The Washington herald., 1921-01-26
Income Tax
Facts You
Should Know

lDSl Income Tax Facts lou should
Know.
The Bureau of Internal Revenue
estimates that there will be filed on
or before March 15. 1920. approx
mately 475,OOO corporation returns
covering the calendar year 1920.
The revenue act Of 1918 provides
that every corporation, joint stock
company association and insur-
anCc company, not specifically
exempt is liable to tax, and except
where exempted and the accounting g
period ends other than on Decem-
ber 81, the return must be filed BY
March IS with the collector of in
ternal revenue for the district in
which the corporations principal
place of business is located. Form
1120 is used by every corporation
Except personal service corpora
tions), domestic and foreign, sub
ject to taxation for filing it's income
and profits tax return. Form 1865
is used by personal service corpo-
ratiOns. The return must be swo-
to by the president. vice president,
or other principal officer and by the
treasurer or assistant treasurer.
Exempt Corporations.
Certain corporations. such as
labor. agricultural. and horticultural
organizations, corporations or
Eanized and operated exclusively
for religious, charitable. scientific.
or educational purposes. business
and civic leagues, farmers and
fruit growers mutual associations,
may, by establishing their exemp-
ton, be relieved of the duty OF Al
ing returns and paying the tax. No
corporation is exempt from flIing
a return until its status has been de-
termined by the collector and the
corporation so Informed.
The corporation must file it's re-
turn on the basis of its existing ac-
counting period, which is establish
ed as the l2-month period ending
on December 81 or upon the last
day of some month other than De-
cember. The corporation cannot
change it's accounting period with
out permission of the Commissioner
OF Internal Revenue. The commits
siOner will not approve a change
of basis of computing net income
unless the notice is given at least
thirty days before the due date of
the return on the existing basis,
and at least thirty days prior to the
due date of the return on the pro-
posed basis
In general. the taxable net in
come of a corporation is its account
ing net income, but a corporation
cannot deduct donations and gratu-
tiles, nor can Federal income and
profits taxes be deducted.
Excess Profits Tax.
In place of the surtax imposed
upon individuals, the law imposes
upon corporations, in addition to
the normal tax, an excess profits
tax. The computation of the excess
profits tax begins with the deter
minatiOn of the corporations in
vested capital. Invested capital, as
defined by the law, is the amount
of cash and tangible property paid
into the corporation, together with
the paid-in or earned surplus and
undivided profits at the beginning
of the taxable year.
The value of intangible property
paid in for stock or shares, in an
as limited by section 326 of
the revenue act Of 1918, may also
be included in invested capital. The
term Intangible property" means
patents, copyrights, secret processes
and formulae, good will, trade
marks, trade brands, franchises and
other like property. Borrowed cap
ital can not be included in invested
capital. Adjustment must be made
for inadmissible assets. which are
defined as stocks, bonds, and other
obligations (other than obligations
of the United States), the dividends
or interest from which is not in
cluded in computing net income.
Examination of Returns.
The Bureau of Internal Revenue
examines and audits re-
turns of corporations. and whenever
necessary makes a correction in the
amount of tax due under the law
Severe penalties may be imposed
upon corporations for delinquency
in filing returns. fraud or negli-
gence in the understatement of any
taxes, and It is important that the
in fling its return fol-
lows closely the instructions printed
on the return form.
HoyTrf Halle Druuuiof