Tulsa daily world. [volume] (Tulsa, Indian Territory [Okla.]) 1905-1919, 1918-03-31

taxable year. Additions cannot he
made during the year from current
earnings. nor can properties be re-
valued or arprHiscd and the appre-
/ cMtiuu added, Certain additions are,
/ however, provided In the regula-
/ uons. such as mentioned In article
90 wherein II is declared permissible
/ tu add the Na,uc ns of date Of ac-
/ qu''cmcn' OF any tangible property
! transferred 10 a corporation Hs "A
/ Elii ur Nt n price much les, than
. ihr thcu known or asCcrtainable
| value.
MtpN e close corporation has been
7 infWrd iu prior years with Il capital
/ stock Ncy small In proportion Ia the
/ value ~ tho tangible propcrt trans.
/ l'ir'd TO IT by It's iucOrporators. In
q number uf cases coming under my
Observation property worth hun
I "rrds " thousands n dollars has
[ been transferred to CeDpor,tion
. formed ty Joint owners of Apl prop-
erty and little or no stock or cash
issued 10 thom ia payment thereafter
Slnu" the inCo.9orators and owners
or the property also were 10 and did
hcpuir" an the stock Of the CORPORA
ton thy cash paid in to provide
working funds or otherW iscl IL vas
not deemed necessary to issue stock
To the value of the properties 80
donated or 10 show said value ON
the books liv article 50 OF tho reg.
ulations ~ ~ tho evident intention Ia
allow this value TO be added to the
invested capital.
The second paragraph Of section
-Oi of the excess profits law speCi.
"a n a t..l.
De included IN invested capital
namely:
taD Stocks, bonds (other than oh.
llEthons OF thc tinted States or
other assets, In Income from which
Is not subject 10 the excess profits
tax and
to) Money or other property Dor.
rowcd.
The evident reason for excluding
stock Ia that the dividends received
thrrefrom arc not subject to excess
pr"tliS thN, therefore. the money In
vested In them should not be con
"'de'cd clpilal for the purpose OF
computing against other taxable In |
come But the law failed to make |
provisions FOR the case where tho |
twner or stocks derived income from |
his dealings therein other than di- |
lidcndS suppose "A taxpayer had
during 1917 an average Investment |
OF 100000 In stocks OF corporations |
on which he received $1,000 In diyi- |
dcnds ana made $4,000 In buytur
and selling such stocks The latter
~ known nS trading profit and is
subject to excess profits tax but |
since the stocks are excluded from
Invested capital he has nothing ON
winch To compute deductions or
rates Of taxation as against this SO
I 90 profit Since IL does not arise
from personal or professional ser
VICE II cannot be assessed at the
per cent rate. This question has
been solved to some extent by ar
tlclc 40 of the regulations whereby
II ~ permitted To add Ia the invest
lnent IN said stocks which bears the
Snmc ratio 10 the total amount SO
invested az the amount Of such trad
ing profits bears to the total amount
OF Income derived therefrom Thus
IN lhc cas" suggested. the trading
btoilts equal two-thirds OF the total
Income Therefore. two-thirds OF
the 500 600 invested may be added
to inNcstrd capital
Many concerns operate on hor. |
."N'u money Considerable CON .
usion arose in view Of the fact tbnt {
ih'lr ruriucSs'. aitho one In which a
I''tr amount ~ capital is necessary ~
would be lru. after dedurtir, ~ I
borrowed funds. with practically NO
invested capital The per cent (
HAT rate could nbGShc applied he. .
cause that rate ls only applIrable G
10 a trade or business engaged prin- I
ClpaIlN IN rendering personal ser,ic | Z
Inc treasury department expressly :
holds thPt naConCcrn will not bo ron. I
sidercd as hpNing a nominal capital s
merely heCauCe the amount thereof q;
II seriously reduced by excluding the :
borrowed money
Limitation on Interest Deductions.
Furthermore. the income tax law
contains "A restriction on the -deduc- .
ton OF interest paid by "A corporation ,
during the taxable year There mavl
be deducted only the interest on an I
amount OF Indebtedness cquaIine the I
capital stock plus one half Of the
Indebtedness at the close
NJ the year MANY corporations with
D small amount Of stock issued but
With great amount OF outstanding
Indebtedness find themselves unable ,
la deduct from gross income an the
interest paid during the year Article /
81 Of the regulations relieves this
condition for excess profits tax pur- ,
poses where the indebtedness is per {
nanCnt In character n provides I
hat In such case the corporation !
may include I'm its invested capital /
such proportion OF rs permanent {
Indebtedness as the amount of inter {
'st upon such indebtedness which
he corporation L. not allowed To de- y
luct is Of the total amount of inter ,
st paid upon such Indebtedness dur
ng the taxable year Thus a cor =
'oration with $50 600 capital stock ]
md flOO.Q9o interest bearing in a
lebtedncss on which N had paid {
5000 Interest during the year could C
My deduct $4,000 or seven-tenths 4
Z its interest paid n is. therefore. Z
llowcd 10 add threc-tenths or 80 b
90, Of its said Indebtedness to in r
ested capital
Relief Provided ny Regulations
Article 81. 4
This article only has limited ap- a