New-York tribune., 1918-02-04
Internal Revenue Bureau
Drafts Amendments Con-
sidered Necessary
New Rulings Clear
Some Hazy Points
Return Forms To Be Ready
for Distribution in a
Few Days

WASHINGTON, Feb. 3.-Regulations
under which the excess profits tax law
is TO be administered, made public to-
night by the Bureau of Internal Rev
cnuc, clear UP many long disputed
questions affecting the determination
Of the basis for figuring. profits, but
leave number yet to be threshed out
by individual rulings, or by amend
mcnt of the law. A new draft of the
war tax is now being prepared by the
bureau, cmbodying proposed amend
ments on subjects which officials think
can not properly be passed on by
executive rulings.
Excess profits return forms will be
available in a few days, and returns
must be made by March l on 1917 bust
ness. Some extension of this time has
been urged by business interests.
Since deductions based on per-
ccntagc Of invested capital may be
taken from aggregate profits before
determining the taxable amount, corr
poratons or partnerships arc anxious
10 figure their invested capital as high
as possible By the regulations, in
vested capital is defined rs the total
of the capital, surplus and undivided
profits as shown on the books, with
certain adjustments required b. .he
law. If any change in the invested
capital has been made during the year
the monthly average is to be taken.
II the tue surplus or undivided
profits are not shown by the books,
because Of failure to provide for de-
pletion. depreciation. obsolcscence or
mandatory TO figure corrections, and
thus reduce the capital figure. This
would prevent corporations from iig-
uring their tan exemptions at too high
q figure by overestimating their capt.
tai.
ON the other hand it is permitted to
add to the surplus account cXpendi-
lures in the past fer the extension of
tho plant or equipment which still is
IN active use, if the expenditures have
been charged as current expense.
One of the most disputed points has
related to the valuation Of trademarks,
businesses arguing for inclusion of
these at high figure in their capital
investment Tho regulations provide,
However. that only in cases where
actual payment has been made for these
items can tho expense be added to the
invested capital total. No adjustment
IS allowed either for expenditures made
20 develop goodwill or other intangible
assets. BY this ruling the plea of
rumbcr of corpo cations which have
spent thousands or even millions Of
dollars developing a business is re-
fused
The excess profits law provides that
IN cases whore 1t seems impossible to
determine deductions in the ordinary
way because business did not exist in
pre-War years or because Of exceptional
conditions, such as extraordinarily low
profits then, tho business of representa-
I'VE concerns is to be taken as a basis
or figuring deductions. This provision,
according to the regulations, may ap-
ply to businesses having defective &C
counting systems, making it impossible
TO compute invested capital; foreign
taxpayers, when it is deemed imprac-
t'cablc to Investigate invested capital
figures in another country; long cstab-
lished business organizations and bust
ncsses for which "thc invested capital
is seriously disproportionate to the
taxable income" An example of the
last case would be business which
made largo profits in 1917, but which
had had several previous unproductive
years.
The S per cent tax on profits over
5000 for taxpayers having only a
nominal capital is held to apply to pro
icsslonal men or to trades or bust
ncsses rendering professional services.
If corporation is engaged in two
Kinds of business, one being profess
sional and requiring no capital, the
regulations provide that its entire in
come is to be considered as of its prin-
ciral business.
If an individual is engaged in two or
more businesses, however ono taking
10 capital and one with capital. income
from each is to be taxed separately.
For instance. d physician owning a
hospital would be taxed at pcr cent
on his professional income above So
eoo. and, in addition, on capital in
Vested in the hospital at other rates.
The regulations require corporations
10 describe in making returns their re-
ations with other affiliated corpora
tons. This is expected to disclose
many facts concerning business COM
hlnationS not now on record