Daily Kennebec journal. [microfilm reel] (Augusta, Me.) 1870-1975, 1918-02-05
The New Income Tax Blanks

III ldX DldilkS
With these in mind. each taXpayei
should carefully study the official
blank adapted to his own case.
. Do not be misled by so-called brief
summaries" of income tax require
ments from unofficial sources. They
may be helpful, but they cannot hon
estly claim TO settle the thousands OF
questions inherent in a subject of the
vastness and compleXity OF income
taxation. The carefully formulated in
structions on the official blanks will
answer 80 per cent OF your questions.
| Ii in doubt, consult the Federal In
come Tax agent in Your locality. or
write the Collector Of Internal Eeve-
nue. at Portsmouth, y. H.. stating You.
problem, and YOU will be accorded
courteous trea tment. Your letters, like
your returns, will be held confidential.
There is an Income Tax Primer"
prepared by the Bureau or Internal
| Revenue for the information and as
sistance of taxpayers, in which the
substance OF the law is covered in the
form of 143 questions and answers.
General Excellence of the Offic al
Blanks.
The revised blanks are In general
splendidly worked out. Critical stu
dents of the income tax laws will
probably tell you that form 1910 is
practically hawless. 1t covers with
great precision and clearness many in
tricate subjects. Form 1910 A deals
with less complicated situations, and is
also an excellent piece of workman
ship.
A Defect in Form 1910 A.
We believe, however, that as re-
sards interest on tax free covenant"
bonds. form 1910 A may lead the hon
est but unwary tax payer into diff
Guilty.
y tax free covenant bond is one III
which the corporation agrees to pay
the tax on the interest which the
bondholder would otherwise have to
pay. To take the simplest possible
illustration, suppose a single man, en-
titled to $1,000 exemption, owns tax
Tree covenant bonds, the annual income
from which is $1,000. Suppose. rur-
Their that his total net income IRON,
other sources is $1,000. As he de
positS the coupons in his local bank
for collection he attaches certitiCa ate
ftorm lp0l) claiming his $1,000 ex-
cmption, with the result that the issu-
ing corporation is under no obligation
to withhold and pay to the govern
# hn
coupons. and pays them to the bond
holder without deduction When the
individual has exhausted his exemp-
ton by using certificates ON $1,000 Of
coupons, how does lie get the benefit
OF the tax free" clause in his bond
BY attaching TO the coupons another
kind of certificate U'orm 10000 where
in he does NOT claim exemption. The
law requires the issuing corporation
to Withhold and pay to the government
4 : per cent tax in such cases but BY
virtue Of the tax free covenant in the
bond. the individual receives the
amount of his coupons without deduc-
ton. In other words. the corporation,
and not the individual, pays the tax.
Now in the illustration given! our
individual has an income of $4,000, with
an exemption of $1,000. The govern
Elent is of course entitled to per
cent tax on the remaining $1,000. The
corporation will pay the tax on $1,000.
lIhat is, on the interest for which ex-
exemption was not claimed), and the
individual should pay the tax on the
other $1,000, But if our honest but I'M
20
on form 1910 y literally. it is probable
that he viii! innocently report to the
government that he has no tax what
ever to pay.
Get your form 1910 \, and follow
along with us to see how it works out:
In the instructions on Page relat-
ing to Block I. (Which is the only place
on page where the bond interest
might have been enteredy the tax
payer is told not to enter interest re-
CelVed on bonds on which the issuing
corporation agreed to pay the tax" and
IS directed tc enter it on line 9, page 4.
BY the words AGREED TO PAY" no
doubt the craftsman of the form in
tended on'v such interest as the cor
poration W"s compelled to pay by reas-
or OF exemption not having been
claimed. And in strictness, such is the
correct construction of the language,
for the corporation did not agree to
pay, and would not be liable for any
rc'ntage of coupons on which the in
Gividual claimed and obtained, his eX-
emption.
But the trouble is that the craftsman
failed to explain this, with the result
tfat the layman, not verSed in the in
tricacies of income tax law, might take
the language at its face value. and
assume that it referred to ALL inter
est derived from bonds containing tax
free covenants. In the case supposed,
our individual is under that impress
sion. and, as directed, enters on line 8.
page 4. under the title Calculation Of
Net Income" the entire $4,000 of bond
interest received. BY SO doing. he has
not, as Yet made it subject to taxation.
for the Calculation of Net Income"
entries are for the purpose of as
Certaining whether the individual is
liable to make a return, and not for
the purpose of aScertaining the amount
of his tax
Next. our individual comes to the
calculation Of Tax Due" On line IA
he enters Net Income Shown on Page
utem HD.' as $1,000 only. because, as
how !,