The Lake County times. [volume] (Hammond, Ind.) 1906-1933, 1922-02-28
TAX RETURNS OF
CORPORATIONS.

The federal tax on income OF cor
porations is divided into two parts in
come tax and excess profits tax The
income tax on corporations for 1921 is
at the rate Of 10 per cent of the net
income subject to tax. For 1922 and
subsequent years. as provided by the
revenue act of 1921. the income tax Is
121-2 per cent
In ascertaining net income subject
to the income (normaD tax, the cor
poration is allowed certain specif&
credits. which include % the amount
OF war and excess profits tax imposed
by the United States for the same tax
able year. and t2) interest received
upon obligations OF the United States
and bonds OF the war finance corpora
ton which has been included in gross
income. a specific credit OF $4,000 is
also allowed corporations whose net
income for 1921 was $4,000 or less
Under the revenue act OF 1918 this e1-
einptien was allowed all corporations
regardless OF the amount of net in
com.s The act provides that II the
net income Is more than $4,000. the
FORMAL tax shall not exceed the tax
which would be payable If the $4,000
credit was allowed. plus the amount Of
net In come in excess OF $4,000.
EXCESS PROFITS TAX
The excess profits tax is computed
on the basis OF the relation of net in
come to the invested capital OF the
corporation. as defined by Section s2e
90 the revenue act Of 1891 This tax
Is In addition to the normal tax of 10
per cent 1t IS based on the net in
come above a specific exemption OF
$4,000 and 5 per cent OF the invested
capital for the taxable year, these
amounts being known a excess profits
credits. The rates are the same as for
$40. 30 per cent OF the net income in
excess OF the excess profits credits and
not in excess Of 20 per cent of the in
vested capital of the taxable year
known ss frst bracket) and 40 per
cent OF the net income in excess OF
20 per cent OF the invested capital
fsecord brackeO. Invested capital for
the taxable year Is the capital actually
paid out for stock outstanding. includ-
ing the paid-in surplus and earned
surplus or profits earned prior TO the
sa1able year. which have not been dis
srtbuted- The term Invested capital"
does net include borrowed capital
Invested capita. embraces two class
es OF assets; those known as "adnais-
ei5le' assets and those known as in
admissible assets. Admissible assets
are those (other than obligations OF the
United States) which produce income
that is exempt from income tax. For
example. cash, real estate. bills re-
ceivable and other tangible assets.
which produce income that is subject
80 the income tax arc admissible as
sets. Assets such as stocks and state
or municipal bonds which produce in
come that is exempt from income tax
ara inadmissible assets.
DEDUCTIONS FROM INVESTED
CAPITAL
Tbs revenue act of 1921 REQUIRES that
all corporations having inadmissible
assets must deduct from invested cap
tai "a percentage thereof equal to the
percentage which the amount of in
admissible assets is % tire total amount
Of admissible and inadInissible assets
held during the taxable year" For ex-
ample. the total assets of a corporation
for 1921 was $500 600. OF " aich $3.50
600 was In inadmssible assets and
$4,000 in admissible assets. The aver
age invested capital was $4,000 Ap-
plying the above rule. Inc invested
capital must be reduced rs per cent
The percentage of tho inadmissibIs
assets. $4,000. 10 the total assets.
sz00.o00) The reduced invested cap
ital. therefore. will be ss0,ocs che in
vested oapitaD less $4,000 (7s per
cent OF the invested capitRl) or $4,000
Where corporations income is re-
ported on a cash receipts and disburse-
ments basis. accrued items cannot be
taken into consideration IN computing
It's Invested capital
The payment of a stock dividend has
no affect vpon the amount of invested
capital. This capitalization OF current
ea<ninss does not increase tho invested
capital appreciation in good will and
tangible property determined by an
appraisal against which a stock di-
vidend was issued cannot be allowed
as invested capital. The value of
ta-nsib BILE property paid In for stock or
shares is an amount as limited by Sec
ton 32s OF the revenue act Of 1921 may
De included in Invested capital
The revenue &C. OF 1921 provides that
every corporation, joint stock company.
association and insurance company not
specifically exempt shall file d return.
There shall be included in the return a
statement which will enable the com
missioner to determine the portion Of
the earnings or profits TIA Bile or non
taxable accumulated during tho wear
for which the return is made. which
have been distributed or ordered to he
distributed to its stockholders during
sqch year.
new and important provision Of the
revenue act Of 1921 is that where
corporation is formed or awaited OF to
prevent the imposition OF surtax
upon its stockholders by permitting its
profits to accumulate instead or being
distributed dividends, II may be sub
1ect to a tax OF rs per cent in addition
10 the normal tax of 10 per cent i'm
posed on corporations The stockhold-
ers. however may agree with the com
missioner that tire profits of the cor
poration shall be charged to them in
the same manner as the distributiye
share OF the partners, and pay the tax
- partners. When the corporation il
q mere holding company or its profits
accumulate beyond the normal needs If
It's business, this shall be prima facfa
evidence of a purpose to escape the
surtax. A reasonable accumulation Of
surplus. however. is permitted
Returns must be filed with the col
Ie(f0r Of fr9fa