The Bridgeport times and evening farmer., 1918-02-05
TREASURY DEPT.
 UNRAYELS KNOTS
 IN REVENUE CASE
Points on Excess Profits, Disputed by Legal Au- thorities of Country Are Settled in Formal Statement From Department Invested Capi- tai Defined by Decision.

ed in such securities which the trad ing profit bears to the entire return from such security during the taxable year. In such cases the trading pro- fit is, of course, subject to the tax Returns are to be made and the tax paid at the same time as the in- come tax.
 Corporation Capital
 'HThe provision, which is probably of the greatest general interest, is that which lays down the rule for the 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 fs 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 freet) 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.
 'In addition to the express provi- sions of the law relating to invested capital, several of the provisions of the regulations supplement1ng those of the law are Jne of the greatest i'm portance. If because of failure to provide for depletion, depreciation, 1 obsolescence or other expenses or losses, the books of the corporation or partnership do not show it's true surplus or undivided profits, the ne- cessary corrections must be made. But, on the other 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 dedeuction 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 for 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 mace. Another important provision relat-
 ing to the invested capital Of a cor
 poration or partnership is that when
 it can be shown by satisfactory evi-
 dence that tangible property has been
 conveyed to it by gift or at a value
 clearly and substantially in excess ot
 the cash or par value of the stock
 exchanged therefore, then the amount
 of the excess shall be included as paid
 in surplus
 '"The invested capital of mutual in-
 surance companies will consist of the
 sum of any surplus or contingent re- iserves 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 tc
 the general restriction already men
 tioned 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 it's relations with other affil
 lated corporations, and that in certain cases the Commissioner of Interna Revenue may require such affiliated . corporations to make consolidated return of net income and invested capital. Further provision is alst made for the assessment of the ta- on the basis of such consolidated re 1 turns in certain cases.
 While the law expressly provide that in the case of a corporation O l partnership all of it's income shall b. 5 derived from trade or business. Il lIlS CdS0 O1 an 1nu1N1uuoAJ hOWeNtI only that portion of the income whicl
 arises from trade or business is sub } ject to this tax, and the definition o . trade or business becomes especial, 5 important. The regula~ons provid } that all occupations and profession } and all activities for gain, sufficien , frequency or occupying such portion . of the individuals time or attention } as to constitute a vocation shall b l considered trades or businesses, evel g though not continuously carried ol ] during the whole of the year, an' Q 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 fo d profit but which are isolated inciden e tally or so infrequent as not to consti s tute an occupation, and income iron h property arising merely from it's own e ership, including interest, rent, an = similar income from investments, ar t in the case of an individual not sub = ject to the excess profits tax, excep }. in those cases where the managemen e or such investments really amount g to a trade or business.
 }, "Other provisions of interest to in t oividuals are those which provide tha y the profits of the taxable year may il l if nut t,a,1- ,z,+. +I,o business. be in