Evening journal., 1918-03-01
WARTIME FIRMS
GET TAX RULING
Washington Explains How
Such Business May Figure
Deductions
CITES MANY
SPECIFIC CASES

WASHINGTON. March i,-Illustra-
tions as TO how concerns which were
not in existence prior to the war are to
figure their deductions under the excess
profits provisions Of the war revenue
law are given in the fourth Of the
series Of letters Of instruction on eX-
cess profits which are being sent col
lectors by the Internal Revenue Bu-
reau.
Several examples for such firms arc
given iu question and answer form
covering widely different business ac-
tivities Examples are also given for
Arms that were in existence for only
part Of the pre-war period, which is
taken as a basis for ilguring deductions.
The questions and answers are:
o. A firm commenced business April
4, 1911 What period should IL use TO
determine its pra-war earnings and in
vested capital? A. All Of the years of
1912 and 1918. The year 1911 Is disre-
garded, as the law provides that only
entire calendar years shall be counted.
lseo sixth paragraph, Section 200 of
The law
Q. What rate of percentage deduc-
zion Is given O taxpayer who started IN
business after January 4, 1913? a..
Eight per cent Of the invested capital.
(See Section 20i Of the law and article
81 Of regulations No. ii.)
Q. Jones was in the hardware busi-
ness during the pre-war period He
made more than per cent on his in
vested capital In 1914 he sold the
hardware business and established a
furniture store and Is making over 3
per cent. What percentage deduction
does he get2 a. Eight per cent since
nc Is now carrying on business in
which he was not engaged during the
pre-var period However. III he had
bought an established furniture busi-
ness having pre-war earnings Of per
cent. he would be allowed Q per cent.
lsee Section 20i of the law and Article
p of the rcgllations.)
o Smith bought a hotel business In
49ii which had been in existence during
tho pre-war period, hut he is unable
10 ascertain what was its average in
vested capital for that period What
S his percentage deduction2 A. lie
should compute the tax, in the FIRST in
stance, on lhe basis Of per cent de-
duction. but may fle a claim with eX-
planatlonl for final assessment under
the provisions Of Section 2i0 Articles
81 and 52) and II the Secretary Of the
Treasury is unable 20 determine sats-
factorily the invested capital the per-
ceniage deduction will be computed at
The same rate percentage as in the case
OF representative individuals engaged In
q like or similar business.
O An individual engaged in manu-
featuring makes annual contributions
90 a nearby hospital in which injured
employees Of his establishment are cared
for he also makes contributions 90
his church and TO the public library. Is
be- allowed 90 deduct these contribu-
tions IN computing his net income for
the purposes OF excess profits tax pay
mont? A. The contributions 10 the
hospital would constitute a proper de-
ductiCn such contributions will be al
lowed up 90 IS per cent. of The income
Of the business. The contributions TO
the church and the library will be re-
garded as made by the individual and
are not allowable deductions.
o. partnership has made contribu-
tlons to various churches, local chari-
ties and the H. NJ. C. A and charged
the amounts or 20 profit and loss at
the end Of the year VIII 20 be allowed
20 deduct these contributions A. No
These contributions are not connected
with The trade or business.
O. An incorporated department store
occasionally contributes 10 local charl-
ties hospitals, Sc. Are these items dc.
ductible2 A. No Donations which do
not have In them the element of COM
rensation are considered gratulties and
are not allowable deductions
O. An individual who received a
salary Of 5000 during the taxable year
has a minor son mot emancipated, who
earned $500 during the taxable year in
separate occupation Must tine $500
be included in the income OF the par
eut subject TO excess profits iax2 A.
no