficient lists of such articles for all purposes. Sec. 3182. The Commissioner of Internal Revenue is hereby authorized and required to make inquiries, determinations and assessments of all taxes and penalties imposed by this title, or accruing under any former internal revenue act where such taxes have not been duly paid by stamp at the time and in the manner provided by law, and shall certify a list of such assess- ments when made to the proper collectors respectively, who shall proceed to collect and account for the taxes and penalties so certified. Whenever it is ascertained that any list which has been, or shall be, delivered to any col- lector is imperfect or incomplete, in consequence of the omission of the name of any person liable to tax, or in consequence of any omission or understate- ment or undervaluation, or false or fraudulent statement contained in any return made by any person liable to tax, the Commissioner of Internal Revenue may at any time within fifteen months from the time of delivery of the list to the collector as aforesaid, enter on any monthly or special list the name of such person so omitted, together with the amount of tax for which he may have been or shall become liable, and also the name of any such person in respect to whose return as aforesaid there has been or shall be any omis- sion, undervaluation and understatement or false or fraudulent statement, together with the amount for which such person may be liable above the amount for which he may have been or shall be assessed upon any return made as aforesaid, and he shall certify and return such list to the collector as required by law, and all provisions of law for the ascertainment or Collection and Payment of the Tax. 107 liability of any tax, or the assessment or collection thereof shall be held to apply so far as may be necessary to the proceedings herein authorized and directed. See. 3183. It shall be the duty of the collectors or their deputies in their respective districts, and they are authorized to collect all the taxes imposed by law, however the same may be designated. And every collector and deputy collector shall give receipts for all sums collected by him, excepting when the same are in payment for stamps sold and delivered; but any collector or deputy collector shall issue a receipt in lieu of stamp representing a tax. Sec. 3184. Where it is not otherwise provided, the collector shall in person or by deputy, within ten days after receiving any list of taxes from the Commissioner of Internal Revenue, give notice to each person in writing to pay any tax stated therein to be left at his dwelling or usual place of business, or to be sent by mail, stating the amount of such tax and demanding payment thereof. If such person does not pay the tax within ten days after the service or the sending by mail of such notice, it shall be the duty of the collector or his deputy to collect the said taxes, and the penalty of five per centum additional upon the amount of taxes, and interest, at the rate of one per centum a month. — See. 3186. If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the United States from the time when the assessment list was received by the collector, except when otherwise provided, until paid with the interest, penalties and costs that may accrue in addition thereto upon the property and rights to property belonging to such person. Sec. 3187. If any person liable to pay any taxes neglects or refuses to pay the same within ten days after notice and demand, it shall be lawful for the collector or his deputy to collect the said tax, with five per centum additional thereto and interest as aforesaid by distraint and sale in the manner herein provided, of the goods, chattels or other effects, including stocks, securities and evidences of debt of the person delinquent as aforesaid: Prpvided that there be exempted from distraint and sale if belonging to the head of a family school boolcs and wearing apparel necessary for said family; also arms i'or personal use, one cow, two hogs, live sheep and the wool thereof, provided the aggregate market value of such sheep shall not exceed fifty dollars; and necessary food for such cow, hogs and sheep for a period not exceeding thirty days, fuel to an amount not greater in value than twenty -five dollars; pro- visions to an amount not greater than fifty dollars; household furniture kept for use to an amount not greater than three hundred dollars; and the books, tools or implements of a trade or profession to an amount not greater than one hundred dollars shall be also exempt; and the officer making the distraint shall summon three disinterested householders of the vicinity who shall appraise and set apart to the owner the amount of property herein declared to be exempt. Sec. 3188. In such case of neglect or refusal the collector may levy or by warrant may authorize a deputy collector to levy upon all property and rights to property, except as are exempt by the preceding section, belonging to such person or on which the said lien exists for the payment of the sum due as aforesaid, with interest and penalty for non-payment, and also of such further sum as shall be sufficient for the fees, costs and expenses of such levy. See. 3189. All persons and officers of companies or corporations are required 108 Federal Income Tax Law. on demand of a collector or deputy collector about to distrain, or having distrained en any property, or rights of property, to exhibit all books containing evidence or statements relating to the subject of distraint on the property or rights of property liable to distraint for the tax due as aforesaid. Sec. 3190. When distraint is made as aforesaid the ofiScer charged with the collection shall make, or cause to be made, an account of the goods or effects distrained, and a copy of vsrhich signed by the oflScer making such distraint shall be left with the owner or possessor of such goods or eflfects at his dwelling or usual place of business with some person of suitable age and discretion, if any such can be found, with a note of the sum demanded and the time and place of sale, and the said officer shall forthwith cause an injunction to be published in some newspaper within the county wherein said distraint is made, if a newspaper is published in said county, or to be publicly posted at the post office, if there be one within five miles nearest to the residence of the person whose property shall be distrained, and in not less than two other public places. Said notice shall specify the articles distrained and the time and place for the sale thereof. Such time shall not be less than ten nor more than twenty days from the date of such notification to the owner or possessor of the property, and the publication or posting of such notice as herein provided, and the place proposed for the sale shall not be more than five miles distant from the place of making such distraint. Said sale may be adjourned from time to time by said officer if he deems it advisable, but not for a time to exceed in all thirty days. Sec. 3131. When property subject to tax, or upon which a tax has not been paid, is seized upon distraint and sold, the amount of such tax shall, after deducting the expenses of such sale, be first appropriated out of the proceeds thereof, to the payment of the tax, if no assessment of such tax has been made upon such property, the collector shall make a, return thereof in the form required by law, and the Commissioner of Internal Revenue shall assess the tax thereon. Sec. 3192. When any property advertised for sale under distraint as afore- said is of a kind subject to tax, and the tax has not been paid, and the amount bid for such property is not equal to the amount of the tax, the collector may purchase the same in behalf of the United States for an amount not exceeding the said tax. All property so purchased may be sold by the collector under such regulations as may be prescribed by the Commissioner of Internal Revenue. The collector shall render to the Commissioner a definite amount of all charges incurred in such sales, and in case of sale shall pay into the treasury the surplus, if any there be, after defraying all lawful charges and fees. Sec. 3193. In any case of distraint for the payment of the taxes aforesaid the goods, chattels or effects so distrained shall be restored to the owner or possessor if prior to the sale, payment of the amount due is made to the proper officer charged with the collection, together with the fees and other charges; but in case of non-payment as aforesaid, the said officers shall proceed to sell the said goods, chattels or effects at public auction, and shall retain from the proceeds of such sale the amount demandable for the use of the United States, and a commission of five per centum thereon for his own use, with the fees and charges for distraint and sale, rendering the overplus, if any there be, to the person who may be entitled to receive the same. Collection and Payment of the Tax. 109 Sec. 3194. In all cases of sale as aforesaid, the certificate of such sale shall be prima facie evidence of the right of the officer to make such sale and con- clusive evidence of the regularity of his proceedings in making the same, and shall transfer to the purchaser all right, title and interest of said delinquent in and to the property sold, and where such property consists of stocks, said certificate shall be notice, when received, to any corporation, company or asso- ciation of said transfer, and shall be authority to such corporation, company or association to record the same on their books and records in the same manner as if transferred or assigned by the party holding the same, in lieu of any original or prior certificates which shall be void, whether cancelled or not. And said certificates, where the subject of sale is securities or other evidences of debt shall be good and valid receipts to the person holding the same as against any person holding or claiming to hold possession of such securities or other evidences of debt. Sec. 3195. When any property liable to distraint for taxes is not divisible so as to enable the collector by a sale of part thereof to raise the whole amount of the tax with all costs, charges and commissions, the whole of such property shall be sold, and the surplus of the proceeds of the sale, after satis- fying the tax, costs and charges, shall be paid to the person legally entitled to receive the same ; or if he cannot be found, or refuses to receive the same, shall be deposited in the treasury of the United States to be there held for his use until he makes application therefor to the Secretary of the Treasury, who upon such application and satisfactory proofs in support thereof, shall by warrant on the treasury cause the same to be paid to the applicant. Sec. 3196. When goods, chattels or effects sufficient to satisfy the tax imposed upon any person are not found by the collector or deputy collector, he is authorized to collect the same by seizure and sale of real estate. Sec. 31197. The officer making the seizure mentioned in the preceding section shall give notice to the person whose estate it is proposed to sell by giving him in hand, or leaving at his last or usual place of abode, if he has any such within the collection district where such estate is situated, a notice in writing, stating what particular estate is to be sold, describing the same with reason- able certainty, and the time when and place where such officer proposes to sell the same; which time shall not be less than twenty nor more than forty days from the time of giving said notice. The said officer shall also cause a notifi- cation to the same effect to be published in some newspaper within the county where such seizure is made, if any such there be, and shall also cause a like notice to be posted at the post office nearest to the estate seized, and in two other public places within the county; and the place of said sale shall not be more than five miles distant from the estate seized, except by special order of the Commissioner of Internal Revenue. At the time and pJace appointed the officer making such seizure shall proceed to sell the said estate at public auction, offering the same at a minimum price, including the expense of making such levy, and all charges for advertising and the officer's fee of ten dollars. When the real estate so seized consists of several distinct tracts or parcels, the officer making the sale thereof shall offer each tract or parcel for sale separately, and shall, if he deem it advisable, apportion the expenses, charges and fees aforesaid to such several tracts or parcels, or to any of them in estimating the minimum price aforesaid. If no person offers for said estate the amount of said minimum price, the officer shall declare the same 110 Fedeeal Income Tax Law. to be purchased by him for the United States; otherwise the same shall be declared to be sold to the highest bidder. And in case the same shall be declared to be purchased for the United States, the officer shall immediately transmit a certificate of the purchase to the Commissioner of Internal Revenue, and at the proper time, as hereafter provided, shall execute a deed therefor after its preparation and the instrument of approval as to its form by the United States District Attorney for the district in which the property is situated, and shall without delay cause the came to be duly recorded in the proper register of deeds and immediately thereafter shall transmit such deed to the Commissioner of Internal Revenue. And said sale may be adjourned from time to tim6 by said officer for not exceeding thirty days in all, if he shall think it advisable so to do. If the amount bid shall not be then and there paid the officer shall forthwith proceed to again sell said estate in the same manner. And it is hereby provided that all certificates of purchase, and deeds of property purchased by the United States under the internal revenue laws for taxes, or under executions issued from the United States courts which now are or hereafter may be found in the office of any collector. United States Marshal, or United States District Attorney shall be immediately transmitted by such officers respectively to the Commissioner of Internal Revenue, and it is hereby further provided that for the preparation and approval by the United States District Attorney of each deed as above required, a fee of $5.00 shall be allowed to that officer to be paid by the United States, and which he shall account for in his emolument returns. Sec. 3198. Under sale of real estate as provided in the preceding section and the payment of the purchase money, the officer making the seizure and sale shall give to the purchaser a certificate of purchase, which shall set forth the real estate purchased, for whose taxes the same was sold, the name of the purchaser, and the price paid therefor ; and if the said real estate shall not be redeemed in the manner and within the time herein provided, the said collector or deputy collector shall execute to the said purchaser upon his surrender of said certificate a deed to the real estate purchased by him as aforesaid, reciting the facts set forth in said certificate and in accordance with the laws of the state in which said real estate is situate, upon the subject of sales of real estate under execution. Sec. 3199. The deed of sale given in pursuance of the preceding section shall be prima facie evidence of the facts therein stated; and if the proceedings of the officer as set forth have been substantially in accordance with the pro- visions of law, shall be considered and operate as a conveyance of all the right, title and interest of the party delinquent in and to the real estate thus sold at the time the lien of the United States attached thereto. Sec. 3200. Any collector or deputy collector may, for the collection of tax imposed upon any person committed to him for collection, seize and sell the lands of such person situated in any other collection district within the state in which such officer resides and his proceedings in relation thereto shall have the same effect as if the same were had in his proper collection district. Sec. 3201. Any person whose estate may be proceeded against as aforesaid, shall have the right to pay the amount due together with the costs and charges thereon to the collector or deputy collector at any time prior to the sale thereof, and all further proceedings shall cease from the time of such payment. Collection and Payment of the Tax. Ill Sec. 3202. The owners of any real estate sold as aforesaid or their heirs, executors or administrators of any person having any interest therein or a lien thereof, or any person in their behalf, shall be permitted to redeem the land sold, or any particular tract thereof at any time within one year after the sale thereof, upon payment to the purchaser, but in case he cannot be found within the county in which the land to be redeemed is situate, then to the collector of the district in which the land is situate, for the use of the purchaser, his heirs or assigns, the amount paid by the said purchaser and interest thereon at the rate of twenty per centum per annum. Sec. 3203. It shall be the duty of every collector to Iceep a record of all sales of land made in his collection district, whether by himself or his deputies, or by any collector, in which shall be set forth the tax for which any such sale was made, the dates of seizure and sale, the name of the party assessed, and all proceedings in malcing said sale, tlie amount of fees and expenses, the name of the purchaser and the date of the deed, and said record shall be certified by the officer malcing the sale, and on or before the 15th day of each succeeding month he shall transmit a copy of said record of the preceding month to the Commissioner of Internal Revenue. And it shall be the duty of every deputy making the sale as aforesaid, to return a statement of all his proceedings to the collector, and to certify the record thereof. In case of the death or removal of the collector, or expiration of his term of office, or from any other cause said record shall be delivered to his successor in office; and a copy of every such record, certified by the collector, shall be evidence in any court of the truth of the facts therein stated. Sec. 3204. When any lands sold as aforesaid are redeemed, as heretofore provided, the collector shall make entry of the fact upon the record mentioned in the preceding section, and the said entry shall be evidence of said redemption. Sec. 3205. Whenever any property, personal or real, which is seized and sold by virtue of the foregoing provisions, is not sufficient to satisfy the claim of the United States for which distraint or seizure is made, the collector may thereafter, and as often as the same may be necessary, proceed to seize and sell in like manner, any other property liable to seizure of the person against whom such claim exists, until the amount due from him together with all expenses is fully paid. Sec. 3206. The Commissioner of Internal Revenue shall, by regulation, determine the fees and charges to be allowed in all cases of distraint and other seizures, and shall have power to determine whether any expenses incurred in making any distraint or seizure was necessary. Sec. 3207. In any case where there has been a refusal or neglect to pay any tax and it has become necessary to seize and sell real estate to satisfy the same, the Commissioner of Internal Revenue may direct a bill in chancery to be filed in a district or circuit court of the United States, to enforce the lien of the United States for tax upon any real estate, or to subject any real estate owned by delinquent, or in which he has any right, title or interest to the payment of such tax. Any person having liens upon or claiming any interest in the real estate, sought to be subject, as aforesaid, shall be made parties to such proceedings and be brought into court as provided in other suits in chan- cery therein. And the said court shall at the term next after the parties have 112 Fedeeal Income Tax Law. been duly notified of the proceedings, unless otherwise authorized by the court, proceed to adjudicate all matters involved therein and finally determine the merits of all claims and liens upon the real estate in question, and in all cases where a claim or interest of the United States is established shall decree a sale of said real estate by the proper ofiBcer of -the court, and the distribution of the proceeds of such sale, according to the findings of the court in respect to the interests of the parties and of the United States. Sec. 3208. The Commissioner of Internal Revenue shall have charge of all real estate which is now or shall become the property of the United States by judgment or forfeiture, under the Internal Kevenue Laws, or which has been or shall be assigned, set off or conveyed by purchase or otherwise to the United States in payment of debts or penalties arising under the laws relating to internal revenue, or which has been or shall be vested in the United States by mortgage or other security for the payment of such debts, and all trusts created for the use of the United States in payment of such debts due them; and with the approval of the Secretary of the Treasury may at public vendue, upon not less than twenty days' notice sell and dispose of all real estate owned or held by the United States aforesaid; and until such sale the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury may lease such real estate owned as aforesaid, on such terms and for such period as they shall deem expedient. And in cases where real estate has or may become the property of the United Stfates by conveyance or otherwise, in pay- ment of or as security for a debt arising under the laws relating to internal revenue, and such debt shall have been paid, together with the interest thereon at the rate of one per centum per month to the United States within two years from the date of the acquisition of such real estate, it shall be lawful for the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, to release by deed or otherwise convey such real estate to the debtor from whom it was taken, or to his heirs or other legal representatives. Sec. 3209. Whenever a collector has on any such list duly returned to him the name of any person not within his collection district who is liable to such tax, or any person so liable, who has in the collection district in which he resides no suflScient property subject to seizure or distraint from which the money due for tax can be collected, such collector shall transmit a statement containing the name of the person liable to such tax, with the amount and the place to which such person shall have removed, or in which he shall have property, real or personal, liable to be seized and sold for tax. And the col- lector to whom said certified statement is transmitted shall proceed to collect the said tax in the same way as if the name of the person and objects of tax contained in said certified statement were on any list of his own collection district; and he shall, upon receiving said certified statement as aforesaid, transmit his receipt for it to the collector sending the same to him. Sec. 3214. No suit for the recovery of taxes or of any fine, penalty or for- feiture shall be commenced unless the Commissioner of Internal Revenue authorizes or sanctions the proceedings; provided that in case of any suit for penalties or forfeitures brought upon information received from any person other than a collector or deputy collector, the United States shall not be subject to any costs of suit. Collection and Payment of the Tax. 113 Sec. 3216. All judgments and moneys recovered or received for taxes unless costs, forfeitures and penalties, shall be paid to collectors as internal taxes are required to be paid. Sec. 3220. The Commissioner of Internal Revenue, subject to regulations prescribed by the Secretary of the Treasury, is authorized on appeal to him made, to remit, refund, and pay back all taxes erroneously or illegally assessed or collected and all penalties collected without authority, and all taxes that appear to be unjustly assessed or excessive in amount, or in any manner wrongfully collected; also, to repay to any collector or deputy collector the full amount of such sums of money as may be recovered against him in any court for any internal taxes collected by him, with the costs and expenses of suit; also all damages and costs recovered against any assessor, assistant assessor, collector, deputy collector or inspector in any suit brought against him by reason of anything done in the due performance of his official duty: Provided, that where a second assessment is made in case of a list, statement or return, which in the opinion of the collector or deputy collector was false or fraudulent or contained any understatement or undervaluation and such assessment shall not be remitted, nor shall taxes collected under such assess- ment be refunded or paid back, unless it is proved that said list, statement or return was not false or fraudulent, and did not contain any understatement or undervaluation. Sec. 3224. No suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court. Sec. 3225. When a second assessment is made in the case of any list, state- ment or return, which in the opinion of the collector or deputy collector was false or fraudulent, or contained any understatement or undervaluation, no taxes collected under such assessment shall be recovered by any suit, unless it is proved that the said list, statement or return was not false nor fraudu- lent and did not contain any understatement or undervaluation. Sec. 3226. No suit shall be maintained in any court for the recovery of any internal tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive, or in any manner wrongfully collected, until appeal shall have been duly made to the Commissioner of Internal Revenue according to the provisions of law in that regard, and the regulations of the Secretary of the Treasury established in pursuance thereof, and a decision of the Commissioner has been had therein; provided that if said decision is delayed more than six months from the date of said appeal, then the said suit may be brought without first having a decision of the Commissioner at any time within the period limited in the next section. Sec. 3227. No suit or proceedings for the recovery of any internal tax alleged to have been erroneously or illegally assessed or collected, or of any penalty alleged to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, shall be maintained in any court unless the same is brought within two years next after the Cause of action accrued; Provided that actions for such claims which accrued prior to June six, eighteen hundred and seventy-two, may be brought within the year from said date, and that where any such claim was pending before the Com- missioner, as provided in the preceding section, an action thereon may be brought within one year after such decision and not after. But no right of 114 Fedeeai Income Tax Law. action which was already barred by any statute on the said date shall be revived by this section. Sec. 3228. All claims for the refunding of any internal tax alleged to have been erroneously or illegally assessed or collected, or of any penalty alleged to have been collected without authority, or of any sum alleged to have been excessive, or in any manner wrongfully collected, must be presented to the Commissioner of Internal Revenue within two years next after the cause of action accrued; provided that claims which accrue prior to June six, eighteen hundred and seventy-two, may be presented to the Commissioner at any time within one year from said date. But nothing in this section shall be con- strued to revive any right of action which was already barred by any statute on that date. Sec. 3229. The Commissioner of Internal Revenue, with the advice and consent of the Secretary of the Treasury, may compromise any civil or crim- inal case arising under the internal revenue laws instead of commencing suit thereon; and with the advice and consent of the said Secretary and the recom- mendation of the attorney-general, he may compromise any such case after a suit thereon has been commenced. Whenever a compromise is made in any case there shall be placed on file in the ofiSce of the Commissioner, the opinion of the Solicitor of Internal Revenue or of the officer acting as such with his reasons therefor, with a statement of the amount of tax assessed, the amount of additional tax or penalty imposed by law in consequence of the neglect or delinquency of the person against whom the tax is assessed and the amount actually paid in accordance with the terms of the compromise. Sec. 106. Duty of Collectors of Internal Revenue to Give Receipts. The act provides as follows: It shall be the duty of every collector of Internal Revenue to whom any payment of any taxes other than the tax represented by an adhesive stamp or other engraved stamp is made under the provisions of this section, to give to the person making such pay- ment a full written or printed receipt, expressing the amount paid and the particular account for which such payment was made ; and whenever such payment is made such collector shall, if required, give a separate receipt for each tax paid by any debtor, on account of payments made to or to be made by him to separate creditors in such form that such debtor can conveniently produce the same separately to his several creditors in satisfaction of their respective demands to the amounts specified in such receipts; and such receipts shall be sufficient evidence in favor of such debtor to justify him in withholding the amount therein expressed from his next payment to his creditor; but such creditor may, upon giving to his debtor a full written receipt, acknowledging the payment to him of whatever sum may be actually paid, and ac- Collection and Payment of the Tax. 115 cepting the amount of tax paid as aforesaid (specifying the same) as a further satisfaction of the debt to that amount, require the surrender to him of such collector's receipt. (Section J, lines 1-22.) Sec. 107. Discovery. It is the duty of persons having the custody of money, articles and persons subject to a tax to disclose the same. Section 3173 of the United States Revised Statutes (as amended by the Income Tax Act of 1913) provides as follows: " It shall be the duty of any person, partnership, firm, associa- tion or corporation, made liable to any duty, special tax, or other tax imposed by law, when not otherwise provided for, in case of a special tax, on or before the thirty-first day of July in each year, in case of income tax on or before the first day of March in each year, and in other cases before the day on which the taxes accrue, to make a list or return, verified by oath or affirmation, to the collector or a deputy collector of the district where located, of the articles or objects, including the amount of annual income charged with a duty or tax, the quantity or goods, wares and merchandise made or «old and charged with a tax the several rates and aggregate amount according to the forms and regula- tions to be prescribed by the Commissioner of Internal Revenue, with the approval of the secretary of the treasury, for which such person, partnership, firm, association or corporation is liable: Provided, That if any person liable to pay any duty or tax, or owning, possessing or having the care or management of property, goods, wares and merchandise, articles or objects liable to pay any duty, tax or license, shall fail to make and exhibit a list or return required by law, but shall consent to disclose the particulars of any and all the property, goods, wares and mer- chandise, articles and objects liable to pay any duty or tax, or any business or occupation liable to pay any tax as aforesaid, then and in that case, it shall be the duty of the collector or deputy collector to make such list or return, which being distinctly read, consented to and signed and verified by oath or affirmation by the person so owning, possessing or having the care and management as aforesaid, may be received as the list of such person : Provided, 116 Tedeeal Income Tax Law. further. That in case no annual list or return has been rendered by such person to the collector or deputy collector as required by law, and the person shall be absent from his or her residence or place of business at the time the collector or a deputy collector shall call for the annual list or return, it shall be the duty of such collector or deputy collector to leave at such place of residence or business, with some one of suitable age and discretion, if such be present, otherwise to" deposit in the nearest postoffice, a note or memorandum addressed to such person, requiring him or her to render to such collector or deputy collector the list or return re- quired by law within ten days from the date of such note or memorandum, verified by oath or afermation. And if any such person, on being notified or required as aforesaid, shall refuse or neglect to render such list or return within the time required as aforesaid, or whenever any person who is required to deliver a monthly or other return of objects subject to tax fails to do so at the time required, or delivers any return which, in the opinion of the collector, is false or fraudulent, or contains any undervalua- tion or understatement, it shall be lawful for the collector to sum- mon such person, or any other person having possession, custody or care of books of account containing entries relating to the business of such person, or any other person he may deem proper, to appear before him and produce such books, at a time and place named in the summons, and to give testimony or answer interrogatories, under oath, respecting any objects liable to tax or the returns thereof. The collector may summon any person residing or found within the State in which his district lies; and when the person intended to be summoned does not re- side and cannot be found within such State, he may enter any collection district where such person may be found, and there make the examination herein authorized. And to this end he may there exercise all the authority which he might lawfully exercise in the district for which he was commissioned." (Act, section I, lines 36-102.) Sec. 108. Entry of Taxpayers' Premises. In case a person subject to the tax refuses to make the return provided for in section 3173 of the United States Kevised Statutes COLLECTIOIir AND PAYMENT OP THE TaX. llT (as amended by the Income Tax Law of 1913), the tax collector may avail himself of the provisions of section 3177 of the United States Statutes, which authorizes entry upon the taxpayer's premises. This section reads as follows: "Any collector, deputy collector or inspector may enter in the daytime any buildings or place where any articles or objects subject to tax are made, produced or kept within his aistrict, so far as it may be necessary for the purpose of examining said articles or objects. And any owner of such build- ing or place, or person having the agency or superintendence of the same, who refuses to admit such oflScer, or to suffer him to examine such article or articles, shall, for every such refusal, forfeit five hundred dollars. And When such premises are open at night, such officers may enter them while open in the performance of their official duties. And if any person shall forcibly obstruct or hinder any collector, deputy collector or Inspector in the execution of any power and authority vested in him by law, or shall forcibly rescue or cause to be rescued any property, articles or objects after the same shall have been seized by him, or shall attempt or endeavor so to do, the person so offend- ing except in cases otherwise provided for, shall for every such offense, forfeiit and pay the sum of five hundred dollars, or double the vtilue of the propeirt|y so rescued, or be imprisoned for a term not exceeding two years, at the dis- cretion of the court." (See In le Meadow, 10 I. R. E. 74; United States v. Rhann, 11 Phila. Rep. 521.) Sec. 109. To What Extent is the Tax a Lien? Section 3186 of the United States Revised Statutes reads as follows, to wit: " If any person liable to pay any tax, neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the United States from the time when the assessment list was received by the collector, except when otherwise provided, until paid with the interest, penalties, and costs that may accrue in addition thereto upon the property and rights to property belonging to such person." The question as to whether a tax assessed under the provisions of the Income Tax Law becomes a lien upon the property of the person against which the same is assessed is answered by the Attorney-General of the United States in his opinion of date April 2, 1910, which relates to the Corporation Tax Law of 1909. After holding that the company, concerning which his opinion had been invoked, was liable for the excise tax created by section 38 of the act of Congress of August 5, 1909, he was asked to render an opinion upon the following question: Whether a lien existed on the assets of the said corporation to secure the payment 118 Fedeeai Income Tax Law. of said Federal Corporation Tax, and incidentally when the lien attaches to the property of a corporation or joint stock company liable for taxes under said act. The opinion rendered on this question is as follows, to wit : " It will be observed that there Is no express provision in this act which creates a lien upon the property of the corporation, joint stock company, or association to secure the payment of the tax. However, by section 3186, Eevised Statutes, as amended by Act of March 1, 1879 (20 Stat. 331) it is provided generally with reference to Internal revenue taxes', that ' if any person liable to pay any tax neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the United States, from the time when the assessment list was received by the collector, except when otherwise pro- vided, until paid, with the interest, penalties, and costs that may accrue in addition thereto, upon all property and rights belonging to such person', and in the eighth paragraph of said section 38, Act of August 5th, 1909, it is provided, that ' all laws relating to the collection, remission and refund of internal revenue taxes, so far as applicable to and not inconsiistent with the provisions of this section, are hereby extended and made applicable to the tax imposed by this section '. The method of assessing the tax and collecting the same, as provided for in the act itself, and in the general statutes, appears to be as follows: On or before March 1 of each year returns are required to be made by the corporation, joint stock companies and associations liable for the tax to the Collector of Internal Revenue of the district in which they have their principal places of business. These returns are forwarded by the collector to the Commissioner of Internal Revenue, who shall make the assess- ments thereon. By section 3183, Revised Statutes, the duty of collecting all taxes in their respective districts is imposed by law on the collectors or their deputies, and by section 3184 it is provided that the collector shall in person or by deputy, within ten days after receiving any list of taxes fromi the Commissioner of Internal Revenue, give notice to each person liable to pay any taxes stated therein, specifying the manner in which such notice shall be given. And in the fifth paragraph of section 38 of the Act of 1909, it is provided that assessments shall be made, and the several companies liable to the tax shall be notified of the amount for which they are liable on or before the 1st day of June of each successive year. Therefore, it is the duty of the Commissioner of Internal Revenue to send to each collector a list of the com- panies liable for the tax in his district, showing the amounts for which they are liable, within such time that the collector may give his required notice to such companies on or before the 1st day of June, and upon such lists the collections are made. These are the only lists which by statute are required to be sent to the collectors, and under the provisions of section 3186, Eevised Statutes, as amended, which is above quoted, the lien is fiixed upon the assets of the corporation when this list comes into the collector's hands. Therefore, if the corporation in question had distributed aU of its assets and had become dissolved in the manner provided for by law prior to December 31, 1909, then when the list of assessments came into the hands of the collector there was neither corporation nor assets, and nothing upon which the lien could attach, and consequently no lieu exists to secure the payment of the taxes." Collection and Payment of the Tax. 119 Sec. 110. Enumeration of Statutory Methods for Collecting the Tax. With respect to the methods that may be employed by the Federal government in collecting the Federal Income Tax refer- ence must be had to the Revised Statutes of the United States, providing generally for the collection of internal revenue taxes. This for the reason that the Federal Income Tax Act itself pro- vides that " all laws relating to the collection, remission and refund of internal revenue taxes so far as applicable to and not inconsist- ent with the provisions of the section, are hereby extended and made applicable to the tax hereby imposed." (Act, sec. L.) Turning now to the revenue laws applicable generally to the collection of internal revenue taxes we find the following methods open to the government as means for the collection of the annually imposed Federal Income Tax, to wit: First, by distraint through levy and sale of the personal property of the person against whom the tax is imposed; second, by attachment and sale of real property of the person against whom the tax is imposed ; third, by action of debt against the party on whom the tax is imposed. Sec. 111. Levy Upon and Sale of Personal Property. The following sections of the Revised Statutes of the United States are applicable in case it becomes necessary to levy and sell personal property of a person in order to secure payment of a specific tax assessed against it ■under the Federal Income Tax Law: " Section 3187. If any person liable to pay any taxes neglects or refuses to pay the same within ten days after notice and demand, it shall be lawful for the collector or his deputy to collect the said tax, with five per centum addi- tional thereto, and interest as aforesaid, by distraint and sale in the manner herein provided, of the goods, chattels, or other effects, including stocks, secur- ities and evidences of debt of the person delinquent as aforesaid: Provided that there be exempted from distraint and sale, if belonging to the head of a family, school books and wearing apparel neccessary for said family; also arms for personal use, one cow, two hogs, five sheep and the wool thereof, provided the aggregate market value of such sheep shall not exceed fifty dollars; and necessary food for such cow, hogs, and sheep for a period not exceeding thirty days ; fuel to an amount not greater in value than twenty -five dollars; provisions to an amount not greater than fifty dollars; household furniture kept for use to an amount not to greater than three hundred dol- lars; and the books, tools or implements of a trade or profession to an amount not greater than one hundred dollars shall also be exempt; and the 120 Federal Income Tax Law. o£Bcer making the distraint shall summon three disinterested householders of the vicinity who shall appraise and set apart to the owner the amount of property herein declared to be exempt. " Section 3188. In such case of neglect or refusal the collector may levy or by warrant may authorize a deputy collector to levy upon all property and rights to property, except as are exempt by the preceding section, belong- ing to such person, or on which the said lien exists for the payment of the sum due as aforesaid, with interest and penalty for non-payment, and also of such further sum as shall be sufficient for the fees, costs and expenses of such levy. "Section 3189. All persons and officers of companies or corporations are required on demand of a collector or deputy collector about to distrain, or having distrained on any property or rights of property, to exhibit all books containing evidence or statements relating to the subject of distraint on the property or rights of property liable to distraint for the tax due as afore- said. " Section 3190. When distraint is made as aforesaid the collector charged with the collection shall make, or cause to he made an account of the goods or effects distrained, and a copy of which, signed by the officer making such distraint shall be left with the owner or possessor of such goods, or effecta at his dwelling or usual place of business, with some person of suitable age and discretion, if any such can be found, with a note of the sum demanded and the time and place of sale, and the said officer shall forthwith cause an injunction to be published in some newspaper within the county wherein said distraint is made, if a newspaper is published in said county, or to be publicly posted at the postoffice, if there be one within five miles nearest to the residence of the person whose property shall be distrained, and in not less than two other public places. Said notice shall specify the articles dis- trained and the time and place for the sale thereof. Such time shall not be less than ten nor more than twenty days from the date of such notification to the owner or possessor of the property, and the publication or posting of such notice as herein provided, and the place proposed for the sale shall not be more than five miles from the place of making such distraint. Said sale may be adjourned from time to time by said officer if he deems it advisable, but not for a time to exceed in all thirty days. " Section 3191. When property subject to tax, or upon which a tax has not been paid, is seized upon distraint, and sold, the amount of such tax shall, after deducting the expenses of such sale, be first apportioned out of the proceeds thereof, to the payment of the tax, and after any assessment of such tax has been made upon such property, the collector shall make a return thereof in the form required by law and the commissioner of internal revenue shall assess the tax thereon. " Section 3192. When any property advertised for sale under distraint, as aforesaid, is of a kind subject to tax, and the tax has not been paid, and the amount bid for such property is not equal to the amount of the tax, the collector may purchase the same in behalf of the United States for an amount not exceeding the said tax. All property so purchased may be sold by the collector under such regulations as may be prescribed by the com- missioner of internal revenue. The collector shall render to the commis- sioner a definite amount of all charges incurred in such sales, and in case of Collection and Payment of the Tax. 121 sale shall pay into the treasury the surplus, if any there be, after defraying all lawful charges and fees. "Section 3193. In any case of distraint for the payment of the taxes aforesaid, the goods, chattels or effects so distrained shall be restored to the owner or possessor, if prior to the sale, payment of the amount due is made to the proper officer charged with the collection, together with the fees and other charges; but in case of non-payment as aforesaid, the said officers shall proceed to sell the said goods, chattels or effects at public auction, and shall retain from the proceeds of such sale the amount demandable for the use of the United States and a commission of five per centum thereon for his own use, with the fees, charges for distraint and sale, rendering the overplus, if any there be, to the person who may be entitled to receive the same. " Section 3194. In all cases of sale as aforesaid, the certificate of such sale shall be prima facie evidence of the right of the officer to make such sale and conclusive evidence of the regularity of his proceedings in making the same, and shall transfer to the purchaser all right, title and interest of said delinquent in and to the property sold, and where such property consists of stocks said certificate shall be notice when received, to any corporation, company or association, of said transfer, and shall be authority ^o such corporation, company or association to record the same on their books and records in the same manner as if transferred or assigned by the party holding the same, in lieu of any original or prior certificates which shall be void, whether cancelled or not. And said certificates, where the sub- ject of sale is securities or other evidences of debt, shall be good and valid receipts to the person holding the same as against any person holding or claiming to hold possession of such securities or other evidences of debt. " Section 3195. When any property liable to distraint for taxes if not divisible so as to enable the collector by a sale of part thereof to raise the whole amount of the tax with all costs, charges and commissions, the whole of such property shall be sold, and the surplus of the proceeds of the sale, after satisfying the tax, costs and charges, shall be paid to the person legally entitled to receive the same; or if he cannot be found or refuses to receive the same, shall be deposited in the treasury of the United States, to be there held for his use until he makes application therefor to the secretary of the treasury, who upon such application, and satisfactory proofs in support thereof, shall, by warrant to the treasury, cause the same to be paid to the applicant." Sec. 112. Action of Debt. It is unquestionable that an action of debt will always lie in favor of the government to recover the amount of the assessment made by the Commissioner of Internal Eevenue against a person under the provisions of the Income Tax Law. ("Dollar Savings Bank V. U. S., 19 Wall. 227.) Under section 3214 of the United States Eevised Statutes no suit for the recovery of taxes or of any fine, penalty or forfeiture can be commenced unless the Commissioner of Internal Eevenue authorizes and sanctions the proceeding. 122 Federal IisrcoME Tax Law. In this connection attention is called to the opinion of the Attorney-General of date April 2, 1910, wherein, after holding that the government in the particular cause upon which his opinion was asked as to a general levy upon the property of a corporation against whom the Federal corporation tax was sought to be as- sessed, remarked as follows : " 3. Notwithstanding the fact that the particular method of collecting this excise taS is prescribed in the statute, yet such remedy is not exclusive, and the government may resort to the common-law method of collecting the same. Such was the holding of the Supreme Court of the United States in Savings Bank v. The United States, 19 Wall. 227, 240, with reference to the collection of a tax under an act which levied a tax of 5 per centum on all dividends in scrip or money declared due to stockholders, policy holders or depositors as part of the earnings, income or gains of any bank, trust company, savings institution, and of any insurance company. The dissolution of a corporation does not extinguish its liabilities; and through courts of equity creditors may pursue its assets into the hands of any person who is not a bona fide purchaser. (Mumms v. Potomac Company, 8 Peters 281, 286; Curran v. Arkansas, 15 Howard 304, 307; Railroad Company v. Howard, 7 Wall. 392, 410; Scammon v. Kimball, 92 U. S. 362, 367. " In Railroad Company v. Howard, the court said : " ' Assets derived from the sale of the capital stock of the corporation, or of its property, becomes as respects creditors, the substitutes for the things sold, and as such they are subject to the same liabilities and restrictions as the things sold were before the sale, and while they remained in the posses- sion of the corporation. Even the sale of the entire capital stock of the company and the division of the proceeds of the sale among the stockholders will not defeat the trust nor impair the remedy of the creditors, if any debts remain unpaid, as the creditors in that event may pursue the consideration of the sale in the hands of the respective stockholders, and compel each one, to the extent of the fund, to contribute pro rata toward the payment of their debts out of the moneys so received and in their hands.' " If the corporation in question engaged in business after the approval of the Act of August 5th, 1909, then it was liable for the tax, though it may not have become due until after the corporation was dissolved; and the gov- ernment may collect the tax by pursuing the assets of the corporation into the hands of the stockholders in the same manner as that by which any other creditor might obtain satisfaction of his debt." (See T. D. 1615, April 15, 1910, Appendix N.) Sec. 113. Powers of the Secretary of the Treasury in the Collection of the Tax. In addition to his general power to superintend the collection of revenue, the Secretary of the Treasury has under section 251 of the United States Eevised Statutes the following powers, to wit : " The Secretary of the Treasury shall make and issue, from time to time, such instructions and regulations to the several collectors, receivers, deposi- Collection and Payment of the Tax. 123 taries, officers and others who may receive treasury notes, United States notes and other securities of the United States, or who may be in any way connected or employed in the appropriation and issue of the same, as he shall deem best calculated to promote the public convenience and security, and to protect the United States, as well as individuals, from fraud and loss or shall prescribe the terms of interest, oaths, bonds and other papers, and rules and regulations not inconsistent with law, to be used under and in the execution and enforcement of the various provisions of the internal rev- enue laws, or in carrying out the provisions of law relating to raising revenue from members or to duties on members, or to warehousing or shall give such directions to collectors and prescribe such rules and forms to be observed by them as may be necessary for the proper execution of the law; he shall prescribe the forms of the annual statements to be submitted to Congress by him, showing the actual state of commerce and navigation between the United States and foreign countries or coastwise, and between the collec- tion districts of the United States in each year." Under the provisions of the Income Tax Act itself large powers are conferred upon the Secretary of the Treasury. These powers may be enumerated as follows: 1. Approval of rules and regulations to be prescribed by the Commissioner of Internal Eevenue, relative to personal returns of the taxpayer for purposes of the imposition of the additional tax. (See Act, sec. A, subd. 2, lines 22 to 28.) 2. The right to certify that the accumulation of certain cor- porations specified in the act is unreasonable for the purposes of the business. (Sec. A, subd. 2, lines 28 to 46.) 3. The approval of all forms for returns prepared by the Com- missioner of Internal Eevenue for that purpose. (Sec. D, lines 19 to 21.) 4. The right to approve the form of returns to be made by fiduciaries. (Sec. D, lines 31 to 37.) 5. The approval of regulations prepared by the Commissioner of Internal Revenue to enable the Government to ascertain and verify the due withholding and payment of the income tax. (Sec. E, lines 114 to 123.) 6. The right to approve the rules and regulations pre- pared by the Commissioner of Internal Revenue relative to personal returns. (Sec. E, lines 135 to 140.) 7. The right to approve rules and regulations prepared by the Commissioner of Internal Revenue relative to returns by cor- porations. (Sec. G, lines 221 to 223.) 124 Federal Income Tax Law. 8. The right to prescribe the conditions under which State officers may inspect returns of corporations. (Sec G, lines 367 to 374.) 9. The duty of approving forms and regulations to be prescribed by the Commissioner of Internal Eevenue relative to returns of articles or objects in the possession of certain parties designated in Section I of this Act. (Lines 48-52.) Sec. 114. Powers of Commissioner of Internal Revenue in the Col- lection of the Tax. The powers of the Commissioner of Internal Revenue with reference to the collection of the Federal Income Tax are gov- erned by section 321 of the United States Revised Statutes, which reads as follows: " The Commissioner of Internal Eevenue, under the direction of the Secre- tary of the Treasury, shall have general superintendence of the assessment and collection of all duties and taxes now or hereafter imposed by law, pro- viding internal revenue; and shall prepare and distribute all the instructions, regulations, directions, forms, instruments and other matters pertaining to the collection and assessment of internal revenue, and shall provide hydrome- ters and proper and sufficient adhesive stamps or dies for expressing and denoting stamp duties, or in the case of personal duties, the amount thereof, and alter or renew or replace such stamps from time to time as occasion may require. He may also contract for or procure the printing of such forms, decisions and regulations, but the printing of such forms, decisions and regu- lations shall be done at the Public Printing Office, unless the Public Printer shall be unable to perform the work; Provided, that the Commissioner of Internal Revenue may, under such regulations as may be established by the Secretary of the Treasury, after public notice, receive bids and make con- tracts for supplying stationery, blank books and blanks to the collectors in the several collection districts, the expense of assessing and the expense of the collection of internal revenue." Attention is called to the following sections, United States Revised Statutes, which read as follows : " Section 3152. The Commissioner of Internal Eevenue may, whenever in his judgment the necessities of the service so require, employ competent agents not exceeding at any time thirty-five in number, to be paid such com- pensation as he may deem proper, not exceeding in aggregate any proportion made for that purpose or he may, at his discretion, assign any such agent to duty under the direction of any officer of internal revenue, or to such other special duty as he may deem necessary; and no general or special agent or inspector, by whatever designation he may be known, of the treasury depart- ment, in connection with the internal revenue, except inspectors of tobacco. Collection and Payment of the Tax. 125 snuff and cigars, and except as provided for in this title, shall be appointed, commissioned, employed or continued in office. " Section 3163. Every collector within his collection district, and every internal revenue agent, shall see that all laws and regulations relating to the collection of internal taxes are faithfully complied with; and shall aid in the prevention, detection and punishment of any frauds in relation thereto. It shall be the duty of every collector and of every internal revenue agent to report to the Commissioner in writing any neglect of duty, incompetency, delinquency or malfeasance in office of any internal revenue officer of which he may obtain knowledge, with a statement of all the facts in each case sustaining the same. The Commissioner may transfer any inspector, gauger or storekeeper, or storekeeper and ganger, from one dis- tillery or other place of duty, or from one collection district to another.'' The specific duties imposed upon the Commissioner of Internal Eevenue under the Federal Income Tax Act of 1912, may be specified as follows : 1. The preparation of rules and regulations for personal returns of parties subject to the tax. (Act, sec. A, subd. 2, lines 22 to 27.) 2. The right to request any corporation of the character referred to in section A, subdivision 2, lines 28 to 36, of the act, to for- ward to him correct statement of the profits of such corporation, and the names of the individuals who would be entitled to the same if distributed. (Act, sec. A, subd. 2, lines 46 to 51.) 3. The right to prepare forms for return as to gross income. (Act, sec. D, lines 19 to 21.) 4. The right to compel persons carrying on any business to forward a correct statement of their partnership profits and the names of the individuals who would be entitled to the same if distributed. (Act, sec. D, lines 58 to 68.) 5. The right to hear appeals from assessments made by collec- tors of internal revenue, increasing the amount of any return made by the taxpayer. (See sec. D, lines 80 to 89.) 6. The right to make assessments of income tax (section E, lines 1 and 2.) 7. The right in case of false or fraudulent returns, or in case of refusal or neglect to make returns, to prepare and make assess- ments for such persons. (Sec. E, lines 1 to 14.) 8. The right to issue licenses to parties engaged in the collec- tion of foreign payments of interest, dividends, etc, (Sec. E, lines 114 to 123.) 126 Fedeeal Income Tax Law. 9. Also to establish, with the approval of the Secretary of the Treasury, regulations enabling the government to ascertain and verify the due withholding and payment of the income tax re- quired to be withheld and paid. (Sec. E, lines 114 to 123.) 10. The right to prescribe rules and regulations governing the assessment of income tax by personal return. (Sec. E, lines 135 to 140.) 11. The right to prescribe rules and regulations governing the returns of corporations. (Sec. G, lines 221 to 223.) 12. The right to make returns for corporations which have refused or neglected to make returns, or have rendered false or fraudulent returns. (Sec. G, lines 342 to 351.) Sec. 115. Powers of Collectors of Internal Revenue in the Collection of the Income Tax. To ascertain the powers of collectors of internal revenue in the collection of the income tax, reference must be had to those sec- tions of the Eevised Statutes of the United States applicable gen- erally to the collection of internal revenue taxes. " The sections to which reference is here made read as follows, to wit : " Section 3164. It shall be the duty of every collector of internal revenue to report within ten days to the District Attorney of the district in v?hich any fine, penalty or forefeiture may be incurred for the violation of any law of the United States, relating to the revenue, a, statement of all the facts and circumstances of the case within his knowledge, together with the names of the witnesses, and which may come to his knowledge from time to time, stating the provisions of the law believed to be violated, and if any collector shall in any case fail to report to the proper District Attorney, as prescribed in this section, his right to any compensation, benefit or allow- ance in such cases shall be forfeited to the United States, and the same may in the discretion of the Secretary of the Treasury, be awarded to such per- sons as may make complaint and prosecute the same to judgment or convic- tion. " Section 3165. Every collector, deputy collector and inspector is author- ized to administer oaths, and to take evidence touching any part of the administration of the internal revenue laws with which he is charged, or where such oaths and evidence are authorized by law or regulation author-] ized by law, to be taken. " Section 3172. Every collector shall, from time to time, cause his deputies to proceed through every part of his district, and inquire after and concern- ing all persons therein who are liable to pay any internal-revenue tax, and all persons owning or having the care and management of any objects liable to pay any tax, and to make a list of such persons and enumerate said objects. Collection and Patment of the Tax. 127 "Section 3173. (This section is given in full ante, § 107.) " Section 3174. Such summons shall in all cases be served by a deputy collector of the district where the person to whom it is directed may be found, by an attested copy delivered to such person in hand, or left at his last and usual place of abode, allowing such person one day for each twenty miles he may be required to travel, computed from the place of service to the place of examination; and a certificate of service signed by such deputy shall be evidence of the facts he states on the hearing of an application for an attachment. When the summons requires the production of books, it shall be sufficient if such books are described with reasonable certainty. " Section 3175. Whenever any person summoned under the two preceding sections neglects or refuses to obey such summons, or to give testimony, or to answer interrogatories, as required, the collectors may apply to the judge of the District Court, or to a Commissioner of the Circuit Court of the United States for the district within which the person so summoned resides, for an attachment against him, as for contempt. It shall be the duty of the judge or the commissioner to hear the application, and if satisfactory proof is made to issue an attachment directed to some proper officer for the arrest of such person, and upon his being brought before him to proceed to a hear- ing of the case, and upon such hearing the judge or commissioner shall have power to make such order as he shall deem proper, not inconsistent with existing laws for the punishment of contempts, to enforce obedience to the requirements of the summons and to punish such persons for his default or disobedience. " Section 3176. When any person, corporation, company or association refuses or neglects to render any return or list required by law, or renders a false or fraudulent return or list, the collector or any deputy collector shall make, according to the best information which he can obtain, including that derived from the evidence elicited by the examination of the collector, and on his own view and information, such list or return, according to the form prescribed, of the income, property and objects liable to tax owned or possessed or under the care or management of such person or corporation, company or association, and the Commissioner of Internal Revenue shall assess all taxes not paid by stamps, including the amount, if any, due for special" tax, income or other tax, and in case of any return of a false or fraudulent list or valuation intentionally he shall add 100 per centum to such tax; and in case of a refusal or neglect, except in cases of sickness or absence, to make a list or return, or to verify the same as aforesaid, he shall add 50 per centum to such tax. In case of neglect occasioned by sickness or absence as aforesaid the collector may allow such further time for making and delivering such list or return as he may deem necessary, not exceeding thirty days. The amount so added to the tax shall be collected at the same time and in the same manner as the tax unless the neglect or falsity is discovered after the tax has been paid, in which case the amount so added shall be collected in the same manner as the tax; and the list or return so made and subscribed by such collector or deputy collector shall be held prima facie good and sufficient for all legal purposes. 128 Fedeeai, Income Tax Law. " Section 3177. Any collector, deputy collector or inspector may enter in the day time any buildings or place where any articles or objects subject to tax are made, produced or kept within his district, so far as it may be necessary, for the purpose of examining said articles or objects. And any owner of such building or place, or person having the agency or superintend- ence of the same, who refuses to admit such officer, or to suflFer him to examine such article or articles, shall, for every such refusal, forfeit five hundred dollars. And when such premises are open at night, such officers may enter them while open in the performance of their official duties. And if any person shall forcibly obstruct or hinder any collector, deputy collector, or inspector in the execution of any power and authority vested in him by law, or shall forcibly rescue or cause to be rescued any property, articles or objects after the same shall have been seized by him, or shall attempt or endeavor so to do, the person so offending, except in cases otherwise provided for shall, for every such offense, forfeit and pay the sum of five hundred dollars, or double the value of the property so rescued, or be imprisoned for a term not exceeding two years, at the discretion of the court. " Section 3178. All persons required to make returns or lists of objects charged with an internal tax, shall declare therein whether the several rates and amounts are stated according to their value in legal tender currency, or according to their values in coin money, and in case of neglect or refusal so to declare to the satisfaction of the collector receiving such returns or lists, such officer shall make returns of lists for such persons so neglecting or refusing as in cases of persons neglecting or refusing to make the returns or lists required by law, and the Commissioner shall assess the tax thereon and add thereto the amount imposed by law in cases of such neglect or refusal. And whenever the rates and amounts contained in the returns or lists are stated in coin money, the collector receiving the same shall reduce them to their equivalent in legal tender currency, according to the value of such coined money in such currency for the time covered by such returns. " Section 3179. Whenever any person delivers or discloses to the collector or deputy any false or fraudulent list, return, account or statement with intent to defeat or evade the valuation, enumeration or assessment intended to be made, or being duly summoned to appear to testify, or to appear and produce said books, he shall be fined not exceeding one year, or both, at the discretion of the court, with costs of prosecution. " Section 3180. Whenever there are in any district any articles not owned or possessed by or under the care or control of any person within said district and liable to be taxed, and of which no list has been transmitted to the collector as required by law, the collector or one of his deputies shall enter the premises where such articles are situated, and shall take such view thereof as may be necessary and make lists of the same, according to the form prescribed. Said lists to be subscribed by such collector or deputy collector, and shall be taken as sufficient lists of such articles for all pur- poses. " Section 3182. The Commissioner of Internal Revenue is hereby authorized and required to make the inquiries, determinations and assessments of all taxes and penalties imposed by this title, or accruing under any former revenue act where such taxes have not been duly paid by stamp at the time Collection and Payment of the Tax. 129 and in the manner provided by law, and shall certify a list of such assess- ments when made to the proper collectors respectively, who shall proceed to collect and account for the taxes and penalties so certified. Whenever it is ascertained that any list which has been or shall be delivered to any collector is imperfect or incomplete, in consequence of the omission of the name of any person liable to tax, or in consequence of any omission or understate- ment or undervaluation, or false or fraudulent statement contained in any return made by any person liable to tax, the Commissioner of Internal Eevenue may at any time within fifteen months from the time of the delivery of the list to the collector as aforesaid, enter on any monthly or special list the name of such person so omitted, together with the amount of tax for which he may have been or shall become liable, and also the name of any such person in respect to whose return as aforesaid there has been or shall be any omission, undervaluation and understatement or false or fraudulent statement, together with the amount for which such person may be liable above the amount for which he may have have been or shall be assessed upon any return made as aforesaid, and he shall certify and return such list to the collector as required by law, and all provisions of law for the ascertainment of liability of any tax, or the assessment or collection thereof shall be held to apply so far as may be necessary to the proceedings herein authorized and directed. "Section 3183. It shall be the duty of the collectors or their deputies in their respective districts, and they are authorized to collect the taxes imposed by law, however the same may be designated. And every collector and deputy collector shall give receipts for all sums collected by Ithem. " Section 3184. Where it is not otherwise provided, the collector shall in person or by deputy, within ten days after receiving any list of taxes from the Commissioner of Internal Eevenue, give notice to each person in writing to pay any tax stated therein to be left at his dwelling or usual place of business or to be sent by mail, stating the amount of such tax and demanding payment thereof. If such person does not pay the tax within ten days after the service or sending by mail of such notice, it shall be the duty of the collector or his deputy to collect the said taxes, and the penalty of five per centum additional upon the amount of taxes and interest at the rate of one per centum a month." Sec. 116. Jurisdiction of United States Court in Income Tax Matters. The Income Tax Act of 1913 provides (section K, lines 1-5) that jurisdiction is conferred by said act upon the District Courts of the United States for the district within which any person sum- moned under the act to appear and to testify, or to produce books, shall reside, to compel such attendance, production of books or testimony by appropriate process. In addition to the foregoing, it should be borne in mind that suits involving the collection of the income tax arise under the Constitution and Laws of the United States. As such they may be reviewed in any District Court of 130 Federal Income Tax Law. the United States, no matter how small the amount involved. (See Ames v. Hager, 36 Fed. Eep. 129; U. S. v. Mooney, 116 U. S. 104.) * The United States Supreme Court has held that jurisdiction of the Federal Courts in such matters is not exclusive, and that such actions may also be brought in the State Courts. (Collector v. Hubbard, 12 Wall. 17.) APPENDIXES. APPENDIXES. APPENDIX A. TEXT OF THE FEDERAL INCOME TAX LAW OF 1913. Being Section II of an Act to Reduce Tariff Duties and to Pro- vide Revenue for the Government, and for Other Purposes, Approved, October 3, 1913. Section A. Subdivision 1. 1 That there shall be levied, assessed, collected and paid 2 annually upon the entire net income arising or accruing 3 from all sources in the preceding calendar year to every citi- 4 zen of the United States, whether residing at home or abroad 5 and to every person residing in the United States, though not 6 a citizen thereof, a tax of 1 per centum per annum upon such 7 income, except as hereinafter provided; and a like tax shall 8 be assessed, levied, collected and paid annually upon the entire 9 net income from all property owned and of every business, 10 trade or profession carried on in the United States by persons 11 residing elsewhere. Subdivision 2. 1 In addition to the income tax provided under this sec- 2 tion (herein referred to as the normal income tax) there 3 shall be levied, assessed and collected upon the net income 4 of every individual an additional income tax (herein re- 5 ferred to as the additional tax) of 1 per centum per annum 6 upon the amount by which the total net income exceeds $20,- 7 000 and does not exceed $50,000, and 2 per centum per an- 8 num upon the amount by which the total net income exceeds 9 $50,000 and does not exceed $75,000, 3 per centum per an- 10 num upon the amount by which the total net income exceeds 11 $75,000 and does not exceed $100,000, 4 per centum per 12 annum upon the amount by which the total net income ex- 13 ceeds $100,000 and does not exceed $250,000, 5 per centum [131] 132 Federal Income Tax Law, 14 per annum upon the amount by which the total net income ex- 15 ceeds $250,000 and does not exceed $500,000, and 6 per cen- 16 tum per annum upon the amount by which the total net in- 17 come exceeds $500,000. All the provisions of this section 18 relating to individuals who are to be chargeable with the nor- 19 mal income tax, so far as they are applicable and are not 20 inconsistent with this subdivision of paragraph A, shall apply 21 to the levy, assessment, and collection of the additional tax 22 imposed under this section. Every person subject to this addi- 23 tional tax shall, for the purpose of its assessment and collec- 24 tion, make a personal return of his total net income from 25 all sources, corporate or otherwise, for the preceding calendar 26 year, under rules and regulations to be prescribed by the 27 Commissioner of Internal Revenue and approved by the Sec- 28 retary of the Treasury. Tor the purpose of this additional 29 tax the taxable income of any individual shall embrace the 30 share to which he would be entitled of the gains and profits, 31 if divided or distributed, whether divided or distributed or 32 not, of all corporations, joint-stock companies, or associations 33 however created or organized, formed or fraudulently availed 34 of for the purpose of preventing the imposition of such tax 35 through the medium of permitting such gains and profits to 36 accumulate instead of being divided or distributed; and the 37 fact that any such corporation, joint-stock company, or asso- 38 elation, is a mere holding company, or that the gains and 39' profits are permitted to accumulate beyond the reasonable 40 needs of the business shall be prima facie evidence of a fraudu- 41 lent purpose to escape such tax; but the fact that the gains 42 and profits are in any case permitted to accumulate and be- 43 come surplus shall not be construed as evidence of a purpose 44 to escape the said tax in such case unless the Secretary of 45 the Treasury shall certify that in his opinion such accumu- 46 lation is unreasonable for the purposes of the business. When 47 requested by the Commissioner of Internal Revenue, or any 48 district collector of internal revenue, such corporation, joint- 49 stock company, or association shall forward to him a correct 50 statement of such profits and the names of the individuals 51 who would be entitled to the same if distributed. Appendixes. 133 Section B. 1 That, subject only to such exemptions and deductions as 2 are hereinafter allowed, the net income of a taxable person 3 shall include gains, profits and income derived from salaries, 4 wages, or compensation for personal service of whatever kind 5 and in whatever form paid, or from professions, vocations, 6 businesses, trade, commerce, or sales, or dealings in property, 1 whether real or personal, growing out of the ownership or use 8 of or interest in real or personal property, also from interest, 9 rent, dividends, securities, or the transaction of any lawful 10 business carried on for gain or profit, or gains or profits, and 11 income derived from any source whatever, including the in- 12 come from but not the value of property acquired by gift, 13 bequest, devise or descent: Provided, That the proceeds of 14 life insurance policies paid upon the death of the person in- 15 sured or payments made by or credited to the insured, on life 16 insurance, endowment, qr annuity contracts, upon the return lY thereof to the insured at the maturity of the term mentioned 18 in the contract, or upon surrender of contract, shall not be 19 included as income. 20 That in computing net income for the purpose of the nor- 21 mal tax there shall be allowed as deductions: First, the neces- 22 sary expenses actually paid in carrying on any business, not 23 including personal, living, or family expenses; second, all 24 interest paid within the year by a taxable person on indebt- 25 edness; third, all national. State, county, school, and munici- 26 pal taxes paid within the year, not including those assessed 27 against local benefits; fourth, losses actually sustained dur- 28 ing the year, incurred in trade or arising from fires, storms, 29 or shipwreck, and not compensated for by insurance or other- 30 wise; fifth, debts due to the taxpayer actually ascertained to 31 be worthless and charged off within the year; sixth, a reason- 32 able allowance for the exhaustion, wear and tear of property 33 arising out of its use or employment in the business, not to 34 exceed, in the case of mines, 5 per centum of the gross value 35 at the mine of the output for the year for which the compu- 36 tation is made, but no deduction shall be made for any amount 37 of expense of restoring property or making good the exhaustion 134 Federal Income Tax Law. 38 thereof for which an allowance is or has been made; Pro- 39 vided. That no deduction shall be allowed for any amount 40 paid out for new buildings, permanent improvements, or bet- 41 terments, made to increase the value of any property or estate ; 42 seventh, the amount received as dividends upon the stock or 43 from the net earnings of any corporation, joint-stock company, 44 association or insurance company which is taxable upon its 45 net income as hereinafter provided; eighth, the amount of 46 income, the tax upon which has been paid or withheld for 47 payment at the source of the income, under the provisions 48 of this section, provided that whenever the tax upon the in- 49 come of a person is required to be withheld and paid at the 50 source as hereinafter required, if such annual income does 51 not exceed the sum of $3,000 or is not fixed or certain, or is 52 indefinite, or irregular as to amount or time of accrual, the 53 same shall not be deducted in the personal return of such 54 person. 55 The net income from property owned and business carried 56 on in the United States by persons residing elsewhere shall 57 be computed upon the basis prescribed in this paragraph and 58 that part of paragraph G of this section relating to the com- 59 putation of the net income of corporations, joint-stock and in- 60 surance companies, organized, created, or existing under the 61 laws of foreign countries, in so far as applicable. 62 That in computing net income under this section there shall 63 be excluded the interest upon the obligations of a State or any 64 political subdivision thereof, and upon the obligations of the 65 United States or its possessions ; also the compensation of the 66 present President of the United States during the term for 67 which he has been elected, and of the judges of the supreme 68 and inferior courts of the United States now in office, and the 69 compensation of all officers and employees of a State or any 70 political subdivision thereof except when such compensation 71 is paid by the United States government. Section C. 1 That there shall be deducted from the amount of the net 2 income of each of said persons, ascertained as provided herein, Appendixes. 135 3 the sum of $3,000, plus $1,000 additional if the person making 4 the return be a married man with a wife living with him, or 5 plus the sum of $1,000 additional if the person making the 6 return be a married woman, with a husband living with her ; 7 but in no event shall this additional exemption of $1,000 be 8 deducted by both a husband and a wife : Provided, That only 9 one deduction of $4,000 shall be made from the aggregate 10 income of both husband and wife when living together. Section D. 1 That said tax shall be computed upon the remainder of 2 said net income of each person subject thereto, accruing dur- 3 ing each preceding calendar year ending December thirty- 4 first : Provided, however. That for the year ending December 5 thirty-first, nineteen hundred and thirteen, said tax shall be 6 computed on the net income accruing from March first, to 7 December thirty-first, nineteen hundred and thirteen, both 8 dates inclusive, after deducting five-sixths only of the specific 9' exemptions and deductions herein provided for. On or before 10 the first day of March, nineteen hundred and fourteen, and 11 the first day of March in each year thereafter, a true and 12 accurate return, under oath or affirmation, shall be made by 13 each person of lawful age, except as hereinafter provided, 14 subject to the tax imposed by this section, and having a net 15 income of $3,000 or over for the taxable year, to the collector 16 of internal revenue for the district in which such person resides 17 or has his principal place of business, or, in the case of a 18 person residing in a foreign country, in the place where his 19 principal business is carried on within the United States in 20 such form as the Commissioner of Internal Eevenue with 21 the approval of the Secretary of the Treasury, shall prescribe, 22 setting forth specifically the gross amount of income from all 23 separate sources and from the total thereof, deducting the 24 aggregate items or expenses and allowance herein authorized; 25 guardians, trustees, executors, administrators, agents, r&- 26 ceivers, conservators, and all persons, corporations or associa- 27 tions acting in any fiduciary capacity, shall make and render 28 a return of the net income of the person for whom they act, 136 Federal Income Tax Law, 29 subject to this tax, coming into their custody or control and 30 management, and be subject to all the provisions of this sec- 31 tion which apply to individuals ; Provided, That a return made 32 by one of two or more joint guardians, trustees, executors, 33 administrator, agents, receivers, and conservators, or other per- 34 sons acting In a fiduciary capacity, filed in the district where 35 such person resides, or in the district where the will or other in- 36 strument under which he acts is recorded, under such regu- 37 lations as the Secretary of the Treasury may prescribe, shall 38 be a sufficient compliance with the requirements of this para- 39 graph; and also all persons, firms, companies, copartnerships, 40 corporations, joint-stock companies or associations, and in- 41 surance companies, except as hereinafter provided, in what- 42 ever capacity acting, having the control, receipt, disposal, or 43 payment of fixed or determinable annual or periodical gains, 44 profits, and income of another person subject to tax, shall 45 in behalf of such person deduct and withhold from the pay- 46 ment an amount equivalent to the normal income tax upon 47 the same and make and render a return, as aforesaid, but 48 separate and distinct, of the portion of the income of each 49 person from which the normal tax has been thus withheld, and 50 containing also the name and address of such person, or stat- 51 ing that the name and address or the address, as the case may 52 be, are unknown ; Provided, That the provision requiring the 53 normal tax of individuals to be withheld at the source of the 54 income shall not be construed to require any of such tax to 55 be withheld prior to the first day of November, nineteen hun- 56 dred and thirteen; Provided further. That in either case 57 above mentioned no return of income not exceeding $3,000 58 shall be required; Provided further. That any persons carry- 59 ing on business in partnership shall be liable for income tax 60 only in their individual capacity, and the share of the profits 61 of a partnership to which any taxable partner would be en- 62 titled if the same were divided, whether divided or otherwise, 63 shall be returned for taxation and the tax paid, under the 64 provisions of this section, and any such firm when requested 65 by the Commissioner of Internal Revenue, or any district 66 collector, shall forward to him a correct statement of such Appendixes. 137 67 profits and the names of the individuals who would be entitled 68 to the same, if distributed; Provided further. That persons 69 liable for the normal income tax only, on their own account 70 or in behalf of another, shall not be required to make return 71 of the income derived from dividends on the capital stock 72 or from the net earnings of corporations, joint-stock companies 73 or associations, and insurance companies taxable upon their 74 net income as hereinafter provided. Any person for whom 75 return has been made and tax paid, or to be paid as afore- 76 said, shall not be required to make a return unless such per- 77 son has other net income, but only one deduction of $3,000 78 shall be made in the case of any such person. The collector 79 or deputy collector shall require every list to be verified by 80 the oath or affirmation of the party rendering it. If the col- 81 lector or deputy collector have reason to believe that the amount 82 of any income returned is understated, he shall give due notice 83 to the person making the return to show cause why the amount 84 of the return should not be increased, and upon proof of the 85 amount understated may increase the same accordingly. If 86 dissatisfied with the decision of the collector, such person may 87 submit the case, with all the papers, to the Commissioner of 88 Internal Kevenue for his decision, and may furnish sworn 89 testimony of witnesses to prove any relevant facts. Section E. 1 That all assessments shall be made by the Commissioner 2 of Internal Revenue and all persons shall be notified of the 3 amount for which they are respectively liable on or before 4 the first day of June of each successive year, and said assess- 5 ments shall be paid on or before the thirtieth day of June, 6 except in cases of refusal or neglect to make such return 7 and in cases of false or fraudulent returns, in which cases 8 the Commissioner of Internal Revenue shall, upon the dis- 9 covery thereof, at any time within three years after said 10 return is due, make a return upon information obtained as 11 provided for in this section or by existing law, and the 12 assessment made by the Commissioner of Internal Revenue 13 thereon shall be paid by such person or persons immediately 138 Federal Ixcome Tax Law. 14 upon notification of the amount of such assessment; and to 15 any sum or sums due and unpaid after the thirtieth day of 16 June in any year, and for ten days after notice and demand 17 thereof by the collector, there shall be added the sum of 5 18 per centum on the amount of tax unpaid, and interest at the 19 rate of 1 per centum per month upon said tax from the time 20 the same became due, except from the estates of insane, de- 21 ceased or insolvent persons. 22 All persons, firms, copartnerships, companies, corporations, 23 joint-stock companies or associations, and insurance com- 24 panies, in whatever capacity acting, including lessees or 25 mortgagors of real or personal property, trustees acting in 26 any trust capacity, executors, administrators, agents, re- 27 ceivers, conservators, employers, and all officers and em- 28 ployees of the United States having the control, receipt, cus- 29 tody, disposal or payment of interest, rent, salaries, wages, 30 premiums, annuities, compensation, remuneration, emolu- 31 ments or other fixed or determinable annual gains, profits, 32 and income of another person exceeding $3,000 for any tax- 33 able year, other than dividends on capital stock, or from the 34 net earnings of corporations and joint-stock companies or 35 associations subject to like tax, who are required to make 36 and render a return in behalf of another, as provided herein, 37 to the collector of his, her, or its district, are hereby author- 38 ized and required to deduct and withhold from such annual 39 gains, profits and income such sum as will be sufficient to 40 pay the normal tax imposed thereon by this section, and 41 shall pay to the officer of the United States Grovernment au- 42 thorized to receive the same ; and they are each hereby made 43 personally liable for such tax. In all cases where the income 44 tax of a person is withheld and deducted and paid or to be 45 paid at the source, as aforesaid, such person shall not receive 46 the benefit of the deduction and exemption allowed in para- 47 graph C of this section except by an application for refund 48 of the tax unless he shall, not less than thirty days prior to 49 the day on which the return of his income is due, file with 50 the person who is required to withhold and pay tax for him, 51a signed notice in writing, claiming the benefit of such exemp- Appendixes. 139 52 tion and thereupon no tax shall be withheld from the amount 53 of such exemption: Provided, That if any person for the 54 purpose of obtaining any allowance or reduction by virtue 55 of a claim for such exemption, either for himself or for any 56 other person, knowingly makes any false statement or false 57 or fraudulent representation, he shall be liable to a penalty 58 of $3i00 ; nor shall any person under the foregoing conditions 59 be allowed the benefit of any deduction provided for in sub- 60 section B of this section unless he shall not less than thirty 61 days prior to the day on which the return of his income is 62 due, either file with the person who is required to withhold 63 and pay tax for him, a true and correct return of his an- 64 nual gains, profits and income from all other sources, and 65 also the deductions asked for, and the showing thus made 66 shall then become a part of the return to be made in his 67 behalf by the person required to withhold and pay the tax, 68 or likewise make application for deductions to the collector 69 of the district in which return is made or to be made for him ; 70 Provided further. That if such person is a minor or an in- 71 sane person, or is absent from the United States, or is unable 72 owing to serious illness to make the return and application 73 above provided for, the return and application may be made 74 for him or her by the person required to withhold and pay 75 the tax, he making oath under the penalties of this Act that 76 he has sufficient knowledge of the affairs and property of his 77 beneficiary to enable him to make a full and complete return 78 for him or her, and that the return and application made by 79 him are full and complete; Provided further. That the 80 amount of the normal tax hereinbefore imposed shall be de- 81 ducted and withheld from fixed and determinable annual 82 gains, profits, and income derived from interest upon bonds 83 and mortgages, or deeds of trust or other similar obligations 84 of corporations, joint-stock companies or associations, and 85 insurance companies, whether payable annually or at. shorter 86 or longer periods, although such interest does not amount 87 to $3,000, subject to the provisions of this section requiring 88 the tax to be withheld at the source and deducted from an- 89 nual income and paid to the Government; and likewise the 140 Federal Income Tax Law. 90 amount of such tax shall be deducted and withheld from 91 coupons, checks, or bills of exchange for or in payment of 92 interest upon bonds of foreign countries and upon foreign 93 mortgages or like obligations (not payable in the United 94 States), and also from coupons, checks, or bills of exchange 95 for or in payment of any dividends upon the stock or in- 96 terest upon the obligations of foreign corporations, associa- 97 tions and insurance companies engaged in business in for- 98 eign countries ; and the tax in each case shall be withheld and 99 deducted for and in behalf of any person subject to the tax 100 hereinbefore imposed, although such interest, dividends or 101 other compensation does not exceed $3,000, by any banker 102 or person who shall sell or otherwise realize coupons, checks, 103 or bills of exchange drawn or made in payment of any such 104 interest or dividends (not payable in the United States) 105 and any person who shall obtain payment (not in the United 106 States) in behalf of another of such dividends and interest 107 by means of coupons, checks or bills of exchange, and also 108 any dealer in such coupons who shall purchase the same for 109 any such dividends or interest (not payable in the United ,110 States), otherwise than from a banker or another dealer in 111 such coupons; but in each case the benefit of the exemption 112 and the deduction allowable under this section may be had 113 by complying with the foregoing provisions of this paragraph. 114 All persons, firms, or corporations undertaking as a mat- 115 ter of business or for profit the collection of foreign pay- 116 ments of such interest or dividends by means of coupons, 117 checks, or bills of exchange shall obtain a license from the 118 Commissioner of Internal Revenue, and shall be subject to 119 such regulations enabling the Government to ascertain and 120 verify the due withholding and payment of the income tax 121 tax required to be withheld and paid as the Commissioner 122 of Internal Revenue, with the approval of the Secretary of 123 the Treasury, shall prescribe; and any person who shall 124 knowingly undertake to collect such payments as aforesaid 125 without having obtained a license therefor, or without com- 126 plying with such regulations, shall be deemed guilty of a 127 misdemeanor and for each offense be fined in a sum not Appendixes. 141 128 exceeding $5,000, or imprisoned for a term not exceeding 129 one year, or both, in the discretion of the court. 130 Nothing in this section shall be construed to release a tax- 131 able person from liability for income tax, nor shall any con- 132 tract entered into after this act takes effect be valid in regard 133 to any Federal income tax imposed upon a person liable to 134 such payment. 135 The tax herein imposed upon annual gains, profits and 136 income not falling under the foregoing and not returned and 137 paid by virtue of the foregoing shall be assessed by personal 138 return under rules and regulations to be prescribed by the 139 Commissioner of Internal Revenue and approved by the Sec- 140 retary of the Treasury. 141 The provisions of this section relating to the deduction and 142 payment of the tax at the source of income shall only apply 143 to the normal tax hereinbefore imposed upon individuals. Section F. 1 That if any person, corporation, joint-stock company, asso- 2 eiation, or insurance company liable to make the return or 3 pay the tax aforesaid shall refuse or neglect to make a return 4 at the time or times hereinbefore specified in each year, such 5 person shall be liable to a penalty of not less than $20 nor 6 more than $1,000. Any person or any officer of any corpora- 7 tion required by law to make, render, sign, or verify any re- 8 turn who makes any false or fraudulent return or statement 9 with intent to defeat or evade the assessment required by this 10 section to be made shall be guilty of a misdemeanor, and shall 11 be fined not exceeding $2,000, or be imprisoned not exceeding 12 one year, or both, at the discretion of the court, with the costs 13 of prosecution. Section O. 1 (a) That the normal tax hereinbefore imposed upon in- 2 dividuals likewise shall be levied, assessed and paid annually 3 upon the entire net income arising or accruing from all 4 sources during the preceding calendar year to every cor- 5 poration, joint-stock company or association, and every 142 Federal Income Tax Law. 6 insurance company organized in the United States, no matter 7 how created or organized, not including partnerships; but 8 if organized, authorized or existing under the laws of any 9' foreign country, then upon the amount of net income accru- 10 ing from business transacted and capital invested within 11 the United States during such year: Provided^ however. That 12 nothing in this section shall apply to labor, agricultural, or 13 horticultural organizations, or to mutual savings banks not 14 having a capital stock represented by shares, or to fraternal 15 beneficiary societies, orders or associations operating under 16 the lodge system or for the exclusive benefit of the members 17 of a fraternity itself operating under the lodge system and 18 providing for the payment of life, sick, accident, and other 19 benefits to the members of such societies, orders or associa- 20 tions and dependents of such members, nor to domestic build- 21 ing and loan associations, nor to cemetery companies, organ- 22 ized and operated exclusively for the mutual benefit of their 23 members, nor to any corporation or association organized 24 and operated exclusively for religious, charitable, scientific 25 or educational purposes, no part of the net income of which 26 inures to the benefit of any private stockholder or individual, 27 nor to business leagues, nor to chambers of commerce or 28 boards of trade, not organized for profit or no part of the 29 net income of which inures to the benefit of the private stock- 30 holder or individual ; nor to any civic league or organization, 31 not organized for profit, but operated exclusively for the 32 promotion of social welfare ; Provided further. That there 33 shall not be taxed under this section any income derived from 34 any public utility or from the exercise of any essential gov- 35 ernmental function accruing to any State, Territory, or the 36 District of Columbia, or any political subdivision of a State, 37 Territory, or the District of Columbia, nor any income ac- 38 cruing to the government of the Philippine Islands or Porto 39 Pico, or of any political subdivision of the Philippine Islands 40 or Porto Rico; Provided, That whenever any State, Terri- 41 tory, or the District of Columbia, or a political subdivision 42 of a State or Territory, has, prior to the passage of this Act 43 entered in good faith into a contract with any person or cor- Appendixes, 143 44 poration, the object and purpose of which is to acquire, con- 45 struct, operate or maintain a public utility, no tax shall 46 be levied under the proYisions of this Act upon the Income 47 derived from the operation of such public utility, so far as 48 the payment thereof will impose a loss or burden upon such 49 State, Territory, or the District of Coltunbia, or a political 50 subdivision of a State or Territory ; but this provision is not 51 intended to confer upon such person or corporation any finan- 52 cial gain or exemption or to relieve such person or corpora- 53 tion from the payment of a tax as provided for in this sec- 54 tion upon the part or portion of the said income to which 55 such person or corporation shall be entitled under such 56 contract. 57 (b) Such net income shall be ascertained by deducting 58 from the gross amount of the income of such corporation, 59 joint-stock company or association, or insurance company, 60 received within the year from all sources, (first) all the 61 ordinary and necessary expenses paid within the year in the 62 maintenance and operation of its business and properties, 63 including rentals or other payments required to be made as 64 a condition to the continued use or possession of property; 65 (second) all losses actually sustained within the year and 66 not compensated by insurance or otherwise, including a rea- 67 sonable allowance for depreciation by use, wear and tear 68 of property, if any; and in the case of mines a reasonable 69 allowance for depletion of ores and all other natural deposits, 70 not to exceed 5 per centum of the gross value at the mine 71 of the output for the year for which the computation is made ; 72 and in case of insurance companies the net addition, if any, 73 required by law to be made within the year to reserve funds 74 and the sums other than dividends paid within the year on 75 policy and annuity contracts; Provided, That mutual fire 76 insurance companies requiring their members to make pre- 77 mium deposits to provide for losses and expenses shall not 78 return as income any portion of the premium deposits re- 79 turned to their policyholders, but shall return as taxable 80 income all income received by them from all other sources 81 plus such portions of the premium deposits as are retained 144 Federal Income Tax Law. 82 by the companies for purposes other than the payment of 83 losses and expenses and reinsurance reserves; Provided, 84 further. That mutual marine insurance companies shall in- 85 elude in their return of gross income gross premiums collected 86 and received by them less amounts paid for reinsurance, but 87 shall be entitled to include in deductions from gross income, 88 amounts repaid to policyholders on account of premiums 89 previously paid by them and interest paid upon such amounts 90 between the ascertainment thereof and the payment thereof, 91 and life insurance companies shall not include as income in 92 any year such portion of any actual premium received from 93 any individual policyholder as shall have been paid back or 94 credited to such individual policyholder, or treated as an 95 abatement of premium of such individual policyholder, 96 within such year; (third) the amount of interest accrued 97 and paid within the year on its indebtedness to an amount 98 of such indebtedness not exceeding one-half of the sum of its 99 interest bearing indebtedness and its paid-up capital stock 100 outstanding at the close of the year, or if no capital stock, 101 the amount of interest paid within the year on an amount of 102 its indebtedness not exceeding the amount of capital employed 103 in the business at the close of the year; Provided, That in 104 case of indebtedness wholly secured by collateral the subject 105 of sale in ordinary business of such corporation, joint-stock 106 company, or association, the total interest secured and paid 107 by such company, corporation, or association within the year 108 on any such indebtedness may be deducted as a part of its 109 expenses of doing business; Provided, further. That in the 110 case of bonds or other indebtedness, which have been issued 111 with a guaranty that the interest payable thereon shall be 112 free from taxation, no deduction for the payment of the tax 113 herein imposed shall be allowed; and in the case of a bank, 114 banking association, loan or trust company, interest paid 115 within the year on deposits or on moneys received for in- 116 vestments and secured by interest-bearing certificates of in- 117 debtedness issued by such bank, banking association, loan 118 or trust company; (fourth) all sums paid by it within the 119 year for taxes imposed under the authority of the United Appendixes. 145 120 States or of any State or Territory thereof, or imposed by 121 the Government of any foreign country; Provided, That in 122 the case of a corporation, joint-stock company or association, 123 or insurance company, organized, authorized or existing 124 under the laws of any foreign country, such net income shall 125 be ascertained by deducting from the gross amount of its 126 income accrued within the year from business transacted and 127 capital invested within the United States, (first) all the ordi- 128 nary and necessary expenses actually paid within the year 129 out of earnings in the maintenance and operation of its busi- 130 ness and property within the United States, including rentals 131 or other payments required to be made as a condition to the 132 continued use or possession of property; (second) all losses 133 actually sustained within the year in business conducted by 134 it within the United States and not compensated by insur- 135 ance or otherwise, including a reasonable allowance for de- 136 preciation by use, wear and tear of property, if any, and 137 in the case of mines, a reasonable allowance for depletion 138 of ores and all other natural deposits, not to exceed 5 per 139 centum of the gross value at the mine of the output for the 140 year for which the computation is made; and in case of in- 141 surance companies the net addition, if any, required by law 142 to be made within the year to reserve funds and the sums 143 other than dividends paid within the year on policy and an- 144 nuity contracts; Provided, further. That mutual fire insur- 145 ance companies requiring their members to make premium 146 deposits to provide for losses and expenses shall not return 147 as income any portion of the premium deposits returned to 148 their policyholders, but shall return as taxable income all in- 149 come received by them from all other sources plus such per- il 50 tions of the premium deposits as are retained by the com- 151 panics for purposes other than the payment of losses and ex- 152 penses and reinsurance reserves ; Provided, further. That mu- 153 tual marine insurance companies shall include in their return 154 of gross income gross premiums collected and received by 155 them less amounts paid for reinsurance, but shall be entitled 156 to include in deductions from gross income amounts repaid 157 to policyholders on account of premiums previously paid by 146 Fedeeai, Income Tax Law. 158 them, and interest paid upon such amounts between the ascer- 159 tainment thereof and the payment thereof and life insurance 160 companies shall not include as income in any year such por- 161 tion of any actual premium received from any individual 162 policyholder as shall have been paid back or credited to such 163 individual policyholder or treated as an abatement of pre- 164 mium of such individual policyholder, within such year; 165 (third) the amount of interest accrued and paid within the 166 year on its indebtedness to an amount of such indebtedness 167 not exceeding the proportion of one-half of the sum of its in- 168 terest bearing indebtedness and its paid-up capital stock out- 169 standing at the close of the year, or if no capital stock, the 170 capital employed in the business at the close of the year which 171 the gross amount of its income for the year from business 172 transacted and capital invested within the United States bears 173 to the gross amount of its income derived from all sources n74 within and without the United States ; Provided, That in 175 the case of bonds or other indebtedness which have been is- 176 sued with a guaranty that the interest payable thereon shall 177 be free from taxation, no deduction for the payment of the tax 178 herein imposed shall be allowed; (fourth) all sums paid by it 179 within the year for taxes imposed under the authority of the 180 United States or of any State or Territory thereof or the Dis- 181 trict of Columbia. In the case of assessment insurance com- 182 panies, whether domestic or foreign, the actual deposit of 183 sums with State or Territorial officers, pursuant to law, as 184 additions to guarantee or reserve funds shall be treated as 185 being payments required by law to reserve funds. 186 (c) The tax herein imposed shall be computed upon its en- 187 tire net income accrued within each preceding calendar year 188 ending December thirty-first ; Provided, however. That for the 189 year ending December thirty-first nineteen hundred and thir- 190 teen, said tax shall be imposed upon its entire net income ac- 191 crued within that portion of said year from March first to 192 December thirty-first, both dates inclusive, to be ascertained 193 by taking five-sixths of its entire net income for said calendar 194 year; Provided further. That any corporation, joint-stock 195 company or association, or insurance company subject to this Appendixes, 147 196 tax may designate the last day of any month in the year as the 197 day of the closing of its fiscal year and shall be entitled to 198 have the tax payable by it computed upon the basis of the net 199 income ascertained as herein provided for the year ending on 200 the day so designated in the year preceding the date of assess- 201 ment instead of upon the basis of the net income for the cal- 202 endar year preceding the date of assessment; and it shall give 203 notice of the day it has thus designated as the closing of its 204 fiscal year to the collector of the district in which its principal 205 business office is located at any time not less than thirty days 206 prior to the date upon which its annual return shall be filed. 207 All corporations, joint-stock companies or associations, and 208 insurance companies subject to the tax herein imposed, com- 209 puting taxes upon the income of the calendar year, shall, on 210 or before the first day of March, nineteen hundred and four- 211 teen, and the first day of March in each year thereafter, and 212 all corporations, joint-stock companies or associations, and in- 213 surance companies, computing taxes upon the income of a fis- 214 cal year which it may designate in the manner hereinbefore 215 provided, shall render a like return within sixty days after 216 the close of its said fiscal year, and within sixty days after 217 the close of its fiscal year in each year thereafter, or in the 218 case of a corporation, joint-stock company or association, or 219 insurance company, organized or existing under the laws of a 220 foreign country, in the place where its principal business is 221 located within the United States, in such form as the Commis- 222 sioner of Internal Revenue, with the approval of the Secre- 223 tary of the Treasury, shall prescribe, shall render a true and 224 accurate return under oath or affirmation of its president, 225 vice-presdent, or other principal officer, and its treasurer or 226 assistant treasurer, to the collector of internal revenue for the 227 district in which it has its principal place of business, setting 228 forth, (first) the total amount of its paid-up capital stock out' 229 standing, or if no capital stock, its capital employed in busi- 230 ness at the close of the year; (second) the total amount of its 231 bonded and other indebtedness at the close of the year ; 232 (third) the gross amount of its income received during such 233 year from all sources, and if organized under the laws of a 148 Federal Income Tax Law. 234 foreign country the gross amount of its income received 235 within the year from business transacted and capital invested 236 within the United States; (fourth) the total amount of all its 237 ordinary and necessary expenses paid out of earnings in the 238 maintenance and operation of the business and properties of 239 such corporation, joint-stock company or association, or insur- 240 anee company within the year, stating separately all rentals 241 or other payments required to be made as a condition to the 242 continued use or possession of property, and if organized 243 under the laws of a foreign country, the amount so paid in the 244 maintenance and operation of its business within the United 245 States ; (fifth) the total amount of all losses actually sus- 246 tained during the year and not compensated by insurance or 247 otherwise, stating separately any amounts allowed for depre- 248 ciation of property, and in case of insurance companies the 249 net addition, if any, required by law to be made within the 250 year to reserve funds and the sums other than dividends paid 251 within the year on policy and annuity contracts; Provided, 252 further. That mutual fire insurance companies requiring 253 their members to make premium deposits to provide for losses 254 and expenses shall not return as income any portion of the 255 premium deposits returned to their policyholders, biit shall 256 return as taxable income all income received by them from all 257 other sources plus such portions of the premium deposits as 258 are retained by the companies for purposes other than the 259 payment of losses and expenses and reinsurance reserves, 260 Provided, further. That mutual marine insurance companies 261 shall include in their return of gross income gross premiums 262 collected and received by them less amounts paid for reinsur- 263 ance, but shall be entitled to include in deductions from gross 264 income amounts repaid to policyholders on account of pre- 265 miums previously paid by them, and interest paid upon such 266 amounts between the ascertainment thereof, and the payment 267 thereof and life insurance companies, shall not include as in- 268 come in any year such portion of any actual premium re- 269 ceived from any individual policyholder as shall have been 270 paid back or credited to such individual policyholder, or 271 treated as an abatement of premium of such individual Appendixes. 149 272 policyholder, within such year ; and in case of a corporation, 273 joint-stock company or association, or insurance company, or- 274 ganized under the laws of a foreign country, all losses actu- 275 ally sustained by it during the year in business conducted by 276 it within the United States, not compensated by insurance or 277 otherwise, stating separately any amounts allowed for depre- 278 elation of property, and in case of insurance companies the 279 net addition, if any, required by law to be made within the 280 year to reserve funds and the sums other than dividends paid 281 within the year on policy and annuity contracts; Provided, 282 further. That mutual fire insurance companies requiring 283 their members to make premium deposits to provide for losses 284 and expenses, shall not return as income any portion of the 285 premium deposits returned to their policyholders, but shall 286 return as taxable income all income received by them from all 287 other sources plus such portions of the premium deposits as 288 are retained by the companies for purposes other than the 289 payment of losses and expenses and reinsurance reserves; 290 Provided, further, That mutual marine insurance companies 291 shall include in their return of gross income gross premiums 292 collected and received by them less amounts paid for reinsur- 293 ance, but shall be entitled to include in deductions from gross 294 income amounts repaid to policyholders on account of pre- 295 miums previously paid by them and interest paid upon such 296 amounts between the ascertainment thereof and the payment 297 thereof and life insurance companies shall not include as in- 29'8 come in any year such portion of any actual premium re- 299 ceived from any individual policyholder, or treated as an 300 abatement of premium of such individual policyholder, 301 within such year ; (sixth) the amount of interest accrued and 302 paid within the year on its bonded or other indebtedness, not 30'3 exceeding one-half of the sum of its interest-bearing indebted- 304 ness and its paid-up capital stock, outstanding at the close of 305 the year, or if no capital stock, the amount of interest paid 306 within the year on an amount of indebtedness not exceeding 307 the amount of capital employed in the business at the close of 308 the year, and in the case of a bank, banking association, or 309 trust company, stating separately all interest paid by it 150 Fedeeai, Income Tax Law. 310 -within the year on deposits ; or in case of a corporation, joint- 311 stock company or association, or insurance company organ- 312 ized under the laws of a foreign country, interest so paid on 313 its bonded or other indebtedness to an amount of such bonded 314 or other indebtedness not exceeding the proportion of its paid- 315 up capital stock outstanding at the close of the year, or if no 316 capita] stock, the amount of capital employed in the business 317 at the close of the year, which the gross amount of its income 318 for the year from business transacted and capital invested 319 within the United States bears to the gross amount of its in- 320 come derived from all sources within and without the United 321 States; (seventh) the amount paid by it within the year for 322 taxes imposed under the authority of the United States and 323 separately the amount so paid by it for taxes imposed by the 324 Government of any foreign country; (eighth) the net income 325 of such corporation, joint-stock company or association, or in- 326 surance company, after making the deductions in this sub- 327 section authorized. All such returns shall as received be 328 transmitted forthwith by the collector to the Commissioner of 329 Internal Revenue. 330 All assessments shall be made and the several corporations, 331 joint-stock companies or associations, and insurance com- 332 panics shall be notified of the amount for which they are re- 333 spectively liable on or before the first day of June of each 334 successive year, and said assessment shall be paid on or be- 335 fore the thirtieth day of June; Provided ^ That every corpo- 336 ration, joint-stock company or association, and insurance com- 337 pany, computing taxes upon the income of the fiscal year, 338 which it may designate in the manner hereinbefore provided, 339 shall pay the taxes due under its assessment within one hun- 340 dred and twenty days after the date upon which it is required 341 to file its list or return of income for assessment; except in 342 cases of refusal or neglect to make such return, and in cases 343 of false or fraudulent returns, in which cases the Commis- 344 sioner of Internal Revenue shall, upon the discovery thereof, 345 at any time within three years after said return is due, make 346 a return upon information obtained as provided for in this 347 section or by existing law, and the assessment made by the Appendixes. 151 348 Commissioner of Internal Eevenue thereon shall be paid by 349 such corporation, joint-stock company or association, or insur- 350 ance company immediately upon notification of the amount 351 of such assessment; and to any sum or sums due and unpaid 352 after the thirtieth day of June in any year, or after one hun- 353 dred and twenty days from the date on which the return of in- 354 come is required to be made by the taxpayer, and after ten 355 days' notice and demand thereof by the collector, there shall 356 be added the sum of 5 per centum on the amount of tax un- 357 paid and interest at the rate of 1 per centum per month upon 358 said tax from the time the same becomes due. 359 (d) When the assessment shall be made, as provided in this 360 section, the returns, together with any corrections thereof 361 which may have been made by the commissioner, shall be filed 362 in the office of the Commissioner of Internal Revenue and 363 shall constitute public records and be open to inspection as 364 such; Provided, That any and all such returns shall be open 365 to inspection only upon the order of the President, under 366 rules and regulations to be prescribed by the Secretary of the 367 Treasury and approved by the President; Provided, further, 368 That the proper officers of any State imposing a general 369' income tax, may, upon the request of the governor thereof, 370 have access to said returns or to an abstract thereof, showing 371 the name and income of each such corporation, joint-stock 372 company, association or insurance company, at such times and 373 in such manner as the Secretary of the Treasury may pre- 3^4 scribe. 375 If any of the corporations, joint-stock companies or associa- 376 tions, or insurance companies aforesaid, shall refuse or neg- 377 lect to make a return at the time or times hereinbefore speci- 378 fied in each year, or shall render a false or fraudulent return, 379 such corporation, joint-stock company or association, or in- 380 surance company shall be liable to a penalty of not exceeding 381 $10,000. Section H. 1 That the word " State " or " United States " when used in 2 this section shall be construed to include any Territory, 3 Alaska, the District of Columbia, Porto Rico, and the Philip- 152 Fedekal Income Tax Law. 4 pine Islands, when such construction is necessary to carry out 5 its provisions. Section I. 1 That sections thirty-one hundred and sixty-seven, thirty- 2 one hundred and seventy-two, thirty-one hundred and 3 seventy-three, and thirty-one hundred and seventy-six of the 4 Eevised Statutes of the United States as amended are hereby 5 amended so as to read as follows: 6 § 3167. It shall be unlawful for any collector, deputy 7 collector, agent, clerk or other officer or employee of the 8 United States to divulge or to make known in any manner 9 whatever not provided by law to any person the operations, 10 style of work, or apparatus of any man-ufacturer or pro- 11 ducer visited by him in the discharge of his official duties, 12 or the amount or source of income, profits, losses, expendi- 13 tures, or any particular thereof, set forth or disclosed in any 14 income return by any person or corporation, or to permit 15 any income return or copy thereof or any book containing 16 any abstract or particulars thereof to be seen or examined 17 by any person except as provided by law ; and it shall be un- 18 lawful for any person to print or publish in any manner 19 whatever not provided by law any income return or any 20 part thereof or the amount or source of income, profits, 21 losses, or expenditures appearing in any income return; and 22 any offense against the foregoing provision shall be a mis- 23 demeanor and be punished by a fine not exceeding $1,000 24 or by imprisonment not exceeding one year, or both, at the 25 discretion of the court; and if the offender be an officer or 26 employee of the United States he shall be dismissed from 27 office and be incapable thereafter of holding any offiee under 28 the Government. 29 § 3172. Every collector shall, from time to time, cause 30 his deputies to proceed through every part of his district and 31 inquire after and concerning all persons therein who are 32 liable to pay any internal revenue tax, and all persons own- 33 ing or having the care and managemeoat of any objects 34 liable to pay any tax, and to make a list of such persons and 35 enumerate said objects. Appendixes. 153 36 § 3173. It shall be the duty of every person, part- 37 nership, firm, association, or corporation, made liable to any 38 duty, special tax, or other tax imposed by law, when not 39 otherwise provided for, in case of a special tax, on or before 40 the thirty-first day of July in each year, in case of income 41 tax or on or before the first day of March in each year and in 42 other cases before the day on which the taxes accrue, to 43 make a list or return, verified by oath or affirmation, to the 44 collector or a deputy collector of the district where located, 45 of the articles or objects, including the amount of annual 46 income charged with a duty or tax, the quantity of goods, 47 wares and merchandise made or sold and charged with a tax, 48 the several rates and aggregate amount, according to the 49 forms and regulations to be prescribed by the Commissioner 50 of Internal Revenue, with the approval of the Secretary of 51 the Treasury, for which such person, partnership, firm, 53 association, or corporation is liable: Provided, That if any 53 person liable to pay any duty or tax, or owning, possessing, 54 or having the care or management of property, goods, wares, 55 and merchandise, articles or objects liable to pay any duty, 56 tax or license, shall fail to make and exhibit a list or re- 57 turn required by law, but shall consent to disclose the 58 particulars of any and all the property, goods, wares, and 59 merchandise, articles and objects liable to pay any duty or 60 tax, or any business or occupation liable to pay any tax as 61 aforesaid, then, and in that case, it shall be the duty of the 62 collector or deputy collector to made such list or return, 63 which, being distinctly read, consented to, and signed and 64 verified by oath or affirmation by the person so owning, pos- 65 sessing, or having the care and management as aforesaid, 66 may be received as the list of such person; Provided, 67 further. That in case no annual list or return has been 68 rendered by such person to the collector or deputy col- 69 lector as required by law, and the person shall be absent 70 from his or her residence or place of business at the time 71 the collector or a deputy collector shall call for the annual 72 list or return, it shall be the duty of such collector or deputy 73 collector to leave at such place of residence or business, 154 Fedeeal Income Tax JjAw. 74 with some one of suitable age and discretion, if such be 75 present, otherwise, to deposit in the nearest post office, a 76 note or memorandum addressed to such person, requiring 77 him or her to render to such collector or deputy collector 78 the list or return required by law within ten days from the 79 date of such note or memorandum, verified by oath or 80 affirmation. And if any person, on being notified or re- 81 quired as aforesaid, shall refuse or neglect to render such 82 list or return within the time required as aforesaid, or 83 whenever any person who is required to deliver a monthly 84 or other return of objects subject to tax fails to do so at the 85 time required, or delivers any return which, in the opinion 86 of the collector is false or fraudulent or contains any under- 87 valuation or understatement, it shall be lawful for the col- 88 lector to summon such person, or any other person having 89 possession, custody or care of books of account containing 90 entries relating to the business of such person, or any other 91 person he may deem proper, to appear before him, and pro- 92 duce such books at a time and place named in the summons, 93 and to give testimony or answer interrogatories, under oath, 94 respecting any objects liable to tax or the returns thereof. 95 The collector may summon any person residing or found 96 within the State in which his district lies; and when the 97 the person intended to be summoned does not reside, and 98 cannot be found within such State, he may enter any col- 99 lection district where such person may be found and there 100 make the examination herein authorized. And to this end 101 he niay there exercise all the authority which he might law- 102 fully exercise in the district for which he was commissioned. 103 § 3176. When any person, corporation, company or 104 association refuses or neglects to render any return or list 105 required by law, or renders a false or fraudulent return or 106 list, the collector or any deputy collector shall make, accord- 107 ing to the best information which he can obtain, including 108 that derived from the evidence elicited by the examination 109 of the collector, and on his own view and information, such 110 list or return, according to the form prescribed, of the in- Ill come, property, and objects liable to tax owned or possessed 112 or under the care or management of such person or cor- AppendixHs. 155 113 poration, company or association, and the Commissioner of 114 Internal Revenue shall assess all taxes not paid by stamps, 115 ineliading the amount, if any, due for special tax, income or 116 other tax, and in case of any return of a false or fraudulent 117 list or valuation intentionally he shall add 100 per centum to 118 such tax; and in case of a refusal or neglect, except in cases 119 of sickness or absence, to make a list or return, or to verify 120 the same as aforesaid, he shall add 50 per centum to such 121 tax. In case of neglect occasioned by sickness or absence as 122 aforesaid the collector may allow such further time for 123 making and delivering such list or return as he may deem 124 necessary, not exceeding thirty days. The amount so added 125 to the tax shall be collected at the same time and in the same 126 manner as the tax unless the neglect or falsity is discovered 127 after the tax has been paid, in which case the amount so 128 added shall be collected in the same manner as the tax; and 129 the list or return so made and subscribed by such collector 130 or deputy collector shall be held prima facie good and suf- 131 ficient for all legal purposes. Section J. 1 That it shall be the duty of every collector of internal revenue, 2 to whom any payment of any taxes other than the tax repre- 3 sented by an adhesive stamp or other engraved stamp is made 4 under the provisions of this section, to give to the person 5 making such payment a full written or printed receipt, ex- 6 pressing the amount paid and the particular account for which 7 such payment was made ; and whenever such payment is made 8 such collector shall, if required, give a separate receipt for 9 each tax paid by any debtor, on account of payments made 10 to or to be made by him to separate creditors in such form 11 that such debtor can conveniently produce the same separately 12 to his several creditors in satisfaction of their respective de- 13 mauds to the amounts specified in such receipts ; and such re- 14 ceipts shall be sufficient evidence in favor of such debtor to 15 justify him in withholding the amount therein expressed from 16 his next payment to his creditors; but such creditor may, 17 upon giving to his debtor a full written receipt, acknowledg- 156 Fedeeal Income Tax Law. 18 ing the payment to him of whatever sum m.ay be actually 19 paid, and accepting the amount of tax paid as aforesaid 20 (specifying the 8am.e) as a further satisfaction of the debt to 21 that amount, require the surrender to him of such collector's 22 receipt. Section K. 1 That jurisdiction is hereby conferred upon the district courts 2 of the United States for the district within which any person 3 summoned under this section to appear to testify or to pro- 4 duce books, shall reside, to compel such attendance, produc- 5 tion of books, and testimony by appropriate process. Section L. 1 That all administrative, special, ajid general provisions of 2 law, including the laws in relation to the assessment, remis- 3 sion, collection, and refund of internal-revenue taxes not here- 4 tofore specifically repealed and not inconsistent with the pro- 5 visions of this section, are hereby extended and made appli- 6 cable to all the provisions of this section and to the tax herein 7 imposed. Section M. 1 That the provisions of this section shall extend to Porto 2 Rico and the Philippine Islands; Provided^ That the admin- 3 istration'of the law and the collection of the taxes imposed in 4 Porto Rico and the Philippine Islands shall be by the appro 5 priate internal-revenue officers of those governments, and all 6 revenues collected in Porto Eico and the Philippine Islands 7 thereunder shall accrue intact to the general governments, 8 thereof, respectively; And provided further. That the juris- 9 diction in this section conferred upon the district courts of the 10 United States shall, so far as the Philippine Islands are con- 11 cemed, be vested in the courts of the first instance of said 12 islands; And provided further. That nothing in this section 13 shall be held to exclude from the computation of the net in- 14 come the compensation paid any official by the governments 15 of the District of Columbia, Porto Eico, and the Philippine 16 Islands or the political subdivisions thereof. Appendixes. 157 Section N. 1 That for the purpose of carrying into effect 'the provisions of 2 section II of this Act, and to pay the expenses of assessing and 3 collecting the income tax therein imposed, and to pay such 4 sums as the Comnaissioner of Internal Revenue, with the ap- 5 proval of the Secretary of the Treasury, may deem necessary, 6 for information, detection, and bringing to trial and punish- 7 ment persons guilty of violating the provisions of this section, 8 or conniving at the same, in cases where such expenses are not 9 otherwise provided for by law, there is hereby appropriated 10 out of any money in the Treasury not otherwise appropriated 11 for the fiscal year ending June thirtieth, nineteen hundred and 12 fourteen, the sum of $800,000, and the Commissioner of Inter- 13 nal Revenue, with the approval of the Secretary of the Treas- 14 ury, is authorized to appoint and pay from this appropriation 15 all necessary officers, agents, inspectors, deputy collectors, 16 clerks, messengers and janitors, and to rent such quarters, pur- 17 chase such supplies, equipment, mechanical devices, and other 18 articles as may be necessary for employment or use in the Dis- tl9 trict of Columbia, or any collection district in the United 20 States, or any of the Territories thereof; Provided, That no 21 agent paid from this appropriation shall receive compensation 22 at a rate higher than that now received by traveling agents on 23 accounts in the Internal Revenue service, and no inspector 24 shall receive a compensation higher than $5 a day and $3 addi- 25 tional in lieu of subsistence, and no deputy collector, clerk, 26 messenger, or other employee shall be paid at a rate of compen- 27 sation higher than the rate now being paid for the same or sim- 28 ilar work in the Internal Revenue Service. 29 In the office of the Commissioner of Internal Revenue at 30 Washington, District of Columbia, there shall be appointed by 31 the Commissioner of Internal Revenue, with the approval of 32 the Secretary of the Treasury, one additional deputy commis- 33 sioner, at a salary of $4,000 per annum; two heads of divi- 34 sions, whose compensation shall not exceed $2,500 per annum; 35 and such other clerks, messengers and employees, and to rent 36 such quarters, and to purchase such supplies as may be neces- 37 essary; Provided, That for a period of two years from and 158 Fedeeal Income Tax Law. 38 after the passage of this act, the force of agents, deputy coUect- 39 ors, inspectors, and other employees, not including the clerical 40 force below the grade of chief of division employed in the Bu- 41 reau of Internal Revenue in the city of Washington, District 42 of Columbia, authorized by this section of this act shall be ap- 43 pointed by the Commissioner of Internal Revenue, with the 44 approval of the Secretary of the Treasury, under such rules 45 and regulations as may be fixed by the Secretary of the Treas- 46 ury to insure faithful and competent service, and with such 47 compensation as the Commissioner of Internal Revenue may 48 fix, with the approval of the Secretary of the Treasury, within 49 the limitations herein prescribed; Provided further. That the 50 force authorized to carry out the provisions of section II of this 51 Act, when not employed as herein provided, shall be employed 52 on general internal-revenue work. Section IV. Provided further. That all excise taxes upon corporations im- posed by section thirty-eight, that have accrued or have been im- posed for the year ending December thirty-first, nineteen hundred and twelve, shall be returned, assessed, and collected in the same manner, and under the same provisions, liens, and penalties as if section thirty-eight continued in full force and effect: And pro- vided further. That a special excise tax with respect to the carry- ing on or doing of business, equivalent to 1 per centum upon their entire net income, shall be levied, assessed, and collected upon corporations, joint stock companies or associations, and insurance companies, of the character described in section thirty-eight of the Act of August fifth, nineteen hundred and nine, for the period from January first to February twenty-eighth, nineteen hundred and thirteen, both dates inclusive, which said tax shall be com- puted upon one-sixth of the entire net income of said corporations, joint stock companies or associations, and insurance companies, for said year, said net income to be ascertained in accordance with the provisions of subsection G of section two of this Act : Provided further. That the provisions of said section thirty-eight of the Act of August fifth, nineteen hundred and nine, relative to the collec- tion of the tax therein imposed shall remain in force for the col- lection of the excise tax herein provided, but for the year nineteen hundred and thirteen it shall not be necessary to make more than Appendixes. 159 one return and assessment for all the taxes imposed herein upon said corporations, joint stock companies or associations, and insur- ance companies, either by way of income or excise, which return and assessment shall be made at the times and in the manner pro- vided in this Act ; but the repeal of existing laws or modifications thereof embraced in this Act shall not affect any act done, or any right accruing or accrued, or any suit or proceeding had or com- menced in any civil case before the said repeal or modification ; but all rights and liabilities under said laws shall continue and may be enforced in the same manner as if said repeal or modifications had not been made. Any offenses committed and all penalties or for- feitures or liabilities incurred prior to the passage of this Act under any statute embraced in or changed, modified, or repealed by this Act may be prosecuted or punished in the same manner and with the same effect as if this Act had not been passed. 'No Acts of limitation now in force, whether applicable to civil causes and proceedings or to the prosecution of offenses or for the recov- ery of penalties or forfeitures embraced in or modified, changed, or repealed by this Act shall be affected thereby so far as they affect any suits, proceedings, or prosecutions, whether civil or criminal, for causes arising or acts done or committed prior to the passage of this Act, which may be commenced and prosecuted within the same time and with the same effect as if this Act had not been passed. T. If any clause, sentence, paragraph, or part of this Act shall for any reason be adjudged by any court of competent jurisdiction to be invalid, such judgment shall not affect, impair, or invalidate the remainder of said Act, but shall be confined in its operation to the clause, sentence, paragraph, or part thereof directly involved in the controversy in which such judgment shall have been rendered. IT. That unless otherwise herein specially provided, this Act shall take effect on the day following its passage. Approved, 9.10 p. m. October 3, 1913. 160 Fedeeal Income Tax Law. APPENDIX B. ACT OF AUGUST 5, 1861. Chapter XLV. — An Act to Provide Increased Revenue from Imports, to Pay Interest on the PubUc Debt, and for Other Purposes. Section 49. And be it fdbtheb enacted, That, from and after the first day of January next, there shall be levied, collected, and paid, upon the annual income of every person residing in the United States, whether such income is derived from any kind of property, or from any profession, trade, employment, or vocation carried on in the United States or elsewhere, or from any other source whatever, if such annual income exceeds the sum of eight hundred dollars, a tax of three per centum on the amount of such excess of such income above eight hundred dollars : Provided, That, upon such portion of said income as shall be derived from interest upon treasury notes or other securities of the United States, there shall be levied, collected, and paid a tax of one and one- lialf per centum. Upon the income, rents, or dividends accruing upon any property, securities, or stocks, owned in the United States by any citizen of the United States residing abroad, there shall be levied, collected, and paid a tax of five per centum, excepting that portion of said income derived from interest on treasury notes and other securities of the government of the United States, which shall pay one and one half per centum. The tax herein provided shall be assessed upon the annual income of the persons hereinafter named for the year next preceding the time for assessing said tax, to wit, the year next preceding the first of January, eighteen hundred and sixty- two; and the said taxes, when so assessed and made public, shall become a lien on the property or other sources of said income for the amount of the same, with the interest and other expenses of collection until paid: Provided, That in estimating said income, all national, state, or local taxes assessed upon the property, from which the income is derived, shall be first deducted. Section 50. And be it FDBTHijt enacted. That it shall be the duty of the president of the United States, and he is hereby authorized, by and with the advice and consent of the senate, to appoint one principal assessor and one principal collector in each of the states and territories of the United States, and in the District of Columbia, to assess and collect the internal duties or income tax imposed by this act, with authority in each of said officers to appoint so many assistants as the public service may require, to be approved by the secretary of the treasury. The said taxes to be assessed and collected under such regulations as the secretary of the treasury may prescribe. The said collectors, herein authorized to be appointed, shall give bonds, to the satis- faction of the secretary of the treasury, in such sums as he may prescribe. Appendixes. 161 for the faithful performance of their respective duties. And the secretary of the treasury shall prescribe such reasonable compensation for the assessment and collection of said internal duties or income tax as may appear to him just and proper; not, however, to exceed in any case the sum of two thousand five hundred dollars per annum for the principal officers herein referred to, and twelve hundred dollars per annum for an assistant. The assistant col- lectors herein provided shall give bonds to the satisfaction of the principal collector for the faithful performance of their duties. The secretary of the treasury is further authorized to select and appoint one or more depositaries in each state for the deposit and safe-keeping of the moneys arising from the taxes herein imposed. When collected, and the receipt of the proper officer of such depositary to the collector for the moneys deposited by him shall be the proper voucher for such collector in the settlement of his account at the treasury department. And he is further authorized and empowered to make such officer or depositary the disbursing agent of the Treasury for the payment of all interest due to the citizens of such state upon the treasury notes or other government securities issued by authority of law. And he shall also prescribe the forms of returns to be made to the depart- ment by all assessors and collectors appointed under the authority of this act. He shall also prescribe the form of oath or obligation to be taken by the several officers authorized or directed to be appointed and commissioned by the president under this act, before a competent magistrate duly author- ized to administer oaths, and the form of the return to be made thereon to the treasury department. Section 51. And be it fuethee enacted, That the tax herein imposed by the forty- ninth section of this act shall be due and payable on or before the thirtieth day of June, in the year eighteen hundred and sixty-two, and all sums due and unpaid at that day shall draw interest thereafter at the rate of six per centum per annum; and if any person or persons shall neglect or refuse to pay after due notice said tax assessed against him, her, or them, for the space of more than thirty days after the sale is due and payable, it shall be lawful for any collector or assistant collector charged with the duty of collecting such tax, and they are hereby authorized, to levy the same on the visible property of any such person, or so much thereof as may be suffi- cient to pay such tax, with the interest due thereon, and the expenses inci- dent to such levy and sale, first giving thirty days' public notice of the time and place of the sale thereof; and in case of the failure of any person or persons authorized to act as agent or agents for the collection of the rents or other income of any person residing abroad shall neglect or refuse to pay the tax assessed thereon (having had due notice) for more than thirty days after the thirtieth of June, eighteen hundred and sixty -two, the collector or his assistant, for the district where such property is located, or rents or income is payable, shall be and hereby is authorized to levy upon the prop- erty itself, and to sell the same or so much thereof as may be necessary to pay the tax assessed, together with the interest and expenses incident to such levy and sale, first giving thirty days' public notice of the time and place of sale. And in all cases of the sale of property herein authorized, the conveyance by the officer authorized to make the sale, duly executed. 162 Fedeeal Income Tax Law. shall give a valid title to the purchaser, whether the property sold be real or personal. And the several collectors and assistants appointed under the authority of this act may, if they find no property to satisfy the taxes assessed upon any person by authority of the forty-ninth section of this act, and which such person neglects to pay as hereinbefore provided, shall have power, and it shall be their duty, to examine under oath the persrj assessed under this act, or any other person, and may sell at public aucticn, after ten days' notice, any stock, bonds, or choses in action, belonging to said person, or so much thereof as will pay such tax and the expenses of such sale; and in case he refuses to testify, the said several collectors and assistants shall have power to arrest such person and commit him to prison, to be held in custody until the saotne shall be paid, with interest thereon, at the rate of six per centum per annum, from the time when the same was payable as aforesaid, and all fees and charges of such commitment and custody. And the place of custody shall in all cases be the same provided by law for the custody of persons committed for any cause by the authority of the United States, and the warrant of the collector, stating the cause of commitment, shall be sufficient authority to the proper officer for receiving and keeping such person in custody until the amount of said tax and interest, and all fees and the expense of such custody, shall have been fully paid and discharged; which fees and expenses shall be the same as are chargeable under the laws of the United States in other cases of commitment and cus- tody. And it shall be the duty of such collector to pay the expenses of such custody, and the same, with his fees, shall be allowed on settlement of his accounts. Ajid the person so committed shall have the same right to be discharged from such custody as may be allowed by the laws of the state or territory, or the District of Columbia, where he is so held in custody, to per- sons committed under the laws of such state or territory, or District of Columbia, for the nonpayment of taxes, and in the manner provided by such laws; or he may be discharged at any time by order of the secretary of the treasury. Appendixes. 163 APPENDIX C. ACT OF JULY I, 1862. Chapter CXIX. — An Act to Provide Internal Revenue to Sup- port the Government and to Pay Interest on the PubUc Debt. Section 80. Eaileoads, Steamboats, and Ferky-Boats. And be it pubthee enacted, That on and after the first day of August, eighteen hundred and sixty-two, any person or persons, firms, companies, or corporations, owning or possessing, or having the care or management of any railroad or railroads upon which steam is used as a propelling power, or of any steamboat or other vessel propelled by steam power, shall be subject to and pay duty of three per centum on the gross amount of all the receipts of such railroad or railroads or steam vessel for the transportation of passen- gers over and upon the same; and any person or persons, firms, companies, or corporations, owning or possessing, or having the care or management of any railroad or railroads using any other power than steam thereon, or owning, possessing, or having the care or management of any ferry-boat, or vessel used as a ferry-boat, propelled by steam or horse-power, shall be subject to and pay a duty of one and a half per centum upon the gross receipts of such railroad or ferry-boat, respectively, for the transportation of passengers over and upon said railroads, steamboats, and ferry-boats, respectively; and any person or persons, firms, companies, or corporations, owning, possessing, or having the care or management of any bridge author- ized by law to receive toll for the transit of passengers, beasts, carriages, teams, and freight of any description over such bridge, shall be subject to and pay a duty of three per centum on the gross amount of all their receipts of every description. And the owner, possessor, or person or persons having the care and management of any such railroad, steamboat, ferry-boat, or other vessel, or bridge as aforesaid, shall, within five days after the end of each and every month, commencing as hereinbefore mentioned, make a list or return to the assistant assessor of the district within which such owner, possessor, company, or corporation may have his or its place of business, or where any such railroad, steamboat, ferry-boat, or bridge is located or belongs, respectively, stating the gross amount of such receipts for the month next preceding, which return shall be verified by the oath or affirmation of such owner, possessor, manager, agent or other proper officer, in the manner and form to be prescribed from time to time by the commis- sioner of internal revenue, and shall also, monthly, at the time of making such return, pay to the collector or deputy collector of the district the full amount of duties which have accrued on such receipts for the month aforesaid; and in case of neglect or refusal to make said lists or return for the space of five days after such return shall be made as aforesaid, the 164 Fedeeal Income Tax Law. assessor or assistant assessor shall proceed to estimate the amount received and the duties payable thereon, as hereinbefore provided in other cases of delinquency to make return for purposes of assessment; and for the purpose of making such assessment, or of ascertaining the correctness of any such return, the books of any such person, company, or corporation shall be subject to the inspection of the assessor or assistant assessor on his demand or request therefor; and in case of neglect or refusal to pay the duties as aforesaid when the same have been ascertained as aforesaid, for the space of five days after the same shall have become payable, the owner, possessor, or person having the management as aforesaid, shall pay, in addition, five per centum on the amount of such duties; and for any attempt knowingly to evade the payment of such duties, the said owner, possessor, or person having the care or management as aforesaid, shall be liable to pay a penalty of one thousand dollars for every such attempt, to be recovered as provided in this act for the recovery of penalties; and all provisions of this act in relation to liens and collections by distraint not incompatible herewith, shall apply to this section and the objects therein embraced: Provided, That all such persons, companies, and corporations shall have the right to add the duty or tax imposed hereby to their rates of fare whenever their liability thereto may commence, any limitations which may exist by law or by agree- ment with any person or company which may have paid, or be liable to pay, such fare to the contrary notwithstanding. Section 81. Eailkoad Bonds. A^'D BE IT FUKTHEE ENACTED, That on and after the first day of July, eighteen hundred and sixty-two, any person' or persons owning or possessing, or having the care or management, of any railroad company or railroad cor- poration, being indebted for any sum or sums of money for which bonds or other evidences of indebtedness have been issued, payable in one or more years after date, upon which interest is, or shall be, stipulated to be paid, or coupons representing the interest shall be or shall have been issued to be paid, and all dividends in scrip or money or sums of money thereafter declared due or payable to stockholders of any railroad company, as part of the earnings, profits, or gains of said companies, shall be subject to and pay a duty of three per centum on the amount of all such interest or coupons or dividends whenever the same shall be paid; and said railroad companies or railroad corporations, or any person or persons owning, possessing, or having the care or management of any railroad company or railroad corpora- tion, are hereby authorized and required to deduct and withhold from all payments made to any person, persons, or party, after the first day of July, as aforesaid, on account of any interest or coupons or dividends due and payable as aforesaid, the said duty or sum of three per centum; and the duties deducted as aforesaid, and certified by the president or other officer of said company or corporation, shall be a receipt and discharge, according to the amount thereof, of said rsrilroad companies or railroad corporations, and the owners, possessors, and agents thereof, on dividends and on bonds and other evidences of their indebtedness, upon which interest or coupons are Appendixes. 165 payable, holden by any person or party whatsoever, and a list or return shall be made and rendered within thirty days after the time fixed when said interest or coupons or dividends become due or payable, and as often as every six months, to the commissioner of' internal revenue, which shall con- tain a true and faithful account of the duties received and chargeable, as aforesaid, during the time when such duties have accrued or should accrue, and remaining unaccounted for; and there shall be annexed to every such list or return a declaration under oath or affirmation, in manner and form as may be prescribed by the commissioner of internal revenue, of the presi- dent, treasurer, or some proper officer of said railroad company or railroad corporation, that the same contains a true and faithful account of the duties so withheld and received during the time when such duties have accrued or should accrue, and not accounted for, and for any default in the making or rendering of such list or return, with the declaration annexed, as aforesaid, the person or persons owning, possessing, or having the care or management of such railroad company or railroad corporation, making such default, shall forfeit, as a, penalty, the sum of five hundred dollars; and in case of any default in making or rendering said list, or of any default in the payment of the duty, or any part thereof, accruing or which should accrue, the assess- ment and collection shall be made according to the general provisions of this act. Section 82. Banks, Tbust Companies, Savings Institutions, and Insurance Companies. And be it further enacted. That on and after the first day of July, eigh- teen hundred and sixty-two, there shall be levied, collected, and paid by all banks, trust companies, and savings institutions, and by all fire, marine, life inland, stock, and mutual insurance companies, under whatever style or name known or called, of the United States or territories, specially incorporated, or existing under the general laws, or which may be hereafter incorporated or exist as aforesaid, on all dividends in scrip or money thereafter declared due or paid to stockholders, to policyholders, or to depositors, as part of the earnings, profits, or gains of said banks, trust companies, savings institutions, or insurance companies, and on all auras added to their surplus or contingent funds, a duty of three per centum: Provided, That the duties upon the dividends of life insurance companies shall not be deemed due, or to be collected until such dividends shall be payable by such companies. And said banks, trust companies, savings institutions, and insurance companies are hereby authorized and required to deduct and withhold from all payments made to any person, persons, or party, on account of any dividends or sums of money that may be due and payable, as aforesaid, after the first day of July, eighteen hundred and sixty-two, the said duty of three per centum. And a list or return shall be made and rendered within thirty days after the time fixed when such dividends or sums of money shall be declared due and payable, and as often as every six months, to the commissioner of internal revenue, which shall contain a true and faithful account of the amount of duties accrued or which should accrue from time to time, as aforesaid, during the time when such duties remain unaccounted for, and there shall be annexed to every such list or return a declaration, under oath or affirmation, to be made in form and manner as shall be prescribed by the 166 Fedeeal Income Tax Law. commissioner of internal revenue, or the president, or some other proper officer of said bank, trust company, savings institution, or insurance com- pany, respectively, that the same contains a true and faithful account of the duties which have accrued or should accrue and not accounted for, and for any default in the delivery of such list or return, with such declaration annexed, the bank, trust company, savings institution, or insurance company making such default shall forfeit, as a penalty, the sum of five hundred dollars. Section 84. And be it fubtheb enacted. That on the first day of October, Anno Domini eighteen hundred and sixty-two, and on the first day of each quarter of a year thereafter, there shall be paid by each insurance company, whether inland or marine, and by each individual or association engaged in the busir ness of insurance from loss or damage by fire, or by the perils of the sea, the duty of one per centum upon the gross receipts for premiums and assess- ments by such individual, association, or company during the quarter then preceding; and like duty shall be paid by the agent of any foreign insurance company having an office or doing business within the United States. Section 86. Salabies and Pat of Officebs and Pebsons in the Sbevicb op the United States. And be it fubtheb enacted. That on and after the first day of August, eighteen hundred and sixty-two, there shall be levied, collected, and paid on all salaries of officers, or payments to persons in the civil, military, naval, or other employment or services of the United States, including senators and representatives and delegates in congress, when exceeding the rate of six hundred dollars per annum, a duty of three per centum on the excess above the said six hundred dollars; and it shall be the duty of all paymasters, and all disbursing officers, under the government of the United States, or in the employ thereof, when making any payments to officers and persona as afore- said, or upon settling and adjusting the accounts of such officers and persons, to deduct and withhold the aforesaid duty of three per centum, and shall, at the same time, make a certificate stating the name of the officer or person from whom such deduction was made, and the amount thereof, which shall be transmitted to the office of the commissioner of internal revenue, and entered as part of the internal duties; and the pay-roll receipts, or account of officers or persons paying such duty, as aforesaid, shall be made to exhibit the fact of such payment. Section 88. Advebtisement. And be it rtTBTHEE enacted. That on and after the first day of August, eighteen hundred and sixty-two, there shall be levied, collected, and • paid by any person or persons, firm, or company, publishing any newspaper, maga- zine, reviews, or other literary, scientific, or news publication, issued periodi- cally, on the gross receipts for all advertisements, or all matters for the insertion of which in said newspaper or other publication, as aforesaid, or in extras, supplements, sheets, or fly-leaves accompanying the same, pay is Appendixes. 167 required or received, a duty of three per centum; and the person or persons, firm or company, owning, possessing, or having the care or management of any and every such newspaper or other publication, as aforesaid, shall make a list or return quarterly, commencing as heretofore mentioned, containing the gross amount of receipts as aforesaid, and the amount of duties which have accrued thereon, and render the same to the assistant assessor of the respective districts where such newspaper, magazine, review, or other literary or news publication is or may be published, which list or return shall have annexed a declaration, under oath or affirmation, to be made according to the manner and form which may be from time to time prescribed by the commissioner of internal revenue, or the owner, possessor, or person having the care or management of such newspaper, magazine, review or other pub- lication, as aforesaid, that the same is true and correct, and shall also, quar- terly and at the time of making said list or return, pay to the collector or deputy collector of the district as aforesaid, the full amount of said duties; and in case of neglect or refusal to comply with any of the provisions con- tained in this section, or to make and render said list or return, as afore- said, for the space of thirty days after the time when said list or return ought to have been made, as aforesaid, the assistant assessor of the respective districts shall proceed to estimate the duties, as heretofore provided in other cases of delinquency; and in case of neglect or refusal to pay the duties, as aforesaid, for the space of thirty days after said duties become due and pay- able, said owner, possessor, or person or persons having the care or manage- ment of said newspapers or publications, as aforesaid, shall pay, in addition thereto a penalty of five per centum on the amount due; and in case of fraud or evasion, whereby the revenue is attempted to be defrauded or the duty withheld, said owners, possessors, or person or persons having the care or management of said newspapers or other publications, as aforesaid, shall for- feit and pay a penalty of five hundred dollars for each ofi'ense, or for any sum fraudulently unaccounted for; and all provisions in this act in relation to liens, assessments, and collection, not incompatible herewith, shall apply to this section and the objects herein embraced; Provided, That in all cases where the rate or price of advertising is fixed by any law of the United States, or territory, it shall be lawful for the company, person or persons, publishing said advertisments, to add the duty or tax imposed by this act to the price of said advertisements, any law as aforesaid, to the contrary not- withstanding; Provided further. That the receipts for advertisements to the amount of one thousand dollars, by any person or persons, firm or company, publishing any newspaper, magazine, review, or other literary, scientific, news publication, issued periodically, shall be exempt from duty; And provided further. That all newspapers whose circulation does not exceed two thousand copies shall be exempted from all taxes for advertisements. Section 89. Income Duty. And be it ftjrthee enacted. That for the purpose of modifying and re-enacting, as hereinafter provided, so much of an act, entitled "An act to provided increased revenue from imports to pay interest on the public debt, and for other purposes," approved fifth of August, eighteen hundred 168 Fedeeai. Income Tax Law. sixty-one, as relates to income tax; that is to say, sections forty -nine, fifty (except so much thereof as relates to the selection and appointment of depositaries), and fifty-one, be, and the same are hereby, repealed. Section 90. And be it ftjbtheb enacted, That there shall be levied, collected, and paid annually, upon the annual gains, profits, or income of every person residing in the United States, whether derived from any kind of property, rents, interest, dividends, salaries, or from any profession, trade, employment, or vocation carried on in the United States or elsewhere, or from any other source whatever, except as hereinafter mentioned, if such annual gains, profits, or income exceed the sum of six hundred dollars, and do not exceed the sum of ten thousand dollars, a duty of three per centum on the amount of such annual gains, profits, or income over and above the said sum of six hundred dollars; if said income exceeds the sum of ten thousand dollars, a duty of five per centum upon the amount thereof exceeding six hundred dol- lars, and upon the annual gains, profits, or income, rents, and dividends accruing upon any property, securities, and stocks owned in the United States by any citizen of the United States, residing abroad, except as here- inafter mentioned and not in the employment of the government of the United States, there shall be levied, collected, and paid a duty of five per centum. Section 91. And be it fltetheb enacted, That in estimating said annual gains, profits, or income, whether subject to a, duty, as provided in this act, of three per centum, or of five per centum, all other national, state, and local taxes, law- fully assessed upon the property or other sources of income of any person as aforesaid, from which said annual gains, profits, or income of such person is or should be derived, shall be first deducted from the gains, profits, or income of the person or persons who actually pay the same, whether owner or tenant, and all gains, profits, or income derived from salaries of officers, or payments to persons in the civil, military, naval, or other service of the United States, including senators, representatives, and delegates in congress, above six hundred dollars, or derived from interest or dividends on stocks, capital or deposits in any bank, trust company, or savings institution, insur- ance, gas, bridge, express, telegraph, steamboat, ferry-boat, or railroad com- pany, or corporation, or on any bonds or other evidences of indebtedness of any railroad company or other corporation, which shall have been assessed and paid by said banks, trust companies, savings institutions, insurance, gas, bridge, telegraph, steamboat, ferry-boat, express or railroad companies, as aforesaid, or derived from advertisements, or on any articles manufactured, upon which specific, stamp or ad valorem duties shall have been directly assessed or paid, shall also be deducted; and the duty herein provided for shall be assessed and collected upon the income for the year ending the thirty-first day of December next preceding the time for levying and collecting said duty, that is to say, on the first day of May, eighteen hundred and sixty -three, and in each year thereafter: Provided, That upon such portion of said gains, profits, or income, whether subject to a duty as provided in Appendixes. 169 this act of three per centum or of five per centum, which shall he derived from interest upon notes, bonds, or other securities of the United States, there shall be levied, collected, and paid a duty not exceeding one and one- half of one per centum, anything in this act to the contrary notwithstanding. Section 92. And be it pubthee enacted. That the duties on income herein imposed shall be due and payable on or before the thirtieth day of June, in the year eighteen hundred and sixty-three, and in each year thereafter until and including the year eighteen hundred and sixty -six and no longer; and to any sum or sums annually due and unpaid for thirty days after the thirtieth of June as aforesaid, and for ten days after demand thereof by the collector, there shall be levied in addition thereto the sum of five per centum on the amount of duties unpaid, as a penalty, except from the estates of deceased and insolvent persons; and if any person or persons, or party, liable to pay such duty, shall neglect or refuse to pay the same, the amount due shall be a lien in favor of the United States from the time it was so due until paid, with the interest, penalties, and costs, that may accrue in addition thereto, upon all the property, and rights to property, stocks, securities, and debts of every description from which the income upon which said duty is assessed or levied shall have accrued, or may or should accrue; and in default of the payment of said duty for the space of thirty days, after the same shall have become due, and be demanded as aforesaid, said lien may be enforced by distraint upon such property, rights to property, stocks, securities, and evidences of debt, by whomsoever holden; and for this purpose the commis- sioner of internal revenue, upon the certificate of the collector or deputy collector that said duty is due and unpaid for the space of ten days after notice duly given of the levy of such duty, shall issue a warrant in form and manner to be prescribed by said commissioner of internal revenue, under the directions of the secretary of the treasury, and by virtue of such warrant there may be levied on such property, rights to property, stocks, securities, and evidences of debt, a further sum to be fixed and stated in such warrant, over and above the said annual duty, interest, and penalty for non-payment, suflicient for the fees and expenses of such levy. And in all cases of sale, as aforesaid, the certificate of such sale by the collector or deputy collector of the sale, shall give title to the purchaser of all right, title and interest of such delinquent in and to such property, whether the property be real or personal; and where the subject of sale shall be stocks, the certificate of said sale shall be lawful authority and notice to the proper corporation, company, or association, to record the same on the books or records, in the same manner as if transferred or assigned by the person or party holding the same, to issue new certificates of stock therefor in lieu of any original or prior certificates, which shall be void whether cancelled or not; and said certificates of sale of the collector or deputy collector, where the subject of sale shall be securities or other evidences of debt, shall be good and valid receipts to the person or party holding the same, as against any person or persons, or other party holding or claiming to hold, possession of such securi- ties or other evidences of debt. 170 Tedeeal Income Tax Law. Section 93. And be it fuethee enaoted, That it shall be the duty of all persons of lawful age, and all guardians and trustees, whether such trustees are so by virtue of their office as executors, administrators, or other fiduciary capacity, to make return in the list or schedule, as provided in this act, to the proper officer of internal revenue, of the amount of his or her income, or the income of such minors or persons as may be held in trust as aforesaid, according to the requirements hereinbefore stated, and in case of neglect or refusal to make such return, the assessor or assistant assessor shall assess the amount of his or her income, and proceed thereafter to collect the duty thereon in the same manner as is provided for in other cases of neglect and refusal to furnish lists or schedules in the general provision of this act, where not otherwise incompatible, and the assistant assessor may increase the amount of the list or return of any party making such return, if he shall be satisfied tliat the same is understated: Provided, that any party, in his or her own behalf, or as guardian or trustee, as aforesaid, shall be permitted to declare, under oath or affirmation, the form and manner of which shall be prescribed by the commissioner of internal revenue, that he or she was not possessed of an income of six hundred dollars liable to be assessed according to the pre visions of this act, or that he or she has been assessed elsewhere and the same year for an income duty, under authority of the United States, and shall thereupon be exempt from an income duty, or, if the list or return of any party shall have been increased by the assistant assessor, in manner as afore- said, he or she may be permitted to declare, as aforesaid, the amount of his or her annual income, or the amount held in trust, as aforesaid, liable to be assessed, as aforesaid, and the same so declared shall be received as the sum upon which duties are to be assessed and collected. Appendixes. 171 APPENDIX D. ACT OF MARCH 3, 1863. Chapter LXXIV.— An Act to Amend an Act Entitled "An Act to Provide Internal Revenue to Support the Government and Pay Interest on the Public Debt," Approved July First, Eighteen Hundred and Sixy-two, and for Other Purposes. Section 1. Be it enacted, That section ninety-one be amended by striking out the word " gas " wherever it occurs, and by striking out the words " or on any articles manufactured " after the word " advertisements." That section ninety-three be amended so that in case of neglect or refusal to make the returns referred to in said section the proceedings thereafter for the assessment and collection of the duty shall be in the same manner as provided for in other cases of neglect. Section 3. And be it fdbthek enacted. That any person or persons, firm, company, or corporation, who shall issue tickets or contracts of insurance against fatal or non-fatal injury to persons while traveling by land or water, shall pay a duty of one per centum on the gross amount of all the receipts for such insurance, and shall be subject to all the provisions and regulations of existing law applicable thereto, in relation to insurance companies: Provided, That no stamp duty shall be required upon tickets or contracts of insurance as aforesaid, when limited to fatal or non-fatal injury to persons while traveling. Section 7. And be it ftjethee enacted, That the commissioner of internal revenue be, and he is hereby, authorized to prescibe such method for the cancellation of stamps as a substitute for or in addition to the method now prescribed by law, as he may deem expedient and effectual. And he is further authorized in his discretion to make the application of such method imperative upon the manufacturers of proprietary articles, and upon stamps of a nominal value exceeding twenty-five cents each. Section 9. And be it fubthbe enacted. That any person or persons, firms, companies, or corporation, owning or possessing, or having the care or management of any ferry-boat, or vessel used as a, ferry-boat, propelled by steam or horse- power, in lieu of the duties now imposed by law, shall be subject to pay a duty of one and one-half of one per centum upon the gross receipts of such ferry-boat; and the return and payment thereof shall be made in the manner prescribed in the act to whicli this act is an amendment. 172 Fedeeal Income Tax Law. Section 10. And be it fubthee enacted. That on and after the first day of April, eighteen hundred and sixty-three, any person or persons, firms, companies, or corporations carrying on or doing an express business shall, in lieu of the tax and stamp duties imposed by existing laws, be subject to and pay a duty of two per centum on the gross amount of all the receipts of such express business, and shall be subject to the same provisions, rules and penalties, as are pre- scribed in section eighty of .the act to which this is an amendment, for the persons, firms, companies, or corporations owning or possessing or having the management of railroads, steamboats, and ferry-boats and all acts or parts of acts inconsistent herewith are hereby repealed. Section 11. And be it fuetheb enacted. That in estimating the annual gains, profit, or income, of any person, under the aict to which this act is an amendment, the amount actually paid by such person for the rent of the dwelling-house or estate on which he resides shall be first deducted from the gains, profit, or income of such person. Appendixes. 1'?3 APPENDIX E. ACT OF JUNE 30, 1864. Chapter CLXXIII. — An Act to Provide Internal Revenue to Support the Government to Pay Interest on the Public Debt, and for Other Purposes. Section 103. And be it ftjether enacted, That every person, firm, company, or corpo- ration, owning or possessing, or liaving the care or management of, any railroad, canal, steamboat, ship, barge, canal-boat, or other vessel, or any stage-coach or other vehicle engaged or employed in the business of trans- porting passengers or property for hire, or in transporting the mails of the United States, on any canal, the water of which is used for mining pur- poses, shall be subject to and pay a duty of two and one-half per centum upon the gross receipts of such railroad, canal, steamboat, ship, barge, canal- hoat, or other vessel, or such stage-coach or other vehicle: Provided, That the duty hereby imposed shall not be charged upon receipts for the transporta- tion of persons or property, or mails, between the United States and any foreign port; and any person or persons, iirms, companies, or corporations, owning, possessing, or having the care or management of any toll-road ferry, or bridge authorized by law to receive toll for the transit of passengers, beasts, carriages, teams, and freight of any description, over such toll-road, ferry, or bridge, shall be subject to and pay a duty of three per centum on the gross amount of all their receipts of every description. But when the gross receipts of any such bridge or toll-road shall not exceed the amount necessarily expended to keep such bridge or road in repair, no tax shall be Imposed on such receipts: Provided, That all such persons, companies, and corporations shall have the right to add the duty or tax imposed hereby to their rates of fare whenever their liability thereto may commence, any limi- tation which may exist by law or by agreement with any person or company which may have paid or be liable to pay such fare to the contrary notwith- standing. Section 104. And be it fuethee enacted. That any person, firm, company, or corpo- ration carrying on or doing an express business, shall be subject to and pay a duty of three per centum on the gross amount of all the receipts of suchi express business. Section 105. And be it FtrETHEE enacted. That there shall be levied, collected, and paid a duty of one and a half of one per centum upon the gross receipts of premiums, or assessments for insurance from loss or damage by fire or by the perils of the sea, made by every insurance company, whether inland or marine or fire insurance company, and by every association or individual 174 Federal Income Tax Law. engaged in the business of insurance against loss or damage by fire or by the perils of the sea; and by every person, firm, company, or corporation, who shall issue tickets, or contracts of insurance against injury to persons while traveling by land or water; and a like duty shall be paid by the agent of any foreign insurance company having an office or doing business within the United States; and that in the account or return to be rendered, they shall state the amount insured, renewed, or continued, the gross amount of premiums received and assessments collected, and the duties by law accruing thereon for the quarter then next preceding. Section 107. And be it ftjrtheb eisiacted. That any person, firm, company or corporation owning or possessing or having the care or management of any telegraphic line by which telegraphic despatches or messages are received or transmitted, shall be subject to, and pay a duty of, five per centum on the gross amount of all receipts of such person, firm, company, or corporation. Section 108. And be it rURTHEE enacted, That any person, firm, or corporation, or the manager or agent thereof, owning, conducting, or having the care or management of any theatre, opera, circus, museum, or other public exhibition of dramatic or operatic representations, plays, performances, musical enter- tainments, feats of horsemanship, acrobatic sports, or other shows wliich are opened to the public for pay, but not including occasional concerts, school exhibitions, lectures, or exhibitions of works of art, shall be subject to and pay a duty of two per centum on the gross amount of all receipts derived by such person, firm, company, or corporation from such representations, plays, performances, exhibitions, shows, or musical entertainments. Section 109. And be it rtrBTHEB enacted, That any person, firm, company, or corpora- tion, owning or possessing, or having the care or management of any railroad, canal, steamboat, ship, barge, canal-boat, or other vessel, or any ferry, toll- road or bridge, as enumerated and described in section one hundred and two (three) of this act; or carrying on or doing an express business; or engaged in the business of insurance, as hereinbefore described; or owning or having the care and management of any telegraph line, or owning, possessing, leasing, or having the control or management of any circus, theatre, opera, or museum, shall within twenty days after the end of each and every month, make a list or return in duplicate to the assistant assessor of the district stating the gross amount of their receipts, respectively, for the month next preceding, which return shall be verified by the oath proper officer, in the manner and form to be prescribed from time to time by the commissioner of internal revenue; and shall also pay to the collector the full amount of duties which have accrued on such receipts for the month aforesaid. And in case of neglect or refusal to make said list or return for the space of ten days after such return should have been made as aforesaid, the assessor or assistant assessor shall proceed to estimate the amount received and the Appendixes. 175 duties payable thereon, in other cases of delinquency, to make return for purposes of assessment; and for the purpose of making such assessment, or of ascertaining the correctness of any such return, the books of any such person, firm, company, or corporation shall be subject to the inspection of the assessor or assistant assessor on his demand or request therefor. And in case of neglect or refusal to pay the duties, with the addition aforesaid, when the same have been ascertained, for the space of ten days after the same shall have become payable, the owner, possessor or person having the man- agement as aforesaid, shall pay, in addition, ten per centum on the amount of such duties and addition; and for any attempt knowingly to evade the payment of such duties, the said owner, possessor, or person having the care or management as aforesaid, shall be liable to pay a penalty of one thousand dollars for every such attempt, to be recovered as provided in this act for the recovery of penalties. And all provisions of this act in relation to liens and collections by distraint, not incompatible herewith, shall apply to this section and the objects therein embraced. Section 110. And be it fdethee enacted, That thej-e shall be levied, collected, and paid a duty of one twenty-fourth of one per centum each month upon the average amount of the deposits of money, subject to payment by check or draft, or represented by certificates of deposit or otherwise, whether payable on demand or at some future day, with any person, bank, association, com- pany, or corporation engaged in the business of banking; and a duty of one twenty-fourth of one per centum each month as aforesaid, upon the average amount of the capital of any bank, association, company, or corporation, or person engaged in the business of banking beyond the amount invested in United States bonds; and a duty of one-twelfth of one per centum each month upon the average amount of circulation issued by any bank, association, cor- poration, company, or person, including as circulation all certified checks and all notes and other obligations calculated or intended to circulate or be used as money but not including that in the vault of the bank, or redeemed and on deposit for said bank; and an additional duty of one-sixth of one per centum, each month, upon the average amount of such circulation, issued as aforesaid, beyond the amount of ninety per centum of the capital of any such bank, association, corporation, company, or person, and upon any amount of such circulation, beyond the average amount of the circulation that had been issued as aforesaid by any such bank, association, corporation, company, or person, for the six months preceding the first day of July, eighteen hundred and sixty- four. And on the first Monday of August next, and of each month thereafterj a true and accurate return of the amount of circulation, of deposit, and of capital as aforesaid, for the previous month, shall be made and rendered in duplicate by each of such banks, associations, corporations, companies, or persons to the assessor of the district in which any such bank, association, corporation, or company may be located, or in which such person may reside, with a declaration annexed thereto, and the oath or affirmation of such person, or of the president or cashier of such bank, association, corporation, or company, in such form and manner as may be prescribed by the commissioner of internal revenue, that the same contains a true an^i faithful statement of 176 Federal Income Tax Law. the amount of circulation, deposits, and capital as aforesaid, subject to duty as aforesaid, and shall transmit the duplicate of said return to the com- missioner of internal revenue, and within twenty days thereafter shall pay to the said commissioner of internal revenue the duties hereinbefore prescribed upon the said amount of circulation, of deposits, and of capital, as aforesaid, and for any refusal or neglect to make or to render such return and payment as aforesaid, any such bank, association, corporation, company, or person so in default shall be subject to and pay a penalty of two hundred dollars, besides the additional penalty and forfeitures in other cases provided in this act; and the amount of circulation, deposit, and capital, as aforesaid, in default of the proper return, shall be estimated by the assessor or assistant assessor of the district as aforesaid, upon the best information he can obtain; and every such penalty, together with the duties as aforesaid may be recovered for the use of the United States in any court of competent jurisdiction. And in the case of banks with branches, the duty herein provided for shall be imposed upon the circulation of each branch, severally, and the amount of capital of each branch shall be considered to be the amount allotted to such branch; and so much of an act entitled "An act to provide ways and means for the support of the government," approved March three, eighteen hundred and sixty-three, as imposes any tax on banks, their circulation, capital, or deposits, other than is herein provided, is hereby repealed: Pro- vided, That this section shall not apply to associations which are taxed under and by virtue of the act " to provide a national currency, secured by a pledge of United States bonds, and to provide for the circulation and redemp- tion thereof; " nor to any savings bank having no capital stock, and whose business is confined to receiving deposits and loaning the same on interest for the benefit of the depositors only, and which do no other business of banking; And provided, further. That any hank ceasing to issue notes for circulation, and which shall deposit in the treasury of the United States, in lawful money, the amount of its outstanding circulation, to be redeemed at par, under such regulations as the secretary of the treasury may prescribe, shall be exempt from any tax upon such circulation. Sectiou 111. And be it FtrETHEE enacted. That every individual, partnership, firm, and association, being proprietors, managers, or agents of lotteries shall pay a tax of five per centum on the gross amount of the receipts from the said business; and all persons making such sales shall, within ten days after the first day of each and every month, make and render a list or return in duplicate to the assistant assessor of the gross amount of such sales, made as aforesaid, with the amount of duty which has accrued or should accrue thereon; which list shall have annexed thereto a declaration under oath or affirmation, in such form and signed by such ofiicer, agent, or clerk, as may be prescribed by the commissioner of internal revenue that the same is true and correct, and tliat the said proprietors, managers, and agents shall on or before the twentieth day of each and every month, as aforesaid, pay the collector or deputy collector of the proper district the amount of the duty or tax as aforesaid. And in default of making such lists or returns, the said proprietors, managers, and agents and all other persons making Appendixes. l'i'7 such sales, shall be subject to and pay a penalty of one thousand dollars, besides the additions, penalties, and forfeitures in other cases provided; and the said proprietors, managers, and agents shall, in default of paying the said duty or tax at the time herein required, be subject to and pay a penalty of one thousand dollars, or be imprisoned not exceeding one year. In all cases of delinquency in making said list, return, or payment, the assessments and collections shall be made in the manner prescribed iti the provisions of this act in relation to manufactures, articles, and products; Provided, That the managers of any sanitary fair, or of any charitable, benevolent, or religious association may apply to the collector of the district and present to him proof that the proceeds of any contemplated lottery, raffle, or gift enterprise will be applied to the relief of sick and wounded soldiers, or to some other charitable use, and thereupon the commissioner shall grant a permit to hold such lottery, raffle, or gift enterprise, and the said sanitary fair, or charitable or benevolent association, shall be exempt from all charge, whether from tax or license, in respect of such lottery, raffle, or gift enterprise; Provided, further, That nothing in this section contained shall be construed to legalize any lottery. Section 114. And be it ftibther enacted. That there shall be levied, collected, and paid by any person or persons, ■ firm, or company, publishing any newspaper, magazine, review, or other literary, scientific, or news publication, issued periodically, on the gross receipts for all advertisements or all matters for the insertion of which in said newspapers or other publication as aforesaid, or in extras, supplements, sheets, or fly-leaves, accompanying the same, pay is required or received, a duty of three per centum; and the person or persons, firm, or company, owning, possessing, or having the eare or manage- ment of any and every such newspaper, or other publication, as aforesaid, shall make a list or return on the first day of January, April, July, and October of each year, containing the gross amount of receipts as aforesaid, and the amount of duties which have accrued thereon, and render the same in duplicate to the assistant assessor of the district where such newspaper, magazine, review, or other literary or news publication is or may be published; which list or return shall have annexed a declaration, under oath or affirma- tion, to be made according to the manner and form which may be from time to time prescribed by the commissioner of internal revenue, of tha owner, possessor, or person having the care or management of such newspaper, magazine, review, or other publication, as aforesaid, that the same is true and correct; and shall also, quarterly, within ten days after the time of making said list or return, pay to the collector or deputy collector of the district the full amount of said duties. And in case of neglect or refusal to comply with any of the provisions contained in this section, or to make and render said list or return, for the space of ten days after the time when said list or return ought to have been made, as aforesaid, the assistant assessors of the respective districts shall proceed to estimate the duties as heretofore provided in other eases of delinquency; and in case of neglect or refusal to pay the' duties, as aforesaid, for the space of ten days after said duties become due and payable, and have been demanded said owner, possessor, or person or persons having the care or management of said 178 Fedeeax Income Tax Law. newspapers or publications, as aforesaid, shall pay, in addition thereto, a penalty of ten per centum on the amount due. And in case of fraud or evasion, whereby the revenue is attempted to be defrauded, or the duty withheld, said owners, possessors, or person or persons having the care or management of said newspapers or other publications, as aforesaid, shall forfeit and pay a penalty of one thousand dollars for each offense, or for any sum fraudulently unaccounted for. And all provisions in this act in relation to returns, additions, penalties, forfeitures, liens, assessments, and collection, not incompatible herewith, shall apply to this section and the objects herein embraced; Provided, That in all cases where the rate or price of advertising is fixed by any law of the United States, state, or territory, it shall be lawful for the company, person or persons, publishing said advertisements, to add the duty or tax imposed by this act to the price of said advertisements, any law to the contrary notwithstanding; and that the receipts for advertisements to the amount of six hundred dollars annually by any person or persons, firm, or company publishing any newspaper, maga- zine, review, or other literary, scientific, or news publication, issued periodi- cally, shall be exempt from duty; And provided, further. That all newspapers whose average circulation does not exceed two thousand copies shall be exempted from all taxes for advertisements. Section 116. And he it fdether enacted. That there shall be levied, collected, and paid annually upon the annual gains, profits, or income of every person residing in the United States, or of any citizen of the United States residing abroad, whether derived from any kind of property, rents, interests, dividends, sal- aries or from any profession, trade, employment, or vocation, carried on in tlie United Stated, or. elsewhere, or from any other source whatever, except as hereinafter mentioned, if such annual gains, profits, or income exceed the sum of six hundred dollars, a duty of five per centum on the excess over . six hundred dollars and not exceeding five thousand dollars; and a duty of seven and one-half of one per centum: per annum on the excess over five thousand dollars . and not exceeding ten thousand dollars ; and a duty of ten per centum on the excess over ten thousand dollars. And the duty herein provided for shall be assessed, collected, and paid upon the gains,, profits, or income for the year ending the thirty-first day of December next, preceding the time for levying, collecting, and paying said duty : Provided, That income derived from interest upon notes, bonds, and other securities of the United States, shall be included in estimating incomes under this section: Provided, That only one deduction of six hundred dollars shall be made from the aggre- gate incomes of all the members of any family composed of parents and minor children, or husband and wife, except in cases where such separate income shall be derived from the separate and individual estates, gains, or labor of the wife or child; And provided further. That net profits realized by sales or real estate purchased within the year, for which income is esti- mated, shall be chargeable as income; and losses on sales or real estate pur- chased within the year, for which income is estimated, shall he deducted from the income of such year. Appendixes. 179 Section 117. And be fubtheb enacted, That in estimating the annual gains, profits, or income of any person, all national, state, and municipal taxes, other than the national income tax lawfully assessed within the year upon the property or sources of income of any person, as aforesaid, from which said annual gains, profits, or income is or should be derived, shall be deducted, in addition to six hundred dollars, from the gains, profits or income of the person who has actually paid the same, whether owner, tenant or mortgagor; also the salary or pay received for serviced in the civil, military, naval, or other service of the United States, including senators, representatives, and delegates in congress, above the rate of six hundred dollars per annum ; and there shall also be deducted the income derived from dividends on shares in the capital stock of any bank, trust company, savings institution, insurance, railroad, canal, turnpike, canal navigation, or slack-water company, and the interest on any bonds, or other evidences of indebtedness of any such corporation or company, which shall have" beeri assessed and the tax paid, as hereinafter provided; also the amount paid by any person for the rent of the homestead used or occupied by himself or his family, and the rental value of any home- stead used or occupied by any person, or by his family, in his own right, or in the right of his wife, shall not be included and assessed as part of the income of such person. In estimating the annual gains, profits, or income of any person, the interest over and above the amount of interest paid upon all notes, bonds, and mortgages, or other forms of indebtedness, bearing interest, whether due and paid or not, if good and collectible, shall be included and assessed as part of the income or gains derived from the purchase and sale of stocks or other property, real or personal, and the increased value of live stock, whether sold or on hand, and the amount of sugar, wool, butter, cheese, pork, beef, mutton, or other meats, hay and grain, or other vegetables or other productions of the estate of such person sold, not including any part thereof unsold or on hand during the year next pre- ceding the thirty-first of December, shall be included and assessed as part of the income of such person for each year, and the gains and profits of all companies, whether incorporated or partnership, other than the companies speci- fied in this section, shall be included in estimating the annual gains, profits, or income of any person entitled to the same, whether divided or otherwise. In estimating deductions from income, as aforesaid, when any person rents buildings, lands or other property, or hires labor to carry on land or to conduct any other business from which such income is actually derived, or pays interest upon any actual incumbrance thereon, the amount actually paid for such rent, labor, or interest shall be deducted, and also the amount paid out for usual or ordinary repairs, not exceeding the average paid out for such purposes for the preceding five years, ishall be deducted, but no deduction shall be made for an amount paid out for new buildings, permanent Improvements, or betterments, made to increase the value of any property or estate: Provided, That in cases where the salary or other compensation paid to any person in the employment or service of the United States shall not' exceed the rate of six hundred dollars per annum, or shall be by fees, or uncertain or irregular in the amount or in the time during which the same shall have accrued or been earned, such salary or other compensation shall 180 Federal Income Tax Law. be included in estimating the annual gains, profits or income of the person to whom the same shall have been paid, in such manner as the commis- sioner of internal revenue, under the directions of the secretary of the treasury may prescribe. Section 118. And be it fuethee enacted, That it shall be the duty of all persons of lawful age, and all guardians and trustees, whether such trustees are so by virtue of their ofSee as executors, administrators, or in other fiduciary capac- ity to make a list or return under oath or affirmation, in such form and manner as may be prescribed by the commissioner of internal revenue, to the assistant assessor of the district in which he resides, of the amount of his or her income, or the income of such minors or persons as may be held in trust as aforesaid, according to the requirements hereinbefore mentioned, stating the sources from which said income is derived, whether from any kind of property, or the purchase and sale of property, rents, interest, divi- dends, salaries, or from any profession, trade, employment, or vocation or otherwise. And in case of neglect, or refusal to make such return, the assessor or assistant assessor shall assess the amount of his or her income, and the duty the assessor or assistant assessor on or before the tenth day of the month following that in which any dividends or sums of money become due or payable as aforesaid, and said list or return shall contain a true and faithful account Of the amount of taxes as aforesaid; and there shall be annexed thereto a declaration of the president, cashier, or treasurer of the bank, trust company, savings institution, or insurance company, under oath or affinnation in form and manner, as may be prescribed by the commissioner of internal revenue, that the same contains a true and faithful account of the taxes as aforesaid. And for any default in the making or rendering of such list or return, with such declaration annexed, the bank, trust company, savings institution, or insurance company making such default, shall forfeit as a penalty in making or rendering said list or return, or of any default in the payment of the tax as required, or any part thereof, the assessment and collection of the tax and penalty shall be in accordance with the general provisions of the law in other cases of neglect and refusal: Provided, ThatI the tax upon the dividends of life insurance companies shall not be deemed due until such dividends are payable, nor shall the portion of premiums returned by mutual life insurance companies to their policyholders, nor the annual or semi-annual interest allowed or paid to the depositors in savings banks or savings institutions be considered as dividends. That section one hundred and twenty-two be amended by striking out all after the enacting clause and inserting in lieu thereof the following: That any railroad, canal, turnpike, canal navigation or slack water company,! indebted for any money for which bonds or other evidences of indebtedness Appendixes. 193 have been issued, payable in one or more years after date, upon which interest is stipulated tto be paid, or coupons representing the interest, or any such company may have declared any dividend in scrip or money due or payable to its stockholders, including nonresidents, whether citizens or aliens, as part of the earnings, profits, income, or gains of such company, and all profits of such company carried to the account of any fund, or used for construction,; shall be subject to and pay a tax of five per centum on the amount of all such interest, or coupons, dividends, or profits, whenever and wherever tlie eame shall be payable, and to whatsoever party or person the same may bie payable, including nonresidents, whether citizens or aliens; and said com- panies are hereby authorized to deduct and withhold from all payments on account of any interest, or coupons, and dividends, due and payable as afore- said, the tax of five per centum; and the payment of the amount of said tax so deducted from the interest or coupons, or dividends, and certified by the president or treasurer of said company, shall discharge «aid company from that amount of the dividend', or interest, or coupon on the -bonds or other evidences of their indebtedness so held by any person or party what- ever, except where such companies may have contradted otherwise. And a list or return shall be made and rendered to the assessor or assistant assessor on or before the tenth day of the month following that in which said interest, coupons or dividends become due and payable, and as often as every six months, and said list or return shall contain a true and faithful account of the amount of the tax, and there shall be annexed thereto a declaration of the president or treasurer of the company, under oath or afiirmation in form and manner as may be prescribed by the commissioner of internal revenue, that the same contains a true and faithful account of said tax. And for any default in making or rendering such list or return, with the declaration annexed, or of the payment of the tax as aforesaid, the company making such default shall forfeit as a penalty the sum of one thousand dollars; and in case of any default in making or rendering said list or return, or of thel payment of the tax or any part thereof, as aforesaid, the assessment and collection of the tax and penalty shall be made according to the provisions of law in other cases of neglect or refusal. That section one hundred and twenty-two be further amended by adding thereto the following proviso: Provided, That whenever any of the companies mentioned in this section shall be unable to pay the interest on their indebtedness, and shall in fact fail to pay sijeh interest, that in such cases the tax levied by this section shall not be paid to the United States until said company resume the payment of interest on their indebtedness. That section one hundred and twenty-three be amended by striking out all after the enacting clause, and inserting in lieu thereof the following: ThatI there shall be levied, collected and paid on all salaries of officers, or pay- ments for services to persons in the military, naval or other employment or service of the United States, including senators and representatives and dele- gates to Congress, when exceeding the rate of six hundred dollars per annum, a, tax of five per centum on the excess above the said six hundred dollars; and a tax of ten per centum on the excess over five thousand dollars; and iti shall be the duty of all paymasters and all disbursing oflScers, under the government of the United States, or persons in the employ thereof, when making any payment to any officers or persons as aforesaid, or upon settling 194 Federal Income Tax Law. and adjusting the accounds of such oflScers or persons, to deduct and with- hold the aforesaid tax, and they shall, at the same time, make a certificate stating the name of the ofiBcer or person from ■whom such deduction was made, and the amount thereof, which ahall be transmitted to the office of the com- missioner of internal revenue, and entered as a part of the internal tax; and the payroll, receipts, or account of officers or persons paying such tax as. aforesaid, shall be made to exhibit the fact of such payment. And it shall be the duty of the several auditors of the treasury department, when auditing the accounts of any paymaster or disbursing officer, or any officer withholding his salary from moneys received by him, or when settling or adjusting the accounts of any such officer, to require evidence that the taxes mentioned in this section have been deducted and paid over to the commissioner of internal revenue or other officer authorized to receive the same: Provided, That pay- ments of prize moneys shall be regarded as income from salaries, and the tax theireon shall be adjusted and collected in like manner: Provided further, That this section shall not apply to payments made to mechanics or laborers employed upon public work& Appendixes. 195 APPENDIX H. ACT OF MARCH 2, 1867. Chapter CLXIX. — An Act to Amend Existing Laws Relating to Internal Revenue, and for Other Purposes. Section 13. And be it fukther enacted, That the act entitled, "An act to provide Inter- nal Revenue to support the government, to pay interest on the public debt, and for other purposes, approved June thirty, eighteen hundred and sixty-four, and as subsequently amended, be further amended as follows, namely: Income. That section one hundred and sixteen be amended by striking out all after the enacting clause and inserting, in lieu thereof, as follows : That there shall be levied, collected and paid annually upon the gains, profits, and income of every person residing in the United States, or of any citizen of the United States residing abroad, whether derived from any kind of property, rent, interest, dividends, or salaries, or from any profession, trade employment, or vocation carried on in the United States, or elsewhere, or from any other source whatever, a tax of five per centum, on the amount so derived, over one thousand dollars, and a like tax shall be levied, collected and paid annually upon the gains, profits, and income of every business, trade or profession car- ried on in the United States by persons residing without the United States and not citizens thereof. And the tax herein provided for shall be assessed, col- lected and paid upon the gains, profits and income for the year ending th« thirty-first day of December next preceding the time for levying, collecting and paying said tax. That section one hundred and seventeen he amended by striking out all after the enacting clause and inserting in lieu thereof, the following: That, in esti- mating the gains, profits and income of any person, there shall be included all income derived from interest upon notes, bonds and other securities of the United States, profits realized within the year from sales of real estate pur- chased within the year or within two years previous to the year for which in- come was (is) estimated; interest received or accrued upon old (all) notes, bonds and mortgages, or other forms of indebtedness, bearing interest, whether paid or not, if good and collectible, less the interest which has become due from said person during the year; the amount of all premium on gol'd and cou- pons; the amount of sales of livestock, sugar, wool, butter, che(3)se, pork,, beef, mutton, or other meats, hay and grain, or other vegetable or other pro- ductions, being the growth or produce of the estate of such person, not includ- ing any part thereof consumed directly by the family; all other gains, profits and income derived from any source whatever, except the rental value of any homestead used or occupied by any person or by his family in his own right,, or in the right of his wife; and the share of any person of the gains and profits of all companies, whether incorporated or partnership, who would be entitled to the same, if divided, whether divided or otherwise, except the: 196 Pedeeal Income Tax Law. amount of income received from institutions or corporations whose officers, as required by law, withhold a per centum of the dividends made by such institutions, and pay the same to the officer authorized to receive! "the same; and except that portion of the salary or pay received for services in civil, military, naval, or other service of the United States, including senaitors, representatives, and delegates in Congress from vrhich the tax has been deducted. And in addition to one thousand dollars exempt from income tax as hereinbefore provided, all national, state, county, and municipal taxes paid within the year shall be deducted from the gains, profits, or income, of the person who has actually paid the same, whether such person be owner, tenant, or mortgagor; losses actually sustained during the year arising from fires, shipwreck, or incurred in trade and debts ascertained to be worthless, but excluding all estimated depreciation of values and losses •within the year on sales of real estate purchased two years previous to the year for which income is estimated ; the amount actually paid for labor or interest by any person who rents land or hires labor to cultivate land, or who conducts any other business from which income is actually derived; the amounts actu- ally paid by any person for the rent of the house or premises occupied as a residence for himself or his family ; the amount paid out for usual or ordinary repairs: Provided, that no deduction shall be made for any amount paid out for new buildings, permanent improvements or betterments, made to increase the value of any property or estate; And provided, further, That only one de- duction of one thousand dollars shall be made from the aggregate income of all the members of any family, composed of one or both parents, and one or more minor children, or husband and wife; that guardians shall be allowed to make such deduction in favor of each and every ward, except that in cases where two or more wards are comprised in one family, and have joint property in- terest only one deduction shall be made in their favor ; And provided, further. That in cases where the salary or other compensation paid to any person ini the employment or service of the United States shall not exceed the rate of one thousand dollars per annum, or shall be by fees, or uncertain or irregular in the amount or in the time during which the same shall have accrued or been earned, such salary or other compensation shall be included in estimating the annual gains, profits or income of the person to whom the same shall have been paid. That section one hundred and eighteen be amended by striking out all after the enacting clause and inserting in lieu thereof, the following: That it shall be the duty of all persons of lawful age to make and render a list or return, on or before the day prescribed by law, in such form and manner as may be prescribed by the Commissioner of Internal Revenue, to the assistant assessor of the district in which they reside, of the amount of their income, gains, and profits, as aforesaid; and all guardians and trustees, executors and adminis- trators, or any person acting in any other fiduciary capacity, shall make and render a list or return, as aforesaid, to the assistant assessor of the district in which such person acting in a fiduciary capacity resides, of the amount of income, gains and profits of any minor or person for whom they act; and the assistant assessor shall require every list or return to be verified by the oath or affirmation of the party rendering it, and may increase the amount of any list or return, if he has reason to believe that the same is understated; and in case any such person shall neglect or refuse to make and render such list Appendixes. 197 or return, or shall render a false or fraudulent list or return, it shall be the duty of the assessor or assistant assessor to make such list, according to the best information he can obtain, by the examination of such person, or hia books or accounts, or any other evidence, and to add fifty per centum as a penalty to the tax due on such list in all cases of wilful neglect or refusal to make and render a list or return; and, in all cases of a false or fraudulent list or return having been rendered, to add one hundred per centum as a penalty, to the amount of tax ascertained to be due, the tax and the additions thereto as a penalty to be assessed and collected in the manner provided for in other cases of wilful neglect or refusal to render a list or return, or of rendering a false and fraudulent return; Provided, That any party in his or her own be- half, or as such fiduciary shall be permitted to declare, under oath or affirm- ation, the form and manner of which shall be prescribed by the Commissioner of Internal Revenue, that he or she, or his or her ward or beneficiary, was not possessed of an income of one thousand dollars, liable to be assessed accord- ing to the provisions of this act; or may declare that he or she has been as- sessed and paid an income tax elsewhere in the same year, under authority of the United States, upon his or her income, gains and profits as prescribed by law; and if the assistant assessor shall be satisfied of the truth of the declar- ation shall thereupon be exempt from income tax in said district; or if the list or return of any party shall have been increased by the assistant assessor, such party may exhibit his books and accounts, and be permitted to prove and declare, under oath or affirmation, the amount of income liable to be assessed; but such oaths and evidence shall not be considered as conclusive of the facts, and no deduction claimed in such cases shall be made or allowed until ap- proved by the assistant assessor. Any person feeling aggrieved by the deci- sion of the assistant assessor in such cases may appeal to the assessor of the district, and his decision thereon, unless reversed by the Commissioner of In- ternal Revenue, shall be final, and the form, time and manner of proceedings shall be subject to rules and regulations to be prescribed by the Commissioner of Internal Revenue ; Provided, further, That no penalty shall be assessed upon any person for such neglect or refusal, or for making or rendering a false or fraudulent return, except after reasonable notice of the time and place of hear- ing, to be regulated by the Commissioner of Internal Revenue, so as to give the person charged an opportunity to be heard. .That section one hundred and nineteen be amended by striking out all after the enacting clause, and inserting, in lieu thereof, the following: That the taxes on incomes herein imposed shall be levied on the first day of March, and be due and payable on or before the thirtieth day of April, in each year, until and including the year eighteen hundred and seventy, and no longer; and to any sum or sums annually due and unpaid after the thirtieth of April, as afore- said, and for ten days after notice and demand thereof by the collector, there shall be levied in addition thereto the sum of five per centum on the amount of taxes unpaid and interest at the rate of one per centum per month, upon said tax from the time the same became due, as a penalty, except from the estates of deceased, insane, or insolvent persons: Provided, That the tax on incomes for the year eighteen hundred and sixty-six shall be levied on the day this takes effect. That section one hundred and twenty-three be amended by striking out all after the enacting clause and inserting, in lieu thereof, the following: That 198 Fedeeal Income Tax Law. there shall be levied, collected and paid on all salaries of ofiScera, or payments for services to persons in the civil, military, naval or other employment or service of the United States, including senators and representatives and dele- gates in iCongreais, when exceeding the rate of one thousand dollars per annum, a tax of five per centum on the excess above the said one thousand dollars; and it shall be the duty of all paymasters and all disbursing officers, under the government of the United States, or persons in the employ thereof, when making any payment to any officers or persons as aforesaid, whose compensa- tion is determined by a fixed salary, or upon settling or adjusting the accounts of such officers or persons, to deduct and withhold the aforesaid tax of five per centum; and the pay-roll, receipts or account of officers or persons paying such tax as aforesaid, shall be made to exhibit the fact of such payment. And it shall be the duty of the accounting officers of the Treasury Department, when auditing the accounts of any paymaster or disbursing officer, or any officer withholding his salary from moneys received by him, or when settling or ad- justing the accounts of any such officer, to require evidence that the taxes men- tioned in this section have been deducted and paid over to the treasurer of the United States, or other officer authorized to receive the same; Provided, That payments of prize money shall be regarded as income from salaries, and the tax thereon shall be adjusted and collected in like manner; Provided, further. That this section shall not apply to payments made to mechanics or laborers employed upon public works; And provided, further, That in case it should become necessary for showing the true receipts of the government under the operations of this section upon the books of the Treasury Department, the requisite amount may be carried from unappropriated moneys in the treasury to the credit of said account; and this section shall take effect upon salary and compensation for the month of March, eighteen hundred and sixty-seven. Appendixes. 199 APPENDIX I. ACT OF JULY 14, 1870. Chapter CCLV. — An Act to Reduce Internal Revenue Taxes, and for Other Purposes. Section 6. And be it pubthee enacted, That there shall be levied and collected annually, as hereinafter provided, for the years eighteen hundred and seventy and eighteen hundred and seventy-one, and no longer, a tax of two and one- half per centum upon the gains, profits and income of every person residing in the United States, and of every citizen of the United States residing abroad, derived from any source whatever, whether within or without the United States, except as hereafter provided, and a like tax annually upon the gains, profits and income derived from any business, trade or profession carried on in the United States by any person residing without the United States, and not a citizen thereof, or from rents of real estate within the United States, owned by any person residing without the United States, and not a citizen thereof. Section 7. And be it fobther enacted. That in estimating the gains, profits and income of any person, there shall be included all income derived from any kind of property rents, interest received or accrued upon all notes, bonds and mortgages or other forms of indebtedness, bearing interest upon notes, bonds or other securities of the United States; and the amount of all premium on gold and coupons; the gains, profits and income of any business, trade, employment, oiEce or vocation, including any amount received as salary or pay for services in the civil, military, naval or other service of the United States, or as senator, representative, or delegate in congress; except that portion thereof, from which, under authority of acts of congress previous hereto, a tax of five per centum shall have been withheld; the share of any person of the gains and profits, whether divided or not, of all companies or partnerships, but not including the amount received from any corporations whose oflBcers, as authorized by law, withhold and pay as taxes a per centum of the dividends made and of interest or coupons paid by such corporations; profits realized within the year from sales of real estate purchased within two years previous to the year for which income is estimated; the amount of sales of live stock, sugar, wool, butter, cheese, pork, beef, mutton, or other meats, hay or grain, fruits, vegetables, or other productions, being the growth or produce of the estate of such person, but not including any part thereof consumed directly by the family; and all other gains, profits, and income drawn from any source whatever, but not including the rental value of the homestead used or occupied by any person, or by his family. 200 Federal Income Tax Law. Section 8. And be it FtrsTHEE ENACTED, That military or naval pensions allowed to any person under the laws of the United States, and the sum of two thousand dollars of the gains, profits, and income of any person, shall be exempt from said income tax, in the manner hereinafter provided. Only one deduction of two thousand dollars shall be made from the aggregate income of the members of any family composed of one or both parents and one or more minor children, or of husband and wife; but when a wife has by law a sepa- rate income, beyond the control of her husband, and is living separate and apart from him, such deduction shall then be made from her income, gains and profits; and guardians and trustees shall be allowed to make deductions in favor of each ward or beneficiary except that in a case of two or more wards or beneficiaries comprised in one family, having joint property interest only one deduction shall be made in their favor. For the purpose of allowing said deduction from the income of any religious or social community holding all their property and the income therefrom jointly and in common, each five of the persons composing such society, and any remaining fractional number of such persona less than five, over such groups of five, shall be held to constitute a family, and a deduction of two thousand dollars shall be allowed for each of said families. Any taxes on the income, gains, and profits of such societies, now due and unpaid, shall be assessed and collected according to this provision, except that the deduction shall be only one thousand dollars for any year prior to eighteen hundred and seventy. Section 9. And be it fuethee enacted. That in addition to the exemption provided in the preceding section, there shall be deducted from the gains, profits, and income of any person all national, state, county and municipal taxes paid by him within the year, whether such person be owner, tenant or mortgagor; all his losses actually sustained during the year arising from fires, fioods, shipwreck, or incurred in trade, and debts ascertained to be worthless, but excluding all estimated depreciation of values; the amount of interest paid during the year, and the amount paid for rent or labor to cultivate land, or to conduct any other business from which income is derived; the amount paid for the rent of the house or premises occupied as a residence for himself or his family, and the amount paid out fci' usual and ordinary repairs. No deduction shall be made for any amount paid out for new buildings, per- manent improvements, or betterments made to increase the value of any property or estate. Section 10. And be it fuethee enactted, That the tax hereinbefore provided shall be assessed upon the gains, profits, and income for the year ending on the thirty-first day of December next preceding the time for levying and collect- ing said tax, and shall be levied on the first day of March, eighteen hundred and seventy-one and eighteen hundred and seventy-two, and be due and pay- able on or before the thirtieth day of April, in each of said years. And in addition to any sum annually due and unpaid after the thirtieth day of April, and for ten days after notice and demand thereof iby the collector. Appendixes. 201 there shall be levied and collected, as a penalty the sum of five per centum on the amount unpaid, and interest on said amount at the rate of one per centum per month from the time the same became due, except from the estates of deceased, insane or insolvent persons. Section 11. And be it further enacted, That it shall be the duty of every person of lawful age, whose gross income during the preceding year exceeded two thousand dollars, to make and render a return on or before the day desig- nated by law, to the assistant assessor of the district in which he resides, of the gross amount of his income, gains, and profits, as aforesaid; but not including the amount received from any corporation whose ofiicers, as author- ized by law, withhold and pay as taxes a, per centum of the dividends made and of the interest or coupons paid by such corporation, nor that portion of the salary or pay received for services in the civil, military, naval or other service of the United States, or as senator, representative, or delegate in congresSj from which a tax has been deducted, nor the wages of minor children not received; and every guardian and trustee, executor, or administrator, and any person acting in any other fiduciary capacity, or as resident agent for, or co-partner of any non-resident alien, deriving income, gains and profits from any business, trade or profession carried on in the United States, or from rents of real estate situated therein, shall make and render a return as aforesaid to the assistant assessor of the district in which he resides of the amount of income, gains and profits of any minor or person for whom he acts. The assistant assessor shall require every such return to be verified by the oath of the party rendering it, and may increase the amount of any return, after notice to such party, if he has reason to believe that the same is understated. In case any person having a gross income as a,bove, of two thousand dollars or more, shall neglect or refuse to make and render such return, or shall render a false or fraudulent return, the assessor or the assistant assessor shall make such return, according to tie best information he can obtain by the examination of said person or of his books or accounts, or by any other evidence, and shall add, as a, penalty, to the amount of the tax due thereon, fifty per centum in all cases of wilful neglect or refusal to make and render a return, and one hundred per centum in all cases of a false or fraudulent return having been rendered. The tax and the addition thereto as penalty shall be assessed and collected in the manner provided for in cases of wilful neglect or refusal to render a return or of rendering a false or fraudulent return. But no penalty shall be assessed upon any person for such neglect or refusal or for making or rendering a false or fraudulent return, except after reasonable notice of the time and place of hearing, to be regulated by the commissioner of internal revenue, so as to give the person charged an opportunity to be heard; Provided, That no collector, deputy col- lector, assessor or assistant assessor shall permit to be published in any manner such income returns, or any part thereof, except general statistics, not specifying the names of individuals or firms, as he may make public, under such rules and regulations as the commissioner of internal revenue shall prescribe. 202 Fedeeal Income Tax Law. Section 12. And be it fubtheb enacted, That when the return of any person is increased by the assistajit assessor, such person may exhibit his books and accounts and be permitted to prove and declare, under oath the amount of income liable to be assessed; but such oath and evidence shall not be con- clusive of the facts, and no deductions claimed in such cases shall be allowed until approved by the assistant assessor. Any person may appeal from the decision of the assistant assessor, in such eases, to the assessor of the district, and his decision thereon, unless reversed by the commissioner of internal revenue, shall be final. The form, time and manner of proceedings shall be subject to regulations to be prescribed by the commissioner of internal revenue. Section 13. And be it fobthee enacted, That any person in his own behalf or as such fiduciary agent, shall be permitted to declare, under oath, that he, or his ward, beneficiary, or principal, was not possessed of an income of two thousand dollars, liable to be assessed according to the provisions of this act; or may declare that an income tax has been assessed and paid elsewhere in the same year, under authority of the United States, upon his income, gains, and profits, or those of his ward, beneficiary, or principal, as required by law; and if the assistant assessor shall be satisfied of the truth of the declaration, such person shall thereupon be exempt from income tax in the said district. Section 14. And be it fuether enacted. That consuls of foreign governments who are not citizens of the United States shall be exempt from any income tax imposed by this act which may be derived from their official emoluments, or from property in foreign countries: Provided, Thait the governments which such consuls may represent shall extend similar exemption to consuls of the United States. Section 15. And be it ftjetheb enacted. That there shall be levied and collected for and; during the year eighteen hundred and seventy-one a tax of two and one- half per centum on the amount of all interest or coupons paid on bonds or other evidences of debt issued and payable in one or more years after date, by any of the corporations in this section hereinafter enumerated, and on the amount of all dividends of earnings, income, or gains,- hereafter declared, by any bank, trust company, savings institution, insurance company, railroad company, canal company, turnpike company, canal navigation company, and slack-water company, whenever and wherever the same shall be payable and to whatsoever person the same may be due, including non-residents, whether citizens or aliens, and on all undivided profits of any such corporation which have accrued and been earned and added to any surplus, contingent or other fund, and every such corporation having paid the tax as aforesaid, is hereby authorized to deduct and withhold from any payment on account of interest, coupons, and dividends an amount equal to the tax of two and one- half per centum on the same; and the payment to the United States, as provided by law, of the amount of tax so deducted from the interest, coupons. Appendixes. 203 and dividends aforesaid, shall discharge the corporation from any liability for that amount of said interest, coupons or dividends, claimed as due to any person, except in cases where said corporations have provided otherwise by an express contract; Provided, That the tax upon the dividends of insur- ance companies shall not be deemed due until such dividends are payable, either in money or otherwise; and that the money returned by mutual insurance companies to their policyholders, and the annual or semi-annual interest allowed or paid to Ithe depositors in savings banks or savings insti- tutions shall not be considered as dividends; and that when any dividend is made, or interest as aforesaid is paid, which includes any part or the surplus or contingent fund of any corporation which has been assessed and the tax paid thereon, or which includes any part of the dividends, interest, or coupons received from other corporations whose officers are authorized by law to withhold a, per centum on the same, the amount of tax so paid on that portion of the surplus or contingent fund, and the amount of tax which has been withheld and paid on dividends, interest or coupons so received, may be deducted from the tax on such dividend or interest. Section 16. And be it fuethee enacted. That every person having the care or manage- ment of any corporation liable to be taxed under the last preceding section, shall make and render to the assessor or assistant assessor of the district in which such person has his office for conducting the business of such corpora- tion, on or before the tenth day of the month following that in which any dividends or sums of money became due or payable as aforesaid, a true and complete return in such form as the commissioner of internal revenue may prescribe of the amount of income and profits and of taxes as aforesaid; and there shall be annexed thereto a declaration of the president, cashier or treasurer of the corporation, under oath, that the same contains a true and complete account of the income and profits and of taxes as aforesaid. And for any default in the making or rendering of such return, with such declaration annexed, the corporation so in default shall forfeit as a penalty, the sum of one thousand dollars; and in case of any default in the payment of the tax as required, or of any part thereof, the assessment and collection of the tax and penalty shall be in accordance with the general provisions of law in other cases of neglect and refusal. Section 17. And be it further enacted. That sections one hundred and twenty, one hundred and twenty-one, one hundred and twenty-two, and one hundred and twenty-three of the act of June thirty, eighteen hundred and sixty-four, entitled, "An act to provide internal revenue to support the government, to pay interest on the public debt, and for other purposes," as amended by the act of July thirteen, eighteen hundred and sixty-six, and the act of March two, eighteen hundred and sixty-seven, shall be construed to impose the taxes therein mentioned to the first day of August, eighteen hundred and seventy, but after thalt date no further taxes shall be levied or assessed under said sections; and all acts and parts of acts relating to the taxes herein repealed, and all the provisions of said acts, shall continue in full force for levying 204 Federal Income Tax Law. and collecting all taxes properly assessed or liable to be assessed, or accruing under the provisions of the former acts, or drawbacks, the right to which has already accrued or which may hereafter accrue under said acts, and for maintaining and continuing liens, fines, penalties, and forfeitures incurred under and by virtue thereof. And this act shall not be construed to afifect any act done, right accrued, or penalty incurred under former acts, but every such right is hereby saved. And for carrying out and completing all pro- ceedings which have been already commenced or that may be commenced to enforce such fines, penalties, and forfeitures, or criminal proceedings under said acts, and for the punishment of crimes of which any party shall be or has been found guilty. Appendixes. 205 APPENDIX J. ACT OF AUGUST 28, 1894. An Act to Reduce Taxation, to Provide Revenue for the Govern- ment, and for Other Purposes. Section 27. That from and after the first day of January, eighteen hundred and ninety- five, and until the first day of January, nineteen hundred, there shall he assessed, levied, collected and paid annually upon the gains, profits and in- come received in the preceding, calendar year by every citizen of the United States, vrhether residing at home or abroad, and every person residing therein whether said gains, profits or incomes be derived from any kind of property, rents, interest, dividends or salaries, or from any profession, trade, employ- ment, or vocation carried on in the United* States or elsewhere, or from any other course whatever, a tax of two per centum on the amount so derived over and above four thousand dollars, and a like tax shall be levied, collected and paid annually upon the gains, profits and income from all property owned, and of every business, trade or profession carried on in the United States by persons residing without the United States. And the tax herein provided for shall be assessed by the commissioner of internal revenue, and collected and paid upon the gains, profits and income for the year ending the thirty- first day of December, next preceding the time for levying, collecting and paying said tax. Section 28. That in estimating the gains, profits and income of any person there shall be included all income derived from interest upon notes, bonds and other securities, except such bonds of the United States the principal and interest of which are by the law of their issuance exempt from all federal taxation; profits realized within the year from sales of real estate purchased within two years previous to the close of the year for which income is estimated; in- terest received or accrued upon all notes, bonds, mortgages or other forms of indebtedness bearing interest, whether paid or not, if good and collectible, less the interest which has become due from said person or which has been paid by him during the year; the amount of all premium^ on bonds, notes or coupons ; the amount of sales of live stock, sugar, cotton, wool, butter, cheese, pork, beef, mutton, or other meats, hay and grain, or other vegetables or other productions, being the growth or produce of the estate or such person, less the amount expended in the purchase or production of said stock or produce, and not including any part thereof consumed directly by the family; money and the value of all personal property acquired by gift or inheritance; all other gains, profits, and income derived from any source whatever except that portion of the salary, compensation, or pay received for services in the civil, military, naval or other service of the United States, including senatoFs, 206 Federal Income Tax Law. representatives and delegates In congress, from which the tax has been de- ducted, and except that portion of any salary upon which the employer is required by law to withhold and does withhold the tax and pays the same to the officer authorized to receive it. In computing incomes the necessary expenses actually incurred by carrying on any business, occupation or pro- fession shall be deducted, and also all interest due or paid within the year by such person on existing indebtedness. And all national, state, county, school and municipal taxes not including those assessed against local benefits, paid within the year shall be deducted from the gains, profits, or income of the person who has actually paid the same, whether such person be the owner, tenant, or mortgagor; also losses actually sustained during the year, incurred in trade or arising from fires, storms, or shipwreck, and not com- pensated for by insurance or otherwise, and deeds ascertained to be worthless, but excluding all estimated depreciation of values and losses within the year on sales of real estate purchased within two years previous to the year for which income is estimated: Provided, That no deduction shall be made for any amount paid out for new buildings, permanent improvements, or better- ments, made to increase the value of any property or estate; Provided further. That only one deduction of four thousand dollars shall be made from the aggregate income of all the members of any family, composed of one or both parents, and one or more minor children, or husband and wife; that guardians shall be allowed to make a deduction in favor of each and every ward, except that in case where two or more wards are comprised in one family, and have joint property interests, the aggregate deduction in their favor shall not exceed four thousand dollars: And provide further, That in case where the salary or other compensation paid to any person in the employment or service of the United States shall not exceed the rate of four thousand dollars per annum, or shall be by fees, or uncertain or irregular in the amount or in the time during which the same shall have accrued or been earned, such salary or other compensation shall be included in estimating the annual gains, profits, or income of the person to whom the same shall have been paid, and shall include that portion of any income or salary upon which a. tax has not been paid by the employer, where the employer is re- quired by law to pay on the excess over four thousand dollars; Pbovided also, That in computing the income of any person, corporation, company, or associa- tion there shall not be included the amount received from any corporation, conyjany, or association, as dividends upon the stock of such corporation, company, or association, if the tax of two per centum has been paid upon its net profits by said corporation, company, or association, as required by this act. Section 29. That it shall be the duty of all persons of lawful age having an income of more than three thousand five hundred dollars for the taxable year, com- puted on the basis herein prescribed, to make and render a list or return, on or before the day provided by law, in such form and manner as may be directed by- the commissioner of internal revenue, with the approval of the secretary of the treasury, to the collector or a deputy collector of the district in which they reside, of the amount of their income, gains and profits, as aforesaid; and all guardians and trustees, executors, administrators, agents. Appendixes. 207 receivers, and all persons or corporations acting in any fiduciary capacity, shall make and render a list or return, as aforesaid, to the collector or a deputy collector of the district in which such person or corporation acting in a fiduciary capacity resides or does business, of the amount of income, gains, and profits of any minor or person for whom they act, but persons having less than three thousand five hundred dollars income are not required to make such report ; and the collector or deputy collector, shall require every list or return to be verified by the oath or affirmation of the party rendering it, and may increase the amount of any list or return if he has reason to believe that the same is understated and in case any such person having a taxable income shall neglect or refuse to make and render such list and return or shall render a wilfully false or fraudulent list or return, it shall be the duty of the collector or deputy collector, to make such list, according to the best information he can obtain by the examination of such person, or any other evidence, and to add fifty per centum as a penalty to the amount of the tax due on such list in all cases of wilful neglect or refusal to make and render a list or return; and in all cases of a wilfully false or fraudulent list or return having been rendered to add one hundred per centum as a penalty to the amount of tax ascertained to be due, the tax and the additions thereto as a penalty to be assessed and collected in the manner provided for in other cases of wilful neglect or refusal to render a list or return, or of rendering a false or fraudulent return: Provided, That any person or corporation, in his, her, or its own behalf, or as such fiduciary, shall be permitted to declare, under oath or affirmation, the form and manner of which shall be prescribed by the commissioner of internal revenue, with the approval of the secretary of the treasury, that he, she, or his, or her, or its ward or beneficiary was not possessed of an income of four thousand dollars, liable to be assessed according to the provisions of this act; or may declare that he, she or it, or his, her or its ward or beneficiary has been assessed and has paid an income tax elsewhere in the same year, under au- thority of the United States, upon all his, her, or its income, gains, or profits, and upon all the income, gains, or profits for which he, she, or it is liable as such fiduciary, as prescribed by law; and if the collector or deputy col- lector shall be satisfied of the truth of the declaration, such person or cor- poration shall thereupon be exempt from income tax in the said district for that year; or if the list or return of any person or corporation, company, or association shall have been increased by the collector or deputy collector, such person or corporation, comjiany, or association may be permitted to prove of the amount of income liable to be assessed; but such proof shall not be considered as conclusive of the facts, and no deductions claimed in such cases shall be made or allowed until approved by the collector or deputy collector. Any person or company, corporation or association feeling aggrieved by the decision of the deputy collector in such cases may appeal to the col- lector of the district, and his decision thereon, unless reversed by the com- missioner of internal revenue, shall be final. If dissatisfied, with the decision of the collector such person or corporation, company or association may submit the case, with all the papers, tu the commissioner of internal revenue for his decision, and may furnish the testimony of witnesses to prove any relevant facts, having served notice to that effect upon the commissioner of internal revenue, as herein prescribed. 208 Fedeeal IifcoME Tax Law. Such notice shall state the time and place at which, and the officer before whom, the testimony will be taken; the name, age, residence and business of the proposed witness, with the questions to be propounded to the witness, or a brief statement of the substance of the testimony he is expected to give: Provided, That the government may at the same time and place take testi- mony upon like notice to rebut the testimony of the witnesses examined by the person taxed. The notice shall be delivered or mailed to the commissioner of internal revenue a sufficient number of days previous to the day fixed for taking the testimony, to allow him, after its receipt at least five days, exclusive of the period required for mail communication with the place at which the testimony is to be taken, in which to give, should he so desire, instructions as to the cross-examination of the proposed witness. Whenever practicable, the affidavit or deposition shall be taken before a collector or deputy collector of internal revenue, in which case reasonable notice shall be given to the collector or deputy collector of the time fixed for taking the deposition or affidavit: Peovidbd, ftjethee. That no penalty shall be assessed upon any person or corporation, company, or association for such neglect or refusal or for mak- ing or rendering a wilfully false or fraudulent return, except after reason- able notice of the time and place of hearing, to be prescribed by the com- missioner of internal revenue, so as to give the person charged an opportunity to be heard. Section 30. The taxes or incomes herein imposed shall be due and payable on or before the first day of July in each year; and to any sum or sums annually due and unpaid after the first day of July as aforesaid, and for ten days after notice and demand thereof by the collector, there shall be levied, in addition thereto, the sum of five per centum to the amount of taxes unpaid, and interest at the rate of one per cent per month, upon said tax from the time the same becomes due, as a penalty, except from the estates of deceased, insane, or insolvent persons. Section 31. Any nonresident may receive the benefit of the exemptions hereinbefore provided for by filing with the deputy collector of any district a true list of all his property and sources of income in the United States and complying with the provisions of section twenty-nine of this act as if a, resident. In computing income he shall include all income from every source, but unless he be a citizen of the United States he shall only pay on that part of the income which is derived from any source in the United States. In case such nonresident fails to file such statement, the collector of each district shall collect the tax on the income derived from property situated in his district, subject to income tax, making no allowance for exemptions, and all property belonging to such nonresident shall be liable to distraint for tax: Pbovided, That nonresident corporations shall be subject to the same laws as to tax as resident corporations, and the collection of the tax shall be made in the same manner as provided for collection of taxes against nonresident persons. Appendixes. 209 Section 32. There shall be assessed, levied, and collected, except as her«m otherwise pro- vided, a tax of two per centum annually on the net profits or income above actual' opera.ting and business expenses, including expenses for materials pur- chased for manufacture or bought for resale, losses and interest on bonded and other indebtedness, of all banks, banking institutions, trust companies, sav- ings institutions, fire, marine, life and other insurance companies, railroad, canal, turnpike, navigation, slack water telephone, telegraph, express, electric light, gas, water, street railway companies, and all other corporations, com- panies or associations doing business for profit in the United States no matter how created and organized, but not including partnerships. That said tax shall be paid on or before the first day of July in each year; and if the president or other chief officer of any corporation, company, or association, or in the case of any foreign corporation, company or association, the resident manager or agent shall neglect or refuse to file with the collector of the internal revenue district in which said corporation, company or asso- ciation shall be located or be engaged in business, a statement verified by his oath or affirmation, in such form as shall be prescribed by the commis- sioner of internal revenue, with the approval of the secretary of the treasury, showing the amount of net profits or income received by said corporation, company or association during the whole calendar year last preceding the date of filing said statement as hereinafter required, the corporation, company or association making default shall forfeit as a penalty the sum of one thousand dollars and two per centum on the amount of taxes due, for each month until the same is paid, the payment of said penalty to be enforced as provided in other cases of neglect and refusal to make return of taxes under the internal revenue laws. The net profits or income of all corporations, companies or associations shall include the amounts paid to shareholders, or carried to the account of any fund, or used for construction, enlargement of plant, or any other expenditure or investment paid from the net annual profits made or acquired by said corporations, companies, or associations. That nothing herein contained shall apply to states, counties, or municipali- ties; nor to corporations, companies or associations organized and conducted solely for charitable, religious or educational purposes, including fraternal beneficiary societies, orders or associations operating upon the lodge system and providing for the payment of life, sick, accident and other benefits to the members of such societies, orders or associations and dependents of such members; nor to the stoclcs, shares, funds or securities held by any fiduciary, or trustee for charitable, religious, or educational purposes; nor to building and loan associations, or companies which make loans only to their share- holders; nor to such savings banks, savings institutions, or societies as shall, first, have no stockholders or members except depositors, and no capital except deposits; secondly, shall not receive deposits to an aggregate amount, in any one year, of more than one thousand dollars from the same depositor; thirdly, shall not allow an accumulation or total of deposits, by any one depositor, exceeding ten thousand dollars; fourthly, shall actually divide and distribute to its depositors ratable to deposits, all the earnings over the necessary and proper expenses of such bank, institution, or society, except 210 Federal Income Tax Law. such as shall be applied to surplus; fifthly, shall not possess, in any form, a surplus fund exceeding ten per centum of its aggregate deposits; nor to such savings banks, savings institutions, or societies composed of members who do not participate in the profits thereof and which pay interest or dividends only to their depositors; nor to that part of the bu^ness of any savings bank, institution, or other similar association, having a capital stock, that is conducted on the mutual plan solely for the benefit of its depositors on such plan, and which shall keep its account of its business conducted on such mutual plan separate and apart from its other accounts. Nor to any insurance company or association which conducts all its business solely upon the mutual plan, and only for the benefit of its policyholders or members, and having no capital stock, and no stock or shareholders, and holding all its property in trust and in reserve for its policyholders or members; nor to that part of the business of any insurance company having a capital stock and stock and shareholders, which is conducted on the mutual plan, separate from its stock plan of insurance, and solely for the benefit of the policyholders and members insured on said mutual plan, and holding all the property belonging to and derived from said mutual part of its business in trust and reserve for the benefit of its policyholders and members insured on said mutual plan. That all state, county, municipal and town taxes paid by corporations, companies, or associations, shall be included in the operating and business expenses of such corporations, companies, or associations. Section 33. That there shall be levied, collected and paid on all salaries of oflSeers, or payments for services to persons in the civil, military, naval or other employ- ment or service of the United States, including senators and representatives and delegates in congress, when exceeding the rate of four thousand dollars per annum, a tax of two per centum on the excess above the said four thousand dollars; and it shall be the duty of all paymasters and all dis- bursing officers under the government of the United States, or persons in the employ thereof, when making any payment to any oflBcers or persons as afore- said, whose compensation is determined by a fixed salary or upon settling or adjusting the accounts of such oflScers or persons to deduct and withhold the aforesaid tax of two per centum, and the pay roll, receipts or account of officers or persons paying such tax as aforesaid shall be made to exhibit the fact of such payment. And it shall be the duty of the accounting officers of the treasury department when auditing the accounts of any paymaster or disbursing officer, or any officer withholding his salary from moneys received by him, or when settling or adjusting the accounts of any such officer, to require evidence that the taxes mentioned in this section have been deducted and paid over to the treasurer of the United States, or other officer authorized to receive the same. Every corporation which pays to any employee a salary or compensation exceeding four thousand dollars per annum shall report the same to the collector or deputy collector of his district, and said employee shall pay thereon, subject to the exemptions herein provided for, the tax of two per centum on the excess of his salary over four thousand dollars: Provided, That salaries due to state, county or municipal officers shall be exempt from the income tax herein levied. Appendixes. 211 Section 34. That sections thirty-one hundred and sixty-seven, thirty-one hundred and seventy-two, thirty-one hundred and seventy-three, and thirty-one hundred and seventy-six of the revised statutes of the United States as amended are hereby amended so as to read as follows : Section 3167. That it shall be unlawful for any collector, deputy collector, agent, clerk, or other officer or employee of the United States to divulge or to make known in any manner whatever not provided by law to any person the operations, style of work, or apparatus of any manufacturer or producer visited by him in the discharge of his official duties, or the amount or source of income, profits, losses, expenditures, or any particular thereof, set forth or disclosed in any income return by any person or corporation, or to permit any income return or copy thereof or any book containing any abstract or particulars thereof, to be seen or examined by any person except as provided by law; and it shall be unlawful for any person to print or publish in any manner whatever not provided by law, any income return or any part thereof or the amount or source of income, profits, losses or expenditures appearing in any income return; and any ofifense against the foregoing provision shall be a misdemeanor and be punished by a fine not exceeding one thousand dollars or by imprisonment not exceeding one year, or both, at the discretion of the court; and if the offender be an oflBcer or employee of the United States he shall be dismissed from ofiSce and be incapable thereafter of holding any ofiice under the government. Section 3172. That every collector shall, from time to time, cause his deputies to proceed through every part of his district, and inquire after and concerning all per- sons therein who are liable to pay any internal revenue tax, and all persons owning or having the care and management of any objects liable to pay any tax, and to make a list of such persons and enumerate said objects. Section 3173. That it shall be the duty of any person, partnership, firm, association or corporation, made liable to any duty, special tax, or other tax imposed by law, when not otherwise provided for, in case of a special tax, on or before the thirty-first day of July, in each year, in case of income tax on or before the first Monday of March in each year, and in other cases before the day on which the taxes accrue, to make a list or return, verified by oath or afBrmation, to the collector or a deputy collector of the district where located, or the articles or objects, including the amount of annual income, charged with a duty or tax, the quantity of goods, wares, and merchandise made or sold, and charged with a tax, the several rates and aggregate amount, accord- ing to the forms and regulations to be prescribed by the commissioner of internal revenue, with the approval of the secretary of the treasury, for which such person, partnership, firm, association, or corporation is liable: Provided, That if any person liable to pay any duty or tax, or owning, pos- sessing or having the care or management of property, goods, wares, mer- 212 Federal Income Tax Law. chandise, articles or objects liable to pay any duty, tax or license, shall fail to make and exhibit a list or return required by law, but shall consent to disclose the particulars of any and all the property, goods, wares and mer- chandise, articles and objects liable to pay any duty or tax, or any business or occupation liable to pay any tax as aforesaid, then, and in that case, it shall be the duty of the collector or deputy collector to make such list or return, which, being distinctly read, consented to, and signed and verified by the oath or affirmation by the person so owning, possessing or having the care and management as aforesaid, may be received as the list of such person : Provided further. That in case no annual list or return has been rendered by such person to the collector or deputy collector as required by law, and the person shall be absent from his or her residence or place of business at the time the collector or a deputy collector shall call for the annual list or return, it shall be the duty of such collector or deputy collector to leave at such place of residence or business, with some one of suitable age and discretion, if such be present, otherwise to deposit in the nearest postoffice, a note or memorandum, addressed to such person, requiring him or her to render to such collector or deputy collector the list or return required by law, within ten days from the date of such note or memorandum, verified by oath or affirmation. And if any person on being notified or required as afore- said shall refuse or neglect to render such list or return within the time required as aforesaid, or whenever any person who is required to deliver a monthly or other return of objects subject to tax fails to do so at the time required, or delivers any return which, in the opinion of the collector, is false or fraudulent, or contains any undervaluation or understatement, it shall be lawful for the collector to summon such person, or any other person having possession, custody or care of books of account, containing entries relating to the business of such person or any other person he may deem proper, to appear before him and produce such books, at a time and place named in the summons, and to give testimony or answer interrogaitories, under oath, respecting any objects liable to tax or the returns thereof. The collector may summon any person residing or found within the state in which his district lies; and when the person intended to be summoned does not reside and cannot be found within such state, he may enter any collection district where such person may be found, and there make the examination herein authorized. And to this end he may there exercise all the authority which he might lawfully exercise in the district for which he was commissioned. Section 3176. When any person, corporation, company or association, refuses or neglects to render any return or list required by law, or renders a false or fraudulent return or list, the collector or any deputy collector shall make, according to the best information which he can obtain, including that derived from the evidence elicited by the examination of the collector, and on his own view and information such list or return, according to the form prescribed, of the income, property and objects liable to tax owned or possessed or under the care or management of such person or corporation, company, or association, and the commissioner of internal revenue shall assess all taxes not paid by stamps, including the amount, if any, due for special tax, income, or other tax, and in case of any return of a false or fraudulent list or valuation in- Appendises. 213 tentionally he shall add one hundred per centum to such tax; and in case of a refusal or neglect, except in cases of sickness or absence, to make a list or return, or to verify the same as aforesaid, he shall add fifty per centUln to such tax. In case of neglect occasioned by sickness or absence as afore- said the collector may allow such further time for making and delivering such list or return as he may deem necessary, not exceeding thirty days. The amount so added to the tax shall be collected at the same time and in the same manner as the tax unless the neglect or falsity is discovered after the tax has been paid, in which case the amount so added shall be collected in the same manner as the tax; and the list or return so made and sub- scribed by such collector or deputy collector shall be be held prima facie good and sufficient for all legal purposes. Section 35. That every corporation, company, or association doing business for profit shall make and render to the collector of its collection district, on or before the first Monday of March in every year, beginning with the year eighteen hundred and ninety-five, a full return, verified by oath or affirmation, in sueh form as the commissioner of internal revenue may prescribe, of all the following matters for the whole calendar year last preceding the date of such return : First. The gross profits of such corporation, company or association, from all kinds of business of every name and nature. Second. The expenses of such corporation, company or association, exclusive of interest, annuities, and dividends. Third. The net profits of such corporation, company, or association, with- out allowance for interest, annuities or dividends. Fourth. The amount paid on account of interest, annuities, and dividends stated separately. Fifth. The amount paid in salaries of four thousand dollars or leas to each person employed. Sixth. The amount paid in salaries of more than four thousand dollars to each person employed, and the name and address of each of such persons and the amount paid to each. Section 36. That it shall be the duty of every corporation, company, or association, doing business for profit to keep full, regular, and accruate books of account, upon which all its transactions shall be entered from day to day, in regular order, and whenever a collector or deputy collector of the district in which any corporation, company, or association is assessable shall believe that a true and correct return of the income of such corporation, company, or association has not been made, he shall make an affidavit of such belief and of the grounds on which it is founded and file the same with the commissioner of internal revenue, and if said commissioner shall, on examination thereof, and after full hearing u,pon notice given to all parties, conclude there is good ground for such belief, he shall issue a request in writing to such corpo- ration, company, or association to permit an inspection of the books of such corporation, company, or association to be made; and if sueh corporation, company, or association shall refuse to comply with such request, then the 214 Fedeeal Income Tax Law. collector, deputy collector of the district shall make from such information as he can obtain aji estimate of the amount of such income and then add fifty per centum thereto, which said assessment so made shall then be the lawful assessment of such income. Section 37. That it shall be the duty of every collector of internal revenue, to whom any part of any taxes other than the tax represented by an adhesive stamp or other engraved stajnp is made under the provisions of this act, to give to the person making such payment a full, written or printed receipt, ex- pressing the amount paid and the particular account for which such payment was made; and whenever such payment is made such collector shall if re- quired, give a separate receipt for each tax paid by any debtor, on account of payments made to or to be made by him to separate creditors in such form that such debtor can conveniently produce the same separately to his several creditors in satisfaction of their respective demands to the amounts specified in such receipts; and such receipts shall be sufiScient evidence in favor of such debtor, to justify him in withholding the amount therein expressed from his next payment to his creditor; but such creditor, may, upon giving to his debtor a full written receipt, acknowledging the payment to him of whatever sum may be actually paid, and accepting the amount of tax paid as aforesaid (specifying the same) as a further satisfaction of the debt to that amount, require the surrender to him of such collector's receipt. TREASURY REGULATIONS. APPENDIX K. TREASURY DEPARTMENT Office of Commissioner of Internal Revenue, WASHINGTON. REGULATIONS Regarding the Deduction of the Income Tax at the Source on Interest Maturing on Bonds, Notes, and other similar Obliga= gations of Corporations, Joint=Stock Companies, or Associations and Insurance Companies, Under the Provisions of Section II of the Act of October 3, 1913. Tax to be Deducted at Source. Under the income-tax law enacted October 3, 1913, a tax of 1 per cent, designated in the law as the normal tax, shall be deducted at " the source," beginning November 1, 1913, from all income accruing and payable to — {a) 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, which may be derived from interest upon bonds and mortgages, or deeds of trust, or other similar obligations, including equipment trust agreements and receivers' certificates of corporations, joint-stock companies or association?, and insurance companies, although such interest does not amount to $3,009, excepting only the interest upon the obligations of the United States or its possessions, or a State or any political subdivision thereof. The term " debtor," as hereinafter used, shall be construed to cover all corporations, joint-stock companies or associations, and insurance companies. When Tax Shall Be Withheld by Debtor. For the purpose of collecting this tax on all coupons and registered interest originating or payable in the United States the source shall be the debtor (or its paying agent in the United States), which shall deduct the tax when same is to be withheld, and no other bank, trust company, banking firm, or individual taking coupons or interest orders for collection, or otherwise, shall withhold the tax thereon: Provided, That all such coupons or orders for regis- tered interest are accompanied by certificates of ownership signed by the [215] 216 Fedeeal Income Tax Law. owners of the bonds upon which the interest matured. These certificates shall be in the forms hereinafter prescribed, and a separate certificate shall be made out by each owner of bonds for the coupons or interest orders for each separate issue of bonds or obligations, of each debtor. When Tax Shall Be Withheld by First Collecting Agency. If, however, the coupons or interest orders are not accompanied by certifi- cates as prescribed above, the first bank, trust company, banking firm, or individual, or collecting agency receiving the coupons or interest orders for collection, or otherwise, shall deduct and withhold the tax and shall attach to such coupons or interest orders its own certificate, giving the name and address of the owner of, or the person presenting such coupons or interest orders if the owner is not known, with a description of the coupons or interest orders; also setting forth the fact that they are withholding the tax upon them; whereupon the debtor shall not again withhold the tax on said coupons or interest orders, but in lieu thereof shall deliver to the Government the certificate of such bank, trust company, etc., which is withholding such tax money. Any corporation, collecting agency, or person first receiving from the owner any interest coupons or orders for the collection of registered interest, and to whom the certificates above provided for are delivered, should require the persons tendering such coupons or orders for registered interest to satis- factorily establish their identity. Payment of Registered Interest by Debtors. A debtor whose bonds may be registered, both as to principal and interest, shall deduct the normal tax of 1 per cent from the accruing interest on all bonds before sending out checks for said interest to registered owners or before paying such interest upon interest orders signed by the registered holders of said bonds until there shall be filed with said debtor or its fiscal agent ( and not later than thirty ( 30 ) days prior to March 1 ) , through whom said interest is customarily paid, the proper certificates claiming exemption from liability for said tax as herein provided, executed as follows: By a citizen or resident of the United States, the bona fide owner of the registered obligations, who may claim exemption under paragraph C, section 2, of the Federal income-tax law, or By corporations, joint-stock companies, associations, or insurance com- panies organized in the United States, or organizations, associations, frater- nities, etc., which are either taxable or exempt from taxation, as provided in paragraph G, subdivision A, of the act, or By a bona fide resident and citizen of a foreign country, claiming exemption as such. Designation of Fiscal Agencies. The " debtor " may appoint paying or fiscal agents to act for it in matters pertaining to the collection of this tax upon filing with the collector of internal revenue for its district a proper notice of the appointment of such agent or agents. Appendixes. 217 Certificates Claiming Exemption'. If the owners of the bonds are individuals who are citizens or residents of the United States, the aforesaid certificates shall accompany the coupons, or, with respect to the interest on registered bonds, shall be filed with payer of said interest, and such certificates shall describe the bonds and show the amount of coupons attached or the amount of interest due such owners on registered bonds and the full name and address of the owners, and shall also state whether they claim or do not then claim exemption from taxation at the source provided for by paragraph C of Section II of the Federal income-tax law ($3,000, and under certain conditions $4,000) as to the income represented by such coupons or interest. The certificates shall also show the amount, if any, of exemption claimed and the date of signature. The form of certificate to be used for this purpose shall be substantially as follows: Form of Certificate to Be Presented With Coupons or Interest Orders Stating Whether or Not Exemption Is Claimed Under Paragraph C, Section 2, of the Federal Income Tax Law. I do solemnly declare that I, , a citizen or resident of the United States, and residing at , am the owner of $ bonds of the denominations of $ each, Nos of the (Give name of debtor.) known as bonds, (Describe the particular Issue of bonds.) from which were detached the accompanying coupons, due , 191. ., amounting to $ , or upon which there matured , 191.., $ of registered interest. T 3 C now claim, with respect to the income represented by said ■^ )do note interest, the benefit of a deduction of $ allowed under paragraph C, Section II, of the Federal income-tax law. Name Address Date , 191... Whenever interest coupons, accompanied by a certificate of an individual who is a citizen or resident of the United States, as aforesaid, jire presented to a debtor or its fiscal agent for payment, or whenever interest is payable to such individual on a bond registered as to both principal and interest, the debtor or its fiscal agents shall deduct and withhold the amount of the normal tax, except to the extent that exemption is claimed in the certificate of ownership in the form herein prescribed. Where the interest to be paid is registered, the same form of certificate shall be used where exemptions are claimed, except that it shall be filed with the debtor at least five (5) days before the due date of such interest. 218 Fedeeal Income Tax Law. By Whom Signed. These certificates must be signed by the claimants with their full name, and contain their post-office and street address, also the date when signed. Duly authorized agents, trustees acting in a trust capacity, etc., may sign such certificates for the persons for whom they act. Organizations Whose Interest Coupons Are Not Taxed at Source. If the owners of the bonds are corporations, joint-stock companies, associa- tions, or insurance companies organized in the United States, no matter how created or organized, or organizations, associations, fraternities, etc., which are either taxable or exempt from taxation as provided in paragraph G, sub- division A of the act, the debtor is not required to withhold or deduct the tax upon income derived from interest on such bonds, provided coupons or orders for interest from such bonds shall be accompanied by a certificate of the owners thereof certifying to such ownership, which certificates shall be filed with the debtor when such coupons or interest orders are presented for payment. Such certificate shall be substantially in the following form: Certificate to Be Furnished by Organizations Not Subject to Tax on Interest at Source. I, , the of the , (Give name.) (Give official position.) (Name of organization.) a of , located at , (Character or organization.) (State.) (Post-oflBce address.) do solemnly declare that said is the owner of (Give name of organization.) $ bonds of the denomination of $ each, Nos. of the (Give name of debtor.) known as bonds, (Describe particular issue of bonds.) from which were detached the accompanying coupons, due , 191 . . , amouniting to $ , or upon which there matured , 191. ., $ of registered interest, and that under the provisions of the income-tax law of October 3, 1913, said interest is exempt from the pay- ment of taxes collectible at the source, which exemption is hereby claimed. Name (Official position.) Of (Name of organisation.) Date , 191 .. . Address (Post office.) This certificate must be signed by the full name of the organization, stating its place of business, and by the president, secretary, or some other principal officer of the said corporation or organization duly authorized to sign same, together with the date of execution. Appendixes. 219 How Collected When Not Accompanied by the Certificate of Owner. Where coupons or interest orders are not accompanied by the ownership certificates, the form to be executed by the first bank, trust company, banking firm, individual, or collection agency receiving the same for collection or other- wise, which must accompany the coupons or interest orders, shall be substan- tially as follows: Form of Certificate to Be Presented With Coupons or Interest Orders When Not Accompanied by Certificate of Owners. I, , the of the , (Name.) (Official position.) (Bank or collecting agency.) of , do solemnly declare that said (Address.) (Collecting agency.) has (or have) purchased or accepted for collection the accompanying coupons or interest orders amounting to $ , and which represent interest matured on $ of bonds of the ., and that (Name of debtor.) received said coupons or orders for registered interest (Collecting agency.) from of , and (Name of party from whom received.) (Address of said party.) that no certificate of ownership accompanied said coupons or interest orders, and hereby acknowledges responsibility of withhold- ((Jollectlng agency.) ing therefrom the normal income tax of 1 per cent, in accordance with the regulations of the Treasury Department. Name (Collecting agency.) By (Signature of officer duly authorized to sign, and his official position.) Address (Give full address.) Date , 191... This certificate shall be dated and signed by and shall state the address of the corporation, organization, collecting agency, or person withholding the tax, with full name and address. Final Disposition of Certificates. The debtor or paying agents shall deliver all certificates, with the list of names and addresses of those for whom the tax has been withheld, showing amounts, as required by law, to the collector of internal revenue for their district on or before the 20th day of the month succeeding that in which said certificates were received by them. Interest Due Before March i, 1913. The tax shall not be withheld on coupons or registered interest maturing and payable before March 1, 1913, although presented for payment at a later date. 220 Fedeeal Income Tax Law. License Required for Collection of Income from Foreign Countries. All persons, firms, or corporations undertaking for accommodation or profit (this includes handling either by way of purchase or collection) the collec- tion of coupons, checks, bills of exchange, etc., for or in payment of interest upon bonds issued in foreign countries and upon foreign mortgages or like obligations, and for any dividends upon stock or interest upon obligations of foreign corporations, associations, or insurance companies engaged in business in foreign countries, are required by law to obtain a license from the Commissioner of Internal Revenue and may be required to give bond in such amount and under such conditions as the Commissioner of Internal Revenue may prescribe. By Whom Tax Is Withheld. The licensed person, firm, or corporation first receiving any such foreign items for collection or otherwise shall withhold therefrom the normal tax of 1 per cent, and will be held responsible therefor. He (the licensee) shall thereupon indorse or stamp thereon the words " Income tax withheld by " (giving his or their name, address, and date), which shall be sufficient evi- dence to relieve subsequent holders or purchasers from the duty of also with- holding the income tax. If the size or nature of such coupons, checlts, etc., makes it impracticable to make said indorsement as above, a statement identifying the item on which tax is withheld and bearing said indorsement may be attached thereto with the same effect as if the indorsement was made directly thereon. List of Tax Collections on Foreign Items. Such licensee shall obtain the names and addresses of the persons from whom such items are received, and shall prepare a list of same and file it with the collector of internal revenue for his district not later than the 20th of the month next succeeding the receipt of such items. The list shall be dated, and shall contain the names and addresses of the taxable persons and the amount of tax deducted, and from what source collected. Certificates to Secure Tax Exemption on Foreign Items. In the event such coupons, checks, or bills of exchange above mentioned are presented for collection by an individual claiming the benefit of the deductions allowable under paragraph C, Section II, of the Federal income- tax law, such individual shall be permitted to avail himself of the deduction claimed, upon signing on the form heretofore prescribed for coupons payable in the United States, and no tax shall be deducted for the amount of the exemption so claimed; or if such items are presented by corporations, joint- stock companies, or associations and insurance companies, organized in the United States, the form of certificate heretofore prescribed for such organiza- tions shall be used, and in such instances no tax shall be deducted. In both instances the licensee first receiving such items shall retain such certificates for delivery with the lists aforesaid to the collector of internal revenue for his district not later than the 20th of the month next succeeding that in which said items were received, and with respect to said coupons, checks, or bills of exchange, said licensee shall attach thereto (identifying Appendixes. 221 the items) or indorse, or stamp thereon the words "Income tax exemption claimed through" (giving name and address of licensee), which shall be suflGcient evidence to relieve subsequent holders or purchasers from the duty of also withholding the tax thereon. The provisions for collection of the tax on foreign obligations set forth in this section of the regulations includes the interest upon all foreign bonds, even though the coupons may be at the option of the holder, payable in the United States as well as in some foreign country. Accurate Record to Be Kept liy Licensees. All persons licensed shall keep their records in such manner as to show from whom every such item has been received, and such records shall be open at all times to the inspection of internal-revenue oflBcers. Penalty for Omission to Obtain License. Failure to obtain license or to comply with regulations is punishable by a fine not exceeding $5,000, or imprisonment not exceeding one year, or both, in the discretion of the court. Such licenses shall continue in force until revoked. Application for such licenses should be made to the collectors of internal revenue for the district in which they are engaged in business, and may be issued without cost to such persons as the commissioner may approve, upon their filing with the collector the bond herein provided for. All persons in making application to the collector of internal revenue for such licenses shall register their names and addresses and state the nature of the business in which they are engaged. Such application for the license, accompanied by a proper surety bond, when both have been approved by the collector, will be considered a sufficient compliance with the law to enable the persons making application to do business until February 1, 1914, without incurring the penalties provided by law for failure to procure the required license. Penalty for False Statements. // any person, for the pwrpose of obtaining any allowa/nee or reduction by virtue of a claim for exemption, either for himself or for any other, knowingly makes a false statement or false or fraudulent representation, he is liable under the act to severe penalties. Partnerships. Where coupons or interest orders, presented for payment, represent the interest on bonds, or other similar obligations, owned by a partnership, they shall be accompanied by a certificate of ownership, which shall be signed either in the firm's name by one member of the firm or by each individual member of the partnership, and the normal tax shall be withheld by the debtor with respect to the income represented by said interest. Said certificate of ownership shall be in substantially the following form: Form of Certificate to Be Filled Out and Signed by Members of Partnerships. The following certificate should be used when coupons or interest orders are presented by citizens or residents of the United States for collection of 222 Federal Income Tax Law. interest on bonds, or other similar obligations, owned by the partnerships of which they are members: I, '. , a member of the firm or partnership of of and residing at (Give full address.) do solemnly declare that the said partnership is the owner of $ bonds of the denomination of $ each, Nos of the (GiTe name ot debtor.) known as bonds, from which were detached (Describe the particular issue of bonds.) the accompanying interest coupons, due , 191 . . , amounting to $ , or upon which there matured , 191.., $ of registered interest, and that the name and address of said firm or partner- ship, and the names of the individual members thereof, and their places of residence, are as follows: Names of partners : Address : Name of partner signing : Of firm of : Address : Date , 191... Any member of a partnership, who is entitled to a deduction (under Para- graph C, Section II, of the Income Tax Law) of his pro rata share of the tax which may be withheld at the source on interest on bondsi owned by his copartnership, as above, may claim such deduction or allowance when he shall make his individual income tax return for the year in which said deduction at the source was made. Nonresident Foreigners Owning Interest-Bearing Bonds Not Subject to Taxa- tion on Income from Such Bonds if Proper Certificate Furnished. This tax will not be deducted from the income which may be derived from interest on bonds, mortgages, equipment trusts, receivers' certificates, or other similar obligations of which the bona fide owners are citizens of foreign countries residing in foreign countries: Provided, That such interest coupons, or in case of wholly registered bonds, the orders for the payment of such interest, shall be accompanied by duly certified certificates hereinafter pro- vided for to cover the eases of foreign and nonresident owners of bonds and other securities. Unless such proof of foreign ownership is duly furnished, the normal tax of 1 per cent shall be deducted as herein provided. Such certificate shall be in substantially the following form: Appendixes. 223 Form of Certificate to Be Presented With Coupons or Interest Orders, Detached from Bonds or Other Obligations Owned by Those Who Are Both Citizens or Subjects, and Residents of Foreign Countries. I do solemnly declare that I am not a citizen or resident of the United State of America, but a subject (or citizen) of , and that I am the owner of $ bonds of the denominations of $ each, Nos of the known as (Give name of debtor corporation.) bonds, (Describe tlie particular issue of bonds.) from which were detached the accompanying coupons, due , 191. ., amounting to $ , or upon which there matured , 191 .. , $ , of registered interest, and that being a nonresident foreigner, I am exempt from the income tax imposed on such interest by the United States Government under the law enacted October 3, 1913, and that no citizen of the United States, wherever residing, or foreigner residing in the United States, or any of its possessions, has any interest in said bonds, coupons, or interest. Signature of owner of bonds (Give full name.) Date , 191... Address (Give full post ofiSce address.) Temporary Provision. In view of the fact that the time required for the interpretation of the law and preparation and issuance of these regulations brings the date so near November 1, and that many coupons payable upon that date are already in transit Vidthout the prescribed certificates attached, with a desire to cause as small an amount of inconvenience as possible to bondholders and general business as may be compatible with the provisions of the law and of these regulations, the following temporary provision is made: On November 1, 1913, and for 15 days thereafter, coupons presented to a debtor need not be accompanied by certificates in any of the forms hereinbefore described, provided that such coupons are accompanied by a certificate sub- stantially in the following form: Form of Temporary Certificates Which May Be Used Only Prior to November i6, 1913, Subject to Substitution. I (we) hereby certify that I am (we are) lawfully entitled to present for payment the accompanying coupons or interest orders amounting to $ (giving amount) representing interest matured on the following bonds (giving name of debtor and designating the description, style, and numbers of the bonds) ; that said coupons or interest orders came into my (our) possession unaccompanied by a certificate of ownership of said bonds, in any of the forms required by the regulations of the United States Treasury Department; and that the name and address of the owner of such 224 Fedeeax Income Tax Law. bonds are as follows: (give name and address of owner; if impossible to do this, so state ) . Name of person, firm or corporation presenting coupons: Address On or before February i, 1914, certificates of the ownership of any of the bonds upon which was collected the interest referred to in such temporary certifi- cates, in any of the forms above set forth, may be delivered to the debtor; and said debtor may thereupon return any sum withheld to which the owner of such bonds may be entitled under the law and regulations upon the facts disclosed by such ownership certificates. Any temporary certificates relating to bonds, tot which certificates of ownership shall not have been substituted with the Debtor, shall, on or before March i, 1914, be delivered to the collector of internal revenue. All forms of certificates herein provided for shall be 8 inches wide and 3% inches from top to bottom, and printed on paper corresponding in weight and texture to glazed bond paper 17 by 28, about 26 pounds to the ream of 500 sheets, or white writing paper 21 by 32, about 32 pounds to the ream of 500 sheets, and the person or corporation first receiving coupons or interest orders for collection shall write or stamp his or its name and address and date on the back of said certificates. W. H. OSBOBN, Commissioner of Internal Revenue. Approved, October 25, 1913. W. G. McAdoo, Secretary of the Treasury. INDEX. [225] INDEX. .( References are to pages.). A. Absentees return by 93 Accruing definition of 10 Action of debt 121-122 Additional income tax 11 amount of 39-41 distinction between normal income tax and 12 evasion of payment of, through incorporation 62-66 how levied 12 how net income is computed for purpose of 60-62. rate of 12 Alaska tax on railroad corporations in 41 Aliens exemptions and deductions in favor of 75-76 facts necessary to ascertain relative to 8 how affected by income tax 8 income tax as applied to 71-76 method of computing tax in case of 74-75 non-resident 8, 75-76 resident 8, 72 Amendment Sixteenth, to United States Constitution 2 Annuities 24, 25 Annuity contract 24, 25 Apportionment of direct tax among the states 2 Arising definition of 10 [227] 228 Index. (References are to pages.) Army officers mileage and commutation of 23 Assessments for local benefits 31-32 Assessments by personal return 99 claims for abatement of 101 method of review of 101 notice of 98 when become due and payable 98-99 B. Bequest definition of 23 Betterments 35-36 Business carried on by aliens 74 definition 17 c. Citizens of the United States 8-10 how affected by income tax 8 scope of income tax law affecting 7-26 who are 8, 9 Clerk hire deductions for 28 Collectors duty to give receipt 114-115 increase of return by 94-95 power relative to collection of tax 126—129 making of return by 94-95 Collection of tax United States Eevised Statutes relative to 103-114 statutory methods for 119 powers of Commissioner of Internal Revenue relative to 124-126 powers of collectors of internal revenue relative to 126-129 Commerce definition of 17, 18 Index. 229 (References are to pages.) Commissioner of Internal Revenue powers relative to collection of tax 124-126 Commissions deductions for 28 Commutation of quarters to army officers 23 powers of Secretary of Treasury relative to 122-123 Compensation of federal judges 69 of officers and employees of a state 69-70 of president of the United States 69 Computation of net income exclusion of compensation of the judges of the supreme and inferior federal courts 69 exclusion of compensation of officers and employees of a state.. 69-70 exclusion of compensation of president of the United States .... 69 exclusion of interest upon obligations of a state 66-68 exclusion of interest upon obligations of the United States 68 for purpose of normal tax 60 for purpose of additional tax 60-62 in case of aliens 74-75 Computation of taxable income 7 Computing income statutory deductions permitted, in 26-38 Congress intent of, in enacting income tax law of 1913 7 Constitution of United States Sixteenth Amendment to 2 Construction of income tax laws 2-4 Co-partnership by return by 93 Corporation tax law re-enacted in income tax law of 1913 77-78 Corporations income tax as applied to 77-89 230 IXDEX. (References are to pages.) Cost of goods, wares and merchandise deductions for 2S Cost of procuring new business deductions for 28 Cost of raw material deductions for 28 County taxes deductions for 32-33 Dealings in property definition of 18-19 Death of taxpayer 8 Debt action of 121-122 Debts deductions for 34 Debts charged off within the year deductions for 34 Deductions for debts 33 for dividends 36 for exhaustion, wear and tear of property 34 for interest 31 for losses 32 for necessary expenses , 28-31 for tax withheld at source 36-37 for taxes 31-32 how benefit of, may be obtained where income is withheld at its source 57-59 in favor of non-resident aliens 75-76 not permitted for new buildings _ 35-36 of $3,000 37 permitted to married men and women 37-38 Deductions permitted in computing income 26-38 Index. 231 (References are to pages.) Definitions accruing 10 arising 10 bequest 23 business 17 business, trade or profession carried on within the United States . 8 commerce 17-18 dealings in property 18-20 descent 23 devise 23 dividends 21-22 gains 13-14 gains and profits derived from any source wliatever 22-23 gift 22-23 income 15 interest 20-21 personal service 16 property owned within the United States 8 profession 17 rents 21 salaries 15-16 securities 22 trade 17 transaction of any lawful business carried on for gain or profit . . 22 vocations 17 wages 16 what constitutes residence within the United States 8 Demand of payment 103 Descent definition of 23 Devise definition of 23 Direct tax apportionment of, among the states 2 Discovery 115-117 District of Columbia 9,10 Dividends deductions for 36 definition of 21, 22 no return of income required for purposes of normal income tax. . 70 Domicile 11 232 Index. (References are to pages.) £. Earned income 4 Endowment contrax}ts 24, 25 Entire net income definition of 10 Equalization of taxation • 7 Evasion of payment of income tax 62-66 Exclusion. (See Computation.) Exemptions amount of, for single persona 37 amount of, for married persons 37-38 how benefit of, may be obtained where income is withheld at its source 57-59 in favor of non-resident aliens 75-76 Exhaustion, wear and tear of property deduction for 34 Expenses clerk hire 28 commissions 28 cost of goods, wares and merchandise 28 cost of procuring new business 28 cost of raw material 28 deductions for necessary 28-31 gifts .• 28 incidental 28 insurance 28 judgments 28 labor , 28 legal 28 light, heat and power 28 overhead - 28 Tent 28 repairs 28 salary 28 traveling 28 upkeep of horses, vehicles, etc 28 Index. 233 (References are to pages.) F. Failure to make return penalty for 95 Palse return penalty for making ; . . 95-96 Family expenses 28-31 Father returns by 93 Federal Corporation Tax Law changes in 77-78 substantially re-enacted in Income Tax Law of 1913 77-78 Federal Income Tax Law of 1913. (See Income tax.) Fires losses arising from 32-33 Fraudulent return penalty for making 95-96 G. Gains definition of 13 meaning of 13-14 what are 13-14 Ouins and profits and income derived from any source whatever 22-23 Gift definition of 22, 23 Gifts deductions for 28 Guardians returns by 92-93 H. Hawaiian Islands 9 234 Index. (References are to pages.) I. Incidental expenses deductions for 28 Income definition of 10, 13, 15 earned 4 from municipal bonds 2 how computed for additional tax 60^62 how computed for normal tax 60 statutory deductions permitted in computing 26-38 unearned 4 what is 15 Income withheld at the source deduction for 36 Income tax assessments. (See Assessments.) Income tax Act of 1913, when signed 2 as applied to aliens 71-76 as applied to corporations 77-89 assessment of 98-102 collection of 103-130 constitutes section 2 of Tariff bill of 1913 2 constitutionality of 1, 5-6 construction of 2-4 direct tax 2 distinguished from succession or inheritance tax 23 evasion of payment of 62-66 first passed 1 former income tax acts I history of 1 how computed for year 1913 7 imposed only on income 7 measure of 7 nature of 4-5 not upon property 7 property affected by 7-8 persons affected by 8 payment of 103-130 Income tax returned. (See Returns.) Incorporation evasion of payment of additional tax through 62-66 Index. 235 (References are to pages.) Infants returns by 92-93 Inheritance tax 23 Insane persons returns by 93 Insurance deductions for 28 losses not compensated for by 32-33 Intent of Congress in enacting Federal InconUe Tax Law of 1913 7 Interest definition of 20-21 deduction for 31 Interpretation of Income Tax Laws 2-4 J. Judges of federal! courts compeiisation of, not taxable 69 Judgments deductions for 28 Jurisdiction of United States courts 129-130 L. Labor deductions for 28 Legal expenses deductions for 28 Legal representatives returns by 93 Levy of tax 39-41 Levy upon personal property 119-121 Lien to what extent is the tax a 117-118 236 Index. (References are to pages.) Life insurance not to be included as income 24, 25 Light, heat and power deductions for 28 Living expenses 28-31 Local benefits assessments for 31-32 Losses deductions for 32 M. Mileage 23 Mines deductions for depreciation in 34-35 Minors return by 93 Municipal bonds income from 2, 6 Municipal taxes deductions for 32-33 N. National taxes deductions for 32-33 Nature of Federal Income Tax 4^5 Necessary expenses deductions for 28-31 Net earnings deductions for 36 Net income definition of 10, 13 how computed for additional tax 60 how computed 60-62 Index. 237 (References are to pages.) Net income — entire definition of 10 New buildings 35-36 Non-resident aliens 8 exemptions and deductions in favor of 75-76 how affected by income tax 8 meaning of business, trade or profession carried on by 74 meaning of property owned by 74 who are 72-74 Non-resident citizens 8-10 Normal income tax 11 distinction between additional income tax and 12 how net income is computed for purpose of 60 levy of 39 0. Obligations of a state 66-68 of the United States 68 Overhead expenses reduction for 28 P. Parties required to withold income at source 93-94 Payment demand of 103-114 of tax on income withheld at source 102 receipts showing 114-115 to whom made 101-102 Penalty for failure to make returns 95 for making false returns 95-96 for non-payment of taxes 99-101 Permanent improvements 36-36 Personal expenses 28'-31 Personal property levy upon 119-121 sale of 119-121 238 Inbex. (Eeferences are to pages.) Personal service definition of 16 Persons affected by tax 8 Persons residing within United States meaning of 11 Philippine Islands 9, 10 Porto Rico 9-10 Powers of Collectors of Internal Revenue 126-129 Powers of Commissioner of Internal Revenue 124-126 Powers of Secretary of Treasury 122-124 President of the United States compensation of, not taxable 69 Profession carried on by aliens 74 definition of 17 Profits definition of 14 what are 15 Property affected by tax 7 owned by aliens 74 Publicity of income tax returns 96-97 R. Railroad corporations in Alaska tax on 41 Rate of taxation 11 Refund of tax 101 Rent deduction for 28 Index. 239 (References are to pages.) Rents definition of 21 Repairs deduction for 28 Kesidence H Resident aliens how aflfeeted by income tax 8 Return of income from dividends 70 Returns by absentees 93 by co-partnerships 93 by father 93 by guardians, trustees, etc 92-93 by infants 92-93 by insane persons 93 by legal representatives 93 by oath or affirmation 90 by parties required to withhold income at its source 93-94 by whom to be made 90 contents of 91-92 form of 91 increase of, by collector 94^95 making of, by collector 94-95 penalty for failure to make 95 penalty for making false or fraudulent 95-96 publicity of 96-97 to whom to be made 90-91 verification of 94 when to be made 90 Review of assessment 101 s. Sale of personal property 119-121 Sales definition of jg Salary deduction for 28 240 Index. (References are to pages.) Salaries definition of 15, 16 School taxes deduction for 32—33 Scope of the Federal Income Tax Law of 1913 as affecting citizens of United States 8 as affecting non-resident aliens 8 as affecting resident aliens S Secretary of Treasury powers of, in collection of tax 122-123 Securities definition of 22 Shipwreck losses arising from 32-33 Sixteenth Amendment to United States Constitution 2 State taxes deductions for 32-33 States tax on the power of, to borrow money 2, 6 Statutory deductions permitted in computing income 26-38 Statutory definition of net income 1-3 Storms losses arising from 32-33 Succession tax 23 Supreme Court judges compensation of, not taxable 69 Surtax amount of 39-41 distinction between normal tax and 12 rate of 12 Index. 241 (Eeferences are to pages.) T. Taxation equalization of 7 rate of 11 Taxable income computation of 60-70 Taxes deductions for 31-32 Taxes withheld at source deductions for 36-37 Tax levy 39-41 Taxpayer death of 8 Text of Income Tax Law of 1913 131-159 of Income Tax Law of 1913 as applied to corporations 78-89 of Income Tax Law of 1861 160-162 of Income Tax Law of 1862 16»-170 of Income Tax Law of 1863 171-172 of Income Tax Law of 1864 173-184 of Income Tax Law of 1865 185-188 of Income Tax Law of 1866 18^194 of Income Tax Law of 18&7 195-198 of Income Tax Law of 1870 199-214 of Income Tax Law of 1894 215 Trade carried on by aliens 74 deduction for losses incurred in 32-33 definition of 17 Transaction of any lawful business carried on for gain or profit 22 Transmission by devise 23 Traveling expenses deductions for 28 Trustees returns by 92 16 242 Index. (References are to pages. 1 u. Undivided earnings 23 Unearned income 4 United States definition of 9 United States Constitution Sixteentli Amendment of ; 2 United States court jurisdiction of 129-130 United States Supreme Court decision of, in Pollock v. Farmers Loan & Trust Co 1-2 Upkeep of horses, vehicles, etc. deduction for 28 V. Vocations definition of 17 w. Wages definition of 16 Withholding income at the source as between landlords and tenants 57 constitutional objections to 45-48 deductions on account of 36 how benefit of deductions and exemptions can be obtained.... 57-59 how it works in practice 49-57 objectionable features of 49 purpose of 49 statutory provisions relative to 42-45 Worthless debts deductions for 34 statutory provisions relative to 42-45 [Whole number of pages 258.]