South Bend news-times. (South Bend, Ind.) 1913-1938, 1918-02-04
HOW To FIGURE
EXCESS PROFITS
Revenue Bureau Defines In
vested Capital Surplus
and Good Will.

WASHINGTON, Feb. 4-Regula-
tiOns under which the excess profits
tax law is 70 be administered, made
public Sunday night by the bureau
u internal revenue, clear up many
long disputed questions affecting the
determination OF the basis for hgur-
ing profits. but leave a number yet
to be threshed our by individual
rulings, or By amendment of the
law. Returns must be made by
Iarch I. on 1917 business.
By the regulations. invested cap
ital is defined as the total OF the
capital surplus and undivided pro-
hts as shown on the books. with Ger
tain adjustments required By the
law. II any change in the invested
capital has been made during the
year. the monthly average is 10 be
taken
If the true surplus or undivided
profits are not shown By the books.
because OF failure 10 provide for
depletion. depreciation. ObsOlescence
or other losses, the regulations make
II mandatory TO figure corrections,
and thus reduce the capital figure
This would prevent corporations
from figuring their tax exemptions
az too high a figure by over-estimat-
ing their capital.
Expenditures a. Surplus.
On the other hand it is permits
sible 10 add TO the surplus account
expenditures in the past for extern
sion Of the plant or equipment which
still is in active use if the expen-
ditures have been charged as cur
rent expense.
one of the most disputed points
is the valuation OF trade marks,
good will. patents or copyrights.
The regulations provide that only
in cases where actual payment has
been made for these items can the
expense be added To the invested
capital total No adjustment is
allowed, either for expenditures
made TO develop good will. or other
intangible assets.
The excess profits law provides
that in cases where it seems i'm
possible 10 determine deductions IN
the ordinary way, because a business
did not exist in pre-war years, on
because OF exceptional conditions
such as extraordinarily low profits
then. the business of representative
concerns is TO be taken by a basis
for figuring deductions This pro
vision. the regulations hold. may
apply to businesses having defective
accounting systems making L i'm
possible 10 compute invested capital;
foreign tax payers when il is deemed
impractiCable to investigate invested
capital figures in another country;
long established business concerns
for which the invested capital is
seriously dispropOrtionate to the tax
able income" An example of the
last case would be a business which
made large profits in 1917, but which
had had several previous unprOduc.
tive years.
Tax on Professional Men.
The eight percent tax on profits
over $4,000 for tax payers having
only a nominal capital, is held tC
apply to professional men, or t.
trades or businesses rendering pro
fessionaI services. If "a corporation
is engaged in two kinds OF business
one being professional and requir-
ing no capital, the regulations pro
vide that the entire income is TO bC
considered as of its principal bust
ness.
If an individual is engaged in two
or more businesses, however, on,
taking no capital, and one with
capital, income from each is to b'
taxed separately. For instance, Z
physician owning a hospital woulC
be taxed at eight percent on his pro
fessional income above $4,000. an,
ia addition, on capital invested il
the hospital at other rates.