Evening journal., 1922-02-20
EXCESS PROFITS
UNEXPLAINED
Suggestions for Corpora
tions in Reporting Their
Net Income
THESE FORMS ARE
NOW AVAILABLE

Forms 1920 for reporting net in
come Of corporations for the year
1921, now are available at the offices
OF collectors Of internal revenue and
deputy collectors.
The federal tax on income OF cor
porauons Is divided into two parts.
income tax and excess profits tax.
The income tax on corporations for
1921 is az The rate .of 10 per cent
OF the net income subject to tax. For
1922 and subsequent years as pro-
vided by the revenue act Of 1921, the
income tax is 1914 per cent.
In ascertaining net income subject
10 the income (norma) tax. the corr
poration is allowed certain specific
credits. which include % the
amount Of war and excess profits
tax imposed by the United States for
the same taxable year. and 90 in
terest received upon obligations OF
the United states and bonds OF the
war finance corporation which has
been included in gross income. A
specific credit OF $4,000 Is also al
lowed corporations whose net income
for 1921 was $4,000 or less Under
tho revenue act OF 1918. this exemp-
tion was allowed all corporations re-
gardless Of the amount OF Income.
The act provides that n the net in
come Is more than S25. 900. the nor
nal tax shall not exceed tax which
would be payable n the $4,000 credit
IL Ill -. .N Nf
net income in excess OF s25 900.
The excess profits tax is computed
on the basis Of the relation OF net in
come 10 the invested capital Of the
corporation. as defined by Section
326 OF the revenue act Of 1921. This
tax Is In addition 10 the normal In
come tax OF 10 per cent. II Is based
on the net income above a specific
exemption OF $4,000 and per cent
OF the invested capital for the tax
able year. these amounts being
known as excess profits credits. Tho
rates are the same as for 1920. 20
per cent. ofthe net income In excess
OF the excess profits credits and not
IN excess OF 20 per cent. Of the in
vested capital Of he taxable year
(known as first bracket) and 40 per
cent OF the net income in excess OF
20 per cent. OF the invested capital
Csecond bracket.) Invested capital
for the taxable year Is the capita
actually paid in for stock outstand.
ing including the paid-in surplus and
earned surplus or profits earned
prior 10 the taxable year. which have
not been distributed. The term I'm
vested capital" does not include Dor
rowed capital.
Invested capital emlWaces tive
classes Of assets: those known al
admissible assets" and those know
. az admissible assets" Admissible as
sets are those which produce income
that is subject 20 income tax mad
missible assets are those (other thar
obligations Of the United States
which produce income that is ex
empt from income taxation. For ex
ample. cash. real estate. bills re
ceivable and other tangible assets
which produce income that Is sub
ject 70 the income tax are admissible
assets Assets such as stocks AM
state or municipal bonds which pro
duce income that is exempt from in
come tax are inadmisslble assets.
The revenue act of 1921 requires
that all corporations having mad
missihle assets must deduct from
invested capital "a percentage there
OF equal to the percentage which tn
amount Of inadmissible assets is o
the total amount Of admissible ant
inadmissible assets held during tn
taxable year" For example, tn
total assets of a corporation 70
1921 was 100000. Of which $50.
was IN inadmissible assets and $50,
900 in admissible assets. The aver
age Invested capital was $50, 900. Ap
plying the above rule. the investe
capital must be reduced by 75 pc
cent Ohe percentage OF the mad
missihle assets. s150,OOO. to IN
total assets. 5000. .OOO) The reduce
invested capital therefore. will b
$4,000 (the invested capitaD les
100000 C75 per cent Of the investe
capitaD or $4,000. Where a cor
poration's income Is reported on
cash receipts and disbursements ha
sis. accrued items cannot be take
into consideration in computing II
invested capital.
Tfh. r,,.rr,,,,s 80 d., -4..f. aa--fs-