Albuquerque morning journal. [volume] (Albuquerque, N.M.) 1903-1926, 1922-02-20
NEW PROVISIONS AFFECTING
CORPORATIONS TAX RETURNS
ARE outlined BY HERNANDEZ

p. c, Hernandez. internal rev.
enue collector, has issued the fol-
lowing resume Of the revenue act
Of 1921 as it affects returns of
corporations:
Forms 1920 for reporting net
Income 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
corporations is divided into two
parts, income tax and excess pro-
fits tax. The income tax on cor
porations for 1921 is at the rate
of 10 per cent of the net income
subject to tax. For 1922 and sub
sequent years as provided by the
revenue act of 1921, the income
tax is ~ IL per cent.
In ascertaininE net income sub
feet to the income (normal) tax,
the corporation is allowed GER
tain specific credits, which in
clude Cd the amount of war and
excess profits tax imposed by the
United States for the same taxable
year, and ca interest received
upon obligations of the United
States and bonds Of the war fl
nance corporation which has been
included in gross income. A spe-
cific credit of $4,000 is also all
lowed corporations whose net in
come for 1921 was $4,000 or
less. Under the revenue act OF
1918, this exemption was allowed
all corporations regardless of the
amount of net income. The act
provides that if the net income
is more than $4,000, the normal
tax shall not exceed the tax which
would be payable if the $4,000
credit was allowed. plus the
amount of the net income in ex-
cess of $4,000.
Excess Profits Tax.
The excess profits tax is COM
puted on the basis Of the relation
of net income to the invested
canital of the CORPORATION, as de-
fined by section 326 of the rev.
enue act of 1921. This tax is In
addition to the normal income tax
VI ~ DNl Itill. IL ID DdSGu Oii
the net income above a specific
exemption of $4,000 and s per
cent of the invested capital for
the taxable year, these amounts
being known as excess profits
credits. The rates, are the same
as for 1920. 20 per cent of the
net income in excess Of the eX-
cess profits credits and not in
excess of 20 per cent of the in
vested capital of the taxable year
(known as first bracket) and 40
per cent of the net income in ex-
cess of 20 per cent of the invest
ed capital (second bracket) In
vested capital for the taxable year
is the capital actually paid in for
stock outstanding, including the
paid-fn surplus and earned sur
plus or profits earned prior to
the taxable year. which have not
been distributed. The term Gin
vested capital' does not include
capital.
Invested capital embraces two
classes of assets, those known as
Admissible assets" and those
known as "inadmissible assets"
Admissible assets are those which
produce income that is subject to
income tax. Inadmissible assets
are those (other than obligations
of the United States) which pro-
duce income that is exempt from
income taxation. For example,
cash, real estate, bills receivable
and other tangible assets, which
produce income that is subject to
the income tax are admissible as
sets. Assets such as stocks and
state or municipal bonds which
produce income that is exempt
from income tax are inadmissible
assets.
Deductions From Invested Capital.
The revenue act of 1921 requires
that all corporations having mad
missible assets must deduct from
invested capital "a percentage
thereof equal to the percentage
which the amount of inadmissible
assets,is of the total amount OF adj
missible and inadmissible assets
held during the taxable year." For
example, the total assets OF cor
poration for 1921 was 100000, of
which $150.000 was in inadmissible
assets and $4,000 in admissible
assets. The average invested capi-
al was $4,000. Applying the above
rule, the invested capital must be
reduced by as per cent (the per-
,entage of the inadmissible assets.
to the total assets. $780,
l00). The reduced invested CAPT