Republican farmer. [volume] (Bridgeport, Conn.) 1810-1920, 1918-02-08

computation OF the invested capital
of corporations and partnerships. The
law provides that the invested capital
shall consist Of the actual capital paid
in and of the paid in or earned sur
plus and undivided profits, exclusive
of the undivided profits of the tax
able year. The law also prescribes
certain limitations upon the Valua-
ton of assets and other items. The
regulations provide that the total of
the capital, surplus and undivided
profits as shown on the books, ad-
justed as required by the limitations
just referred TO and is permitted by
certain other provisions of the regu-
lations, shall constitute the invested
capital. In The few cases, however,
where this total exceeds the adjust
ed value of the admissible assets (the
come from which is tax free,) the
invested capita! must be reduced so
as not to exceed the total value of the
admissible assets. If there be any
change in the invested capital during
the taxable year, the monthly average
shall be taken.
I'm addition to the express provi-
sions of the law relating to invested
capital, several OF the provisions of
the regulations supplemenr1ng those
of the law are Jne of the greatest i'm
portance. II because of failure to
provide for depletion, depreciation,
obsolescence Or other expenses or
losses, the books of the corporation
or partnership do not show its true
surplus or undivided profits, the ne
cessary' corrections must be made.
But, on the otner hand, the amounts
which have been expended in the past
for plant, equipment or other tangible
property still owned and in active use
by the corporation or partnership and
have been charged as current expense,
may, unless such expense has been
claimed as a deduction under the In
come Tax acts Of 1913 or 1916, be
added to the surplus account, proper
allowance being made for depletion
or obsolescence. Amounts so expended
for good will, trade marks, trade
brands, franchises, and other like in
tangible assets may be added only if
bona fide payment was made there
for, specifically as such, in cash or
tangible property. No readjustment
can be allowed, however, for expendi-
lures made Tor the general develop
ment of intangible assets, but such
cases may, to some extent, be provid-
ed for under Section 210, to which
reference has already been MAGE.
Another important provision relat-
ing to the invested capital of a cor
poration or partnership is that when
it can be shown by satisfactory evil
dence that tangible property has been
conveyed to it by gift or at a value
clearly and substantially in excess of
the cash or par value of the stock
exchanged therefore, then the amount
of the excess shall be included as paid
in surplus.
1.-THE invested capital of mutual in
surance companies will consist Of the
sum of any surplus or contingent re-
serves maintained for the general use
of the business and any legal reserves,
the net additions to which are includ-
ed in the net income subject to the
| tax. These companies are, of course,
like all other corporations, subject to
the general restriction already men
toned relating to tax-free assets.
"One. other important provision re-
lating to corporations is that every
corporation must describe in it's re-
turn all its relations with other affil-
lated corporations, and that in certain
cases the Commissioner of Internal
Revenue may require such affiliated
corporations to make a consolidated
return of net income and invested
capital. Further provision is also
| do Ia ~ of
on the basis OF such consolidated re-
turns in certain cases.
while the law expressly provides
that in the case of a corporation OF
partnership AL of it's income shall be
derived from trade or business. In
the case of an individual, however
only that portion of the income which
arises from trade or business is sub
ject to this tax, and the definition Of
trade or business becomes especially
important. The regulations provide
that all occupations and professions
and all activities for gain, sufficient
frequency or occupying such portion
of the individuals time or attention
as to constitute a vocation shall bt
considered trades or businesses, ever
though not continuously carried OF
during the whole of the year, anC
that all of the income arising there
from shall be included in his return
for excess profits tax. Gains or prof
it's from transactions entered into TO,
profit but which are isolated inciden
tally or so infrequent as not to consti
tute an occupation, and income from
property arising merely from its own
ership, including interest, rent, ant
similar income from investments, ar
, in the case Of an individual not sub
ject to the excess profits tax, excep
, in those cases where the management
OF such investments really amount
to a trade or business.
"Other provisions of interest to in
| Gividuals are those which provide tina
} the profits of the taxable year may
5 if put back into the business, be in
| Guided as invested capital, and tina
> a member of a partnership who re
ceives a salary from the partnership
t is also entitled to deduction Of Sc,
geo in computing his excess profit
tax upon the salary