The sun., 1918-10-15
TAX EXEMPTION FEATURES
OF LIBERTY BONDS.

~ &Ao1N II 0SNDSs
It is clear that the many compli-
Gated provisions OF law relating TO the
position Of Liberty Loan bonds with
respect to taxation present and pro-
posed are not thoroughly understood
by investors.
The Liberty Loan Committee has
established q bureau OF tax experts
to advise subscribers and is publish
Ing a series Of statements addressed
to bond buyers individuals and corpo-
rations). The subject Is q complicated
one. and based on the preliminary in
quiries that have been received by
the Tax Bureau II would seem that
this bureau viii be one Of the busiest
departments Of tho Liberty Loan or
ganization until the close of the cam
paiRn. Tho services which this bureau
can render will be OF material assist
ance to the public and It Is hoped that
In addition II may indicate to many
the ACCESSIBILITY Of increasing their
subscriptions to tho fourth loan.
So far as individuals are concerned
the more important features are as
follows:
1. The new bonds are not subject
to normal income tax. which under
the proposed law will amount to IL
per cent.
2. Any amount OF new bonds not
exceeding In principal $4,000 in the
hands OF each investor is exempt
from surtaxes, excess profits and war
profits taxes for the period of the
war and for two years thereafter.
8. A subscription to fourth loan
bonds OF an amount Of principal not
exceeding $4,000 carries with it an
exemption from all income taxes, ex-
cess profits and war profits taxes
for the period of the war and for two
years thereafter. on an amount of all
OF the preceding issues exclusive of
the AIS. which by their terms are
exempt from all such taxes) equal &c
one and half times the amount of
the subscription to the fourth loan
bonds. provided the fourth loan bonds
are retained at the date Of the tax
return. This advantage measured in
terms Of dollars is equivalent to q
yield on an investment of a corre-
spending amount in taxable securities
ranging from slightly over per
cent. to over 36 per cent, depending
upon the highest rate of surtnx to
which the investor Is liable. The
above exemptions are in addition ia
the exemption OF $4,000 previously
accorded to the per cent. and Az DER
cent. Liberty bonds.
AS to corporations theN situation Is
even more complicated, but two impor-
tant points may be summarized as fol-
lows:
(D In lieu OF the existing 10 per
cent. undistributed profits tax. the
proposed law levies an income tax OF
Is per cent, which Is reduced to II
per cent. on that part OF the corpora
TONS taxable income not in excess
OF an amount equal to the sum (a)
distributed in dividends during the
taxable year. tb) paid out OF earnings
during the taxable year in discharge
OF interest bearing indebtedness out
standing prior to the taxable year. and
(c) invested during the taxable year
In obligations of the United States
Government issued utter September
l. 1918. tThe fourth loan Is the only
bond Issue which comes within this
provision.) In other words, an invest
ment in the fourth loan bonds is alb.
solute insurance to the corporation
against the Imposition OF the add
tional per cent. tax on an amount OF
income equivalent TO the amount OF
its subscription to the fourth loan.
(O II "inadmissible assets" Is q
factor in the calculation of a corpora
tons invested capital" the value OF
the right 10 include Liberty bonds
(Which are classed as admissible as
setsD as part OF invested capital
may mean substantial saving of tax
(For example. on an investment OF
funds equal to 10 per cent. of the
amount of invested capital, the saving
amounts to IL per cent. OF the amount
OF investment in the case of a cor
poration earning SO per cent. on Its
invested capital.)
The Treasury Department has Just
issued very important ruling to the
effecr that where Liberty bonds are
owned by trust fund the income
from which Is regularly or annually
distributed to beneficiaries. the exemp.
| tons accrue to the beneficiaries. In
other words. each beneficiary is en-.
titled TO his full exemptions explained
above. and for that purpose there may
he included az part of his holdings
his portion of the bonds beld in trus,
for his benefit.
The committee believes that a gen.
eral knowledge OF the matters briefly
discussed above will have stimulat.
ing effect on the subscriptions to the
fourth loan. and invites the freest use
Of the Tax Bureau.
A. NJ. ANDERSON,
Director OF Distribution, Liberty
Loan Committee.