Daily Kennebec journal. [microfilm reel] (Augusta, Me.) 1870-1975, 1921-01-22
THE INCOME TAX
Facts You Should Know for
Making 1921 Report

corporation returns are CLOSELY scTuS
nized by the Bureau Of Internal Reve-
nue., and in them have been discovered
numerous errors.
Partnerships as such are not subject
to the income tax. but are required
to make returns on Forms 1866 show
ing gross and net income. The net In
come of a partnership is computed IN
the same manner and on the same basis
as the net income Of an individual, ex-
cept that deductions for contributions
to charitable. religious. and scientific
organizations are not permitted.
Individual members are taxed on
the distributive shares of net income
from partnerships, whether distributed
or not, and are required to include
such shares in their individual return
Of income, even though they may not
have been actually received. It not
infrequently happens that the figures
in the individual return and partner
ship return do not coincide. in which
event there is trouble for both the
taxpayer and bureau.
MUST FILE RETURNS
Partnership returns must be fled
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 and swear
to the return, which may cover the
calendar or fiscal year, according to
the firms method of accounting.
Requirements of the revenue act
with reference to 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 service
corporation, as defined by Treasury
regulations. is a corporation whose
income is to be ascribed primarily to
the activities Of the principal owners
or stockholders who are themselves
regularly engaged in the active con-
duct of the affairs of the corporation,
and in which capital (whether Dor
rowed or invested) is not material
income-producing factor"
In order to be classified as a per-
sonal service corporation. it's earn
ings must be derived principally from
rendered by it's owners and stockhold-
ers. Merchandising or trading either
directly or indirectly in commodities
or the services of others is not rem
dering personal service. Where the
principal owners and stockholders do
not render the principal part of the
services, but merely supervise a force
of employees. the corporation is not
a 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
a personal service corporation unless
at least 80 per cent of it's stock is held
by thee regularly engaged in the ac-
tive conduct of it's affairs.
USE OF CAPITAL
If the use of capital is necessady or
more than incidental. capital Is an
income producing factor, and the cor
pOratiop is not personal service cor
poration. No corporation is a per-
sonal service corporation If it carries
on a business which ordinarily re-
qufres the use of substantial amount
of capital, whether invested or bor-
rowed.
In general, the larger the amount Of
capital actually used the stronger is
the evidence that capital is a necessary
and is material income-producing
factor. and that the corporation is not
a personal service corporation
The following corporations are ex-
pressly excluded from classification as
personal service corporations: For
eign corporations; corporations so per
cent of whose gross income cons lists
of gains, profits, or income derived
from trading as a principal; corpora
lions SO per cent Of whose gross in
come consists Of gains, profits. COM
missions, or other income derived
from Government contracts made be-
tween April 6, 1917. and November II.
1918.
Personal service corporation returns
must show the name and address of
each stakeholder. the share of each
stockholder in the general income of
the company, and must be accompan-
led by complete statement showing
the nature of the business. The re.
turn must be sworn to by the presi-
dent. vice president, or other principal
executive officer and by the treasurer
or assistant treasurer.