Alexandria gazette. [volume] (Alexandria, D.C.) 1834-1974, 1922-02-22
Deduction From Invested
Capital

The revenue act Of 1921 requires
that all corporations having inadmis-
s;bc assets must deduct from invested
capital "a percentage thereof equal
to the percentage which the amount
Of inadmiSsibic assets is Of the total
amount Of admissible and inadmis-
sibe assets held during the taxable
year. For example, the total assets
Of a corporation for 1921 was $780,
900, OF which $4,000 was in inadmis-
Sible assets and $4,000 in admissible
assets. The average invested capital
was $4,000. Applying the above rule
the invested capital must be reduced
IS per cent (the percentage OF the
inadmissibic assets, Sl50,OOO, to the
total assets, $200,000). The reduced
invested capital, therefore, will be
$4,000 the invested capital less $780,
900 Us per cent of the invested CAPT
taD or $4,000. Where q corpora
tons income is reported on a cash
receipts and disbursements basis, ac-
crued items cannot be taken into
consideration in computing its invest
ed capital.
The payment on a stock dividend
has no effect upon the amount OF IN
vcsted capital. The capitalization OF
current earnings does not increase the
invested capital. Appreciation IN good
will and tangible property determined
by an appraisal against which stock
dividend was issued cannot be allowed
as invested capital. The value Of tan
bic property paid in for stock or
shares in an amount as limited by
Section 326 Of the revenue act OF
1921 may be included in invested capt.
tai.
The revenue act of 1921 provides
that every corporation, JOINT stock
company, association and insurance
company not specifically exempt shall
file a return. There shall be included
in the return 4 statement which
Wi! enable the Commissioner OF In
tccnal Revenue to determine the por-
ton OF the earnings OF profits ttaN-
able or nontaxable) accumulated dur
ing the taxable year for which the
return is made, which have been dis
tributed or ordered to be distributed
to its stockholders during such year.
4 new and important provision OF
the revenue act Of 1921 is that where
corporation is formed or awaited
Of to prevent the imposition OF sur
tax upon its stockholders by permit
Eng its profits to accumulate IN
stead Of being distributed as divi-
dends, it may be subject to Il tax OF
% per cent in addition to the normal
tax OF 20 per cent imposed on cor
pocat!ons. The stockholders, however,
may agree with the Commissioner Of
Internal Revenue that the profits OF
the corporation shall be charged 10
them n the same manner as the dis
tr!butive share OF the partners and
pay the tax as partners. When the
corporation is mere holding company
o. its profits accumulated beyond the
normal needs o. It's business, this shall
be nrinla facic evidence OF purpose
to escape the surtax. A reasonable 4.
ACCUMULATION Of surplus, however is
permitted.
Returns must be filed with the col
lcctor Of internal revenue for the
district in which the corporations |
principal place Of business is located.
Corporations must file their returns
on the basis OF their existing account
ing period which IS established as IA
l2-month period. ending on December
81 or upon the last day of some month
other than December. A corporation
cannot change its accounting period
without the permission of the COM