Indiana daily times. [volume] (Indianapolis [Ind.]) 1914-1922, 1922-02-21
CORPORATION
INCOME TAX
FORMS READY
Collector Thurman Explains
Provisions Of Law in
Statement.

Income tax forms 1120 for reporting
net income for corporations for the year
1921 are now available for distribution,
according to NJ. Bert Thurman, collector
Of internal revenue In explaining the
tax on corporations Mr.. Thurman said:
1.-THE Federal tax on income Of cor
porations is divided into two parts, in
come tax and excess profits tax. The in
come tax on corporations for 1921 Is Mt
the rate of 10 per cent of the net in
come subject to tax. For 1922 and sub
sequent years, as provided by the reve-
nue. act Of 1921, the income tax is 1917
per cent.
I'm ascertaining net income subject to
the income (normaD tax, the corpora ton
is allowed certain specific credits, which
include ~ the amount Of war and ex-
cess profits tax imposed by the United
States for the same taxable year, and ~
interest received upon obligations Of the
United States and bonds Of the war
finance corporation which has been in
cluded IN gross income. specific credit
Of $1,000 is also allowed corporations
whose net income for 1921 was $4,000
or less. Under the revenue act Of 1918
this exemption was allowed all corpora
lions 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 excess Of $4,000.
1.-THE excess profits tax is computed on
the basis Of the relation OF net income
to the invested capital Of the corpora
ton. as defined by Section 800 Of the
revenue act Of 1921 This tax is in ad-
ditt0n to the normal tax of 10 per cent.
It is based on the net income above a
specific exemption Of $4,000 and per
cent Of the invested capital for the taxa
BILE 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 excess profits
credits and not in excess OF 20 per cent
Of the invested capital Of the taxable
year known as first bracket) and 40
per cent Of the net income in excess Of
20 per cent Of the invested capital (sec-
ond bracket). Invested capital for the
taxable year is the capital actually paid
In for stock outstanding, including the
pafd-in surplus and earned surplus or
profits earned prior to the taxable year,
which have not been distributed. The
term Invested capital" does not include
borrowed 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 subject to tax. Inadmis-
sible assets are those (other than OBJ
legations Of the United States) which pro-
duce income that is exempt from income
tax. For example, cash. real estate, bills
receivable and other tangible assets,
which produce income subject to the in
come tax are admissible assets. Assets
such as stocks and State or municipal
bonds which produce income that is ex-
empt from income tax are inadmissible
assets.
The revenue act Of 1921 requires all
corporations having inadmissible assets
must deduct from invested capital q per
centage thereof equal to the percenta ge
which the amount of inadmissible assets
is of the total amount of admissible and
on admissible assets held during the tax
able year For example, the total assest
of a corporation for 1921 was 5000 700, Of
which $4,000 was In inadmissibIe assets
and $4,000 in admissible assets. The
average invested capital was $50, 600
Applying the above rule, the invested
capital must be reduced by 70 per cent
(the percentage Of the inadmissible as
sets, $3.50 600, to the total assets, $500 000).
The reduced invested capital therefore,
will be $4,000 (the invested capitaD less
100000 rs per cent Of the invested capt.
tab or $4,000. Where a corporations
income is reported on q cash receipts and
disbursements basis, accrued items can
not be taken into consideration in COM
putting It's invested capital.
1.-The payment Of a stock dividend has
no effect upon the amount Of invested
capital The capitalization of current
earnings does not increase the invested
capital. Appreciation in good will and
tangible property determined by an ap-
praisal against which a stock dividend
was issued cannot be allowed as invested
capital The value Of tangible 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
capital
1.-THE revenue act Of 1921 provides every
corporation, Joint stock company, assoc
citation and Insurance company not spe-
cifcaIly exempt shall file a return. There
shall be included in the return a state
ment which viii enable the commits
sioner to determine the portion Of the
earnings or profits taxable or nontax-
able) accumulated during the year for
which the return is made, which have
been distributed or ordered to be dis
tributed to It's stockholders during such
year.
"a new and important provision Of the
revenue act of 1921 is that where cor
poration Is formed or awaited Of to pre-
vent the imposition Of a surtax upon
its stockholders, by permitting its profits
TO accumulate instead Of being dis
tributed as dividends, It may be sub
feet to a tax Of % per cent in addition
to the normal tax Of 10 per cent imposed
on corporations. The stockholders, how
ever, agree with the commissioner the
profits Of the corporation shall be
charged to them in the same manner as
the distrbutive share OF the partners
and pay the tax as partners. When the
Corporation Is a mere holding company
or its profits accumulate beyond the
normal needs of its business. this shall
be pri1na facie evidence Of a purpose to
escape the surtax. A reasonable accu-
mutation Of surplus, however, is per-
mitted.
Returns must be fled with the col
iector 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 accounting period is established
as the twelYe-month period ending Dec.
81, or upon the last day Of some month
other than December corporation
cannot change its accounting period with
put the permission of the commissioner.
Employees Asked to
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