Bisbee daily review. [volume] (Bisbee, Ariz.) 1901-1971, 1918-01-13
NCONCRUITIES
CLAIMED IN THE
FEDERAL TAKLAW



a corporation al q cost Of i0aooO, but
against when sun has been writ
ten OF annually Tor depreciation. 50
that 3 Is nov carried on the books
n $4,000. Il IL was purchased for
cash the allowance VIII be for S1oo,-
C0G cash paid in and the corporation
wishing 70 make its books conform 90
the governments reQuirmenJs VII
have 70 r.s-tore the $4,000 written
off Tor depreciation
If stock vas issued FOR the mschin-
cry to amount Of 100000 par value. il
viii stsu be carried al the cost o.
S1Oa. Oo0. aCain iEnorinS tire depreCia
ton. but If the owners OF al The
corporation sSjock. wishing 10 be con
Se-vative n amount o. stock they IS
sued 10 themselves had issued S1a-
Ol0 par value OF stock for the S1o0.000
worth Of machinery. tire allowance
would be only on $4,000. Il. however
the machinery vas purchased prior 70
January !. 1914 for 100000 IN stock.
and had By JenGary 7. 1914, been wris
ter down 70 $50. 0e0. This item az IN
vested caoitsl- would be S50.e9a
The point is that that the allowance
and the rate Of tax based on the &C
cidenfal features OF amount Of stock
originally issued. and date Of aCQuisi-
ton Of the property. A corporation
will nav a large or a small tax accord
ing rs il originally issued stock in
small or large capital amount IRE
spective Of its actual condition
To illustrate again. a corporation
owning 81 Zoo. coo OF real estate viii
be deemed 10 have invested capital
Of 81 goo .00O. if il issued that amount
OF stock: but il. being q close corpora
ton. its inCOpOratOrs caused only
nominal amount Of stock 10 be issued
TO themselves for the property. their
allowance viii be reduced according
" assuming always that amount
acruallv issued : not as small as 10
be nominal capital within meaning
Of the law
Turning row 10 intsngibles, patents
and copyrights viii be allowed as in
vested capital 20 an individual only
If he uaid for them specifically as sUch
in cash OF tangible property A cor
pOrst ton on the other hand. viii not
be allowed value OF patents and copy
rights acquired for cash OF tangible
property Gin either case the cash has
already been allowed as cash paid I'M
hut viii be allowed their value II paid
in for stock In either case the allow
ance Is value al time OF acquisition
Thus s patent originally taken Up az
$. zoe Is allowed al that amount. al
though on the one hand II may have
turned out 10 be worthless. and has
been written off a such. OF. on the
other hand. IL may have been develop
ed so as TO be worth a million
This basing OF allowance on amount
OF stock issued Is likely 20 lead 70
strange results Assume. for example
a corporation whose entire assets con
sist substantially Of a valuable patent
originally taken up al S5.00o. the par
value Of the entire stock issued there
for The patent has been developed
50 that II produced a net income OF
S100-00e. and has an sCtusl value OF
s. 001. 000 SO long a. il remains In
the hands Of the original owner the al
lowance wiu be based on the capital
Of 5000 With deductions OF only S3.e0e
plus g per cent on 5000. making total
excess profits end income caZes OF
Ss9. f54 90. being Cved Co per cent uet
income. and leaving for the owner
only SSS.545-SG Of net income
II. however. the owner OF the patent.
holding al stock Of the corporation /
should cause the patent TO be sold 10
new corporation capitalized Al ST.
000.O0o, the capital stock is in that
amount being issued for the patent
and the former owner retaining say
- per cent OF stock Of the new corp
Grafton. then If the new corporation
earns the same net income as the old.
viz Sl0Q oO0. IL VIII De entitled 10 an
allowance OF 3 per cent on capital.
OF 81 100000. plus s. .000 being a total
deduction Of SS30e0. which, deducted
from Het income OF $Ie0,o00. leaves
taxable profits of only S7-0oo. taxable
q 20 per cent. 50 that excess profits
tax viii be 81 500. 90 which should be
added income tax of S5.916. making
total excess profits and income taxes
o. s7-515. OF ne- cent os net income
After paying this tax Of S7.3l6 there
VIII remain OF the Slo0.000 net income
g balance Of S22. eS4 fer the stOckhold-
ers- The original owner viii receive
on his 40 per cent OF stock S4-515I6.
SO that as result o. transferring his
patent 10 q new corporation and re-
tanning only q 40 per cent interest he
~ii actusiIy receive larger return
than his net return while ne continues
10 own al stock OF the original cor
porati0u- IT, however. the original
owner retains more than 80 per cent
0f stock in the new corporation. the
allowance and the tax win be exactly
the same as before. assuming that the
transfer is made after March 8. 1917.
tIt is assumed. also. in the foregoing
that provision of the law limirilE si
Iow1nce on Invested capital" consist
ing in good p-in or other
property 90 30 per cent OF the total
capital stock does not apply 70 pat
ents-l
Other intangible property. including
COod viii Is included IN --inves ed
capital either 10 an individual or 20
a corporation or a partnership. 81 paid
Tor specifically as such In cash or
tangible properly WHY a corpora
ton should have an allowance for
good VII paid for in cash and not f~r
"a -asrz Maid fr- in aazh Il ~nH M