come directly from subjection to the full income tax in the assessment against the net income of the Nevada Silver Company, there was a double taxing of the income from the mining property in its passage to the real parties at interest, the stockholders of the Nevada Company (the holding company). In the Act of October 3, 1917 partial relief has been provided. The Nevada Company must, as usual, file a return and account for the dividends it received from the Nevada Silver Company during 1917. There is no relaxation of requirements in this respect. But the double taxing is enforced only to the extent of the 2 per cent rate of the old law. The Nevada Company is allowed a credit for the amount of dividends received from the Nevada Silver Company as far as the 4 per cent rate of the new law is concerned. Such credit would wipe out its net income and the Nevada Company would not have the 4 per cent rate to pay. [SEE PAR. 176-184 AND PAR. 6 (COMPLETE).] CHAPTER XXVI EXCESS PROFITS TAX [Note:-Congress will be asked at its approaching session, beginning in December, to amend the Excess Profits Tax law in a number of particulars. What will be the response can not be foretold. Certainly, however, the law ought to be amended for the sake of simple equity and justice. In the event of amendment, changes made necessary in the ensuing chapter will be covered by a supplement.] The Excess Profits Tax, imposed by the War Revenue law, Act of October 3, 1917, is a tax in addition to all other taxes imposed by Federal laws. The language of the law is admittedly clouded and ambiguous— so vague, indeed, that at the time this book went to press no attempt had been made by the Treasury Department to interpret it. In fact the Department was at that time declining to answer questions regarding the meaning of the law and had even, by blanket order, extended until January 1, 1918, the time for filing Excess Profits Tax returns required in connection with Income Tax returns for fiscal years ending more than 60 days prior to the end of the calendar vear 1917. And meantime the Secretary of the Treasury had announced that he would summon to Washington several of the foremost lawyers and business experts of the nation to serve on a board of interpretation. With its meaning thus obscured, Congress turned the law over to the Treasury Department for enforcement and the result is almost sure to be a continuous changing, shifting and reversal of interpretation during the early part of 1918. That is what transpired when the first Income Tax law of 1913 went into effect, and the chances are a hundred to one that the taxpaying public will have the same experience in connection with the Excess Profits Tax law. Obviously it was the intent of Congress to impose this tax upon profits of the war years, beginning with 1917, in excess of those earned during the three years-1911, 1912 and 1913-immediately preceding the year 1914, in which the great world war began. There are three basic considerations involved in the computation of this tax. The first is net income as ascertained for Income Tax purposes; the second is the return from invested capital in the predar period; the third is the return from invested capital in 1917 and subsequent years. Such is the general scheme proposed by Congress for taxing abnormal profits realized in 1917 and subsequent years, but the law reaches out much farther. It does not stop with the taxing of war profits; its application is not restricted to business benefited by the war; it is not balked even by a lack of invested capital. It covers the income from trades and professions in excess of certain specified amounts and becomes, in plain reality, still another tax upon income. Thus the scheme of assessment belies both the title of the law and the evident intent of Congress. But notwithstanding that the method of computation and assessment prescribed is not only clumsy and awkward but also unscientific, it is believed that, from experience in administering the Income Tax and other involved Federal revenue statutes, an interpretation of the law can be given and instructions for compliance with it offered which can be safely followed. In the chapters on Income Tax the principal basis of computation has been thoroughly explained and illustrated. 387. THOSE AFFECTED. With certain exemptions as to character of business and certain exceptions with respect to amount of income, hereinafter explained. the Excess Profits Tax is applicable to: (a) Individuals, who are citizens or residents of the United States. (b) Individuals who are non-resident aliens. (c) Partnerships, both domestic and foreign. 388. THOSE EXEMPT. Specifically exempted from the application of this Excess Profits Tax are: (a) Any corporation exempt under the Income Tax law. (For complete list see chapter headed "Corporations Exempt.") (b) Any partnership engaged in the same character of business as any one of the corporations just referred to. (c) Any individual engaged in the same character of business as any one of the corporations just referred to. (d) Officers or employees of the United States, or of any State, territory or the District of Columbia, or any local sub-division of a State or territory, as far as their official compensation is concerned, but no farther. 389.-ALL OTHERS AFFECTED. Any individual, partnership or corporation, unable to qualify for exemption under one of the above provisions and in receipt of a net income in excess of the deduction, hereinafter explained, is affected by the Excess Profits Tax. 390.-PARTNERSHIPS TAXED. One point of significance is that a partnership is taxed under the Excess Profits Tax schedule. A partnership is not subject to Income Tax (either ordinary or war) but, as a taxable entity, comes under the Excess Profits Tax schedule. A partnership will, therefore, have to be prepared to file a return showing its net income and its invested capital, not only for the year 1917, but also for the years 1911, 1912 and 1913, or for all of such years as it was in existence the entire This return will be used by the Government as a basis of assessment of the Excess Profits Tax. vear. 391.-INDIVIDUALS REGARDLESS OF KIND OF BUSINESS. Another point of significance is that all individuals who can not qualify for exemption, as explained above, and whose income is sufficient to make them liable, as hereinafter explained, are subject to the Excess Profits Tax. This includes professional men, capitalists, salesmen, and all others, without regard to their activities or employ ment. 392.-LAW TAKES IN ALL. The language of the law is that "the terms 'trade' and 'business' include professions and occupations," and that "every corporation or partnership not exempt shall be deemed to be engaged in business, and all the trades and businesses in which it is engaged shall be treated as a single trade or business." 393.-THE "TAXABLE YEAR.” As the law repeatedly refers to the "taxable year," its meaning must be understood. In the case of an individual, the first "taxable year," under the Excess Profits Tax, is 1917; and thereafter it is each calendar year ending December 31. In the case of a corporation or partnership, the first "taxable year," under this tax, is 1917, and thereafter each calendar year, except in the case of a corporation or partnership which has fixed its own fiscal year. (See paragrah on "Fiscal-year Return" in Income Tax instructions.) Where such fiscal-year basis governs, the Excess Profits Tax is to be assessed the first year only proportionately as the fiscal year falls within the year 1917. For example: A corporation files returns of income for a fiscal year ending with the last day of August. In such a case the return would include income for the months of September, October, November and December, 1916. The Excess Profits Tax would be computed for the entire fiscal year, but only eight-twelfths of the amount shown by the computation would be assessed. In subsequent annual returns, however, the tax would be assessed upon a full twelve-months basis. 394.-The "PRE-WAR PERIOD." The next term of the law to be understood is "Pre-War Period." This means the years 1911, 1912 and 1913, if the individual, partnership or corporation was engaged in trade, business or profession during the whole of all three years. If not, then as many of such years during the whole of which he or it was thus engaged. In other words, the "pre-war period" is always to be reckoned in whole years. It may be all three years, or just 1912 and 1913, or again just 1913. 395.-FOREIGN CONCERNS AND NON-RESIDENT ALIEN INDIVIDUALS. Foreign corporations and partnerships and non-resident alien individuals are subject to Excess Profits Tax only with respect to net income from sources within the United States. They are not subject to this tax at all if in receipt of a net income of less than $3000 from the United States for the taxable year. 396.—HOW TO DETERMINE NET INCOME FOR THIS TAX. The general basis of determining net income for the purpose of the Excess Profits Tax is that explained in the chapters on Income |