The daily banner. (Cambridge, Md.) 1897-2008, 1921-02-07
Twelfth ARTICLE
..ON 1920 INCOME TAX
1921 Income Tax Facts You Should
Know

Partnership and personal service
corporation returns are closely scru-
tinized by the Bureau of Internal
Revenue, and in them have been dls-
covered numerous errors.
Partnership as such are not sub
ject to the income tax, but are re-
quired 10 make returns on Forms
1865 showing gross and net income.
The net income of a partnership As
computed in the same manner and
on the same basis as the net income
Of an individual except that dedhc-
tions for contributions to charitable,
religious. and scientific organizations
are not permitted. +,
In diyidual members are taxed on
The distributive shares of net IN
come from partnerships, whether
distributed or not, and are required
10 include such shares in their III
dividual return Of income, even
though they may not have been actu-
ally received 1t not infrequenuy
happens that the figures in the in
GividuaI return and partnership re-
turn do not coincide, in which event
there is trouble for both the taXpaE-
,r and bureau,
Must File Returns
Partnership returns must be lled,
even though the firm had no net In
come for the year. The return must
show the name and address of each
partner and his share of net income.
Anyone of the partners may sign ana
swear to the return, which may
cover the calendar or fiscal year. ae-
,arding to the firms method OF 2c.
counting.
Requirements OF the revenue acT
Tith reference TO partnership apply
also 10 personal service corporations
which. though exempt from tax.
must make return OF gross and net
income On Form 1865, or even II
there was no net income. person.
al service corporation, as defined by
Treasury regulations is a corpora
lion whose income is TO be ascrib7
ed primarily to the activities OF the
principal owners or stockholders VINO
are themselves regularly engaged IN
the active conduct of the affairs OIL
,he corporation and in which WhlcD
capital (whether borrowed or invest
cd) is not material income produc-
ing factor.
In order to be classified as per-
sonal service corporation, its earn
ines must be derived principally from
compensation for personal services
rendered by its owners and STOCK
holders. Merchandising or trading
either directly or indirectly in com
modities or the services OF others Is
rot rendering personal service.
Where the principal owners ana
stockholders do not render the prln-
cinal part of the services, but merely
supervise a force of employees, the
CORPORATION is not personal service
corporation.
= To determine who are the princl-
nal owners or stockholders no de-
finite percentage of stock or interest,"
in the corporation can be prescribed.
Treasury regulations, however, pro-
vide that no corporation may make
a. return as a personal service cor
noration unless at least 80 per- cenl
Of its stock is lIeld by those reguEar1s.<f
orgooed in the active conduct of its
affairs.
Use OF Capital
If the use of capital is necessary
or more than Incidental, capltal Is
an income-producing factor. and the
rorporation is not a personal service
cornoration. No corporation is
nersonal service corporation II IL
carries on a business which ordlnaTl-
lv requires the use of substantial
amount OF capital. whether invested
or borrowed.
The following corporations are ex-
pressly excluded from classlhcatloh
as personal service corporation;
Foreign corporations; corporations
so per cent Of whose gross income
consists of gains, profits or income
derived from trading as a prlnclpali
CORPORATIONS so per cent OF whose
gross income consists Of gains, pro
fits. commissions, or other income
derived from Government contracts
made between April s, 1917 ana
November II, 1918.
Personal service corporations re-
turns must show the same ana au
dress of each stockholder, the snare
of each stockholder, the snare OIL
each stockholder in the general IN
come of the company, and must De
accompanied by complete state
ment showing the nature OF the Dusi-
ness. The return must be sworn to
by the president, yice-presldent. VI
other principal executive onlcef anu
by the treasurer or asSlsldn1
treasurer.