The watchman and southron. [volume] (Sumter, S.C.) 1881-1930, 1921-02-16
1921 Income Tax Facts You Should
Know.

| TdilnerSnlp ana personal service
corporation returns are closely scruti.
nized by the bureau OF internal reye-
nue., and in them have been discovered
| numerous errors.
Partnerships AZ such are not sub
joct to the income tax, but are reouir-
cd 10 make returns on Forms 1866
showing gross and net income. Tho
net income Of n partnership is com
| puted i'm the same manner and on
inc same basis as the net income OF
an individual, except that deduc-
! tlons Tor contributions to charitable,
religious, and scientific organizations
are not permitted.
individual members are taxed on
The distributive shares of net income
from partnerships, whether distribute
cd OF not, and are required to in
! clude such shares in their indiyid-
ua! roturn Of income, even though
they may not have been actually re-
ceiVed. 1t not infrequently happens
that the figures in the individual re-
turn and partnership return do not
coincide, in which event there 10
! trouble for both the taxpayer and bu-
rcau.
Must File Returns.
Partnership returns must be dled,
even though the firm had no net in.
come for the year. The return must
show the name and address OF each
tpartner and his share of net income.
Anyone Of the partners may sign and
swear TO the return. which may cover
the calendar or fiscal year, according
10 the firms method Of accounting,
| Requirements OF the revenue oct
with reference 10 partnerships apply
also TO personal service corporations,
which, though exempt from tax,
must make a return of gross and net
income on Form 1865, or even If there
was no net income. A personal SER
vice corporation a. defined by treas
ury regulations. is corporation
whose income rs TO be ascribed pri-
marily 10 the activities Of the prin-
cipal owners or stockholders who are
themselves regularly engaged in ths
| active conduct of the affairs of the
corporation, and in which capital
! twhethcr borrowed or fnvested) IL
not a material income-producing fac
! tor"
In order TO be classified as a per-
! sonal service corporation, its earn
ings must be derived principally
| from compensation for personal SER
vices rendered by it's owners and
stockholders. Merchandising or trad
4 Ing either directly or indirectly in
modities or the services OF others
| is not rendering personal service
Where the principal owners and stock
| In hn nj
part OF the services, but merely su-
peryise a force OF employees. the
corporation is not personal service
corporation.
To determine who are the principal
| owners or stockholders no definite
percentage of stock or interest In the
corporation can be prescribed Treas
ury regulations, however, provide that
no corporation may make q return
as personal service corporation un-
less at least 50 per cent OF its stock
is held by those regularly engaged
in the active conduct Of it's aifairs
Use of Capital.
If the use OF capital is necessary or
more than incidental, capital is an
income producing factor, and the COR
poration is not a personal service cor
poration. No corporation is a per-
sonal service corporation IL IL car
| ries on a business which ordinarily
| requires the use Of substantial
amount OF capital, whether invested
or borrowed.
In general, the larger the amount
of capital actually used the stronger
! is the evidence that capital is a.
| necessary and is a material income
producing factor, and that the cor
poration is not q personal service cor
poration
The following corporations are ex-
! pressly excluded from classification as
personal service corporations: Por-
! eign corporations; corporations so
! per cent Of whose gross income con-
sists OF gains, profits, or income de-
rived from trading az a principal; cor
porations SO per cent of whose gross
income consists OF gains profits, COM
missions, or other income derived
| from government contracts betwear
April 6, 1917, and November IL,
! 1918.
Personal service corporations re-
turns must show the name and ad-
dress of each stockholder, the share
Of each stockholder in the general
| income OF the company, and must be
accompanied by n complete state
ment showing the nature Of the bus
mess. The return must be sworn TO
by the president, vice president, or
other principal executive officer and
by the treasurer or assistant treas
| urer.