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and to every person residing in the United States, though not a citizen thereof, a tax of 1 per centum per annum upon such income, except as hereinafter provided; and a like tax shall be assessed, levied, collected, and paid annually upon the entire net income from all property owned and of every business, trade, or profession carried on in the United States by persons residing elsewhere.

Normal tax.

INDIVIDUALS.

Where a contract between an insurance company and an agent provides that the agent shall receive as compensation for soliciting insurance, certain specified percentages of premiums paid on policies written through his solicitation for 20 years from date of policy such commissions to accrue only as the premiums were paid to the company, and that liability for any particular commission would terminate if policy ceased to be in force such percentages of premiums for second and subsequent years of the life of policies, issued prior to the enactment of the statute, were income accruing when such premiums were paid and taxable as such. This liability to tax was not affected by the fact that the agent hired subagents and maintained an office force and that his percentage to some extent represented merely deferred returns which he had anticipated and partially expended for office expenses; nor was the liability to the tax affected by the fact that such expenses were paid before the passage of the statute. (Edwards v. Keith, 224 Fed. 585, 1915; affirmed 231 Fed. 110; petition for writ of certiorari denied in U. S. Sup. Ct. Mar. 12, 1917.) Nonresidents, income from activities carried on in the United States. See case 1 (Laurentide Co. Ltd., v. Durey) under paragraph G(a). Where stocks, bonds, and mortgages are owned by a nonresident alien, secured upon property in the United States or payable by persons or corporations there domiciled, the income therefrom being collected for and remitted to such nonresident by an agent domiciled in the United States, if the agent has physical possession of the certificates of stock, etc., such income is taxable under this act. (De Ganay v. Lederer, 250 U. S. 376.)

Retroactivity.

As the tax is upon the property and not upon the person it makes no difference whether the person is living or dead at the time the act was passed. The act being made retroactive to March 1, 1913, applies to a person who died July 22, 1913, and his executors must make a return. (Brady v. Anderson, 240 Fed. 665, 1917.)

Exportation.

(* * it is both nominally and actually a general tax. It is not laid on income from exportation because of its source, or in a discriminative way, but just as it is laid on other income.

*

At most, exportation is affected only indirectly and remotely. The tax is levied after exportation is completed. * * * Thus what is taxed-the net income-is as far removed from exportation as are articles intended for export before the exportation begins."

v. Lowe, 247 U. S., 165, 1918, affirming 234 Fed. 125.)

Divorced wife.

(Peck

A divorced wife is not liable to tax on alimony received. (Gould v. Gould, 245 U. S., 151, 1917.)

Partnership liability.

(See cases under section G (a)-, "Partnerships."

PARAGRAPH A (2).

Subdivision 2. In addition to the income tax provided under this section (herein referred to as the normal income tax) there shall be levied, assessed, and collected upon the net income of every individual an additional income tax (herein referred to as the additional tax) of 1 per centum per annum upon the amount by which the fotal net income exceeds $20,000 and does not exceed $50,000, and 2 per centum per annum upon the amount by which the total net income exceeds $50,000 and does not exceed $75,000, 3 per centum per annum upon the amount by which the total net income exceeds $75,000 and does not exceed $100,000, 4 per centum per annum upon the amount by which the total net income exceeds $100,000 and does not exceed $250,000, 5 per centum per annum upon the amount by which the total net income exceeds $250,000 and does not exceed $500,000, and 6 per centum per annum upon the amount by which the total net income exceeds $500,000. All the provisions of this section relating to individuals who are chargeable with the normal income tax, so far as they are applicable and are not inconsistent with this subdivision of paragraph A, shall apply to the levy, assessment, and collection of the additional tax imposed under this section. Every person subject to this additional tax shall, for the purpose of its assessment and collection, make a personal return of his total net income from all sources, corporate or otherwise, for the preceding calendar year, under rules and regulations to be prescribed by the Commissioner of Internal Revenue, and approved by the Secretary of the Treasury. For the purpose of this additional tax the taxable income of any individual shall embrace the share to which he would be entitled of the gains and profits, if divided or distributed, whether divided or distributed or not, of all corporations, joint-stock companies, or associations however created or organized, formed or fraudulently availed of for the purpose of preventing the imposition of such tax through the medium of permitting such gains and profits o accumulate instead of being divided or distributed; and the fact that any such corporation, joint-stock company, or association, is a mere holding company, or that the gains and profits are permitted to accumulate beyond the reasonable needs of he business shall be prima facie evidence of a fraudulent purpose to escape such tax; but the fact that the gains and profits are in any case permitted to accumulate and become surplus shall not be construed as evidence of a purpose to escape the said tax in such case unless the Secretary of the Treasury shall certify that in his opinion such accumulation is unreasonable for the purposes of the business. When requested by the Commissioner of Internal Revenue, or any district collector of internal revenue such corporation, joint-stock company, or association shall forward to him a correct statement of such profits and the names of the individuals who would be entitled to the same if distributed.

Additional tax on net incomes in excess of $20,000-"surtax."

STOCK DIVIDENDS.

Stock dividends declared in 1914 from profits accrued before January 1, 1913, do not constitute taxable income to recipients under section 2 of the act of October 3, 1913. (Towne v. Eisner, 245 U. S. 418, 1918, reversing 242 Fed. 702.)

A dividend declared and paid by one corporation in the stock of another is not a "stock dividend" within the accepted meaning of that term. (Peabody v. Eisner, 247 U. S. 347.)

A dividend declared and paid by a going corporation, partly in cash and partly in assets of the corporation, is subject to the additional tax imposed by the act of October 3, 1913, when received by an individual stockholder, although declared from a surplus which was in part accumulated before March 1, 1913. Southern Pacific v. Lowe, 247 U. S. 330, distinguished; Lynch v. Hornby, 247 U. S. 339 followed. (Peabody v. Eisner, 247 U. S. 347.)

CASH DIVIDENDS.

An individual stockholder is subject to the additional tax under the 1913 act on all dividends declared and paid by a corporation in the ordinary course of business after the act became effective, whether from current earnings or from the accumulated surplus made up of past earnings or increase in value of corporate assets notwithstanding the surplus accrued to the corporation in whole or in part prior to March 1, 1913. (Lynch v. Turrish, 247 U. S. 221, and Southern Pacific Railway Co.v. Lowe, 247 U. S. 330, distinguished; Lynch v. Hornby, 247 U. S. 339, 1918.)

The act of September 8, 1916, and the act of October 3, 1917, in excluding dividends declared out of earnings or profits that accrued prior to March 1, 1913, are not intended to be declaratory of the term "dividends" in the 1913 act. (Id.)

DEDUCTION-EXEMPTION UNDER PARAGRAPH C.

The income tax law allows exemption of $3,000 or $4,000, depending on whether the one taxed is single or married, and provides for a tax of 1 per cent on all other income. Other provisions impose a tax of an additional 1 per cent upon the amount by which the total net income exceeds $20,000 and does not exceed $50,000. Held that, in assessing the additional tax on the excess of the net income over $20,000, the exemption of $3,000 or $4,000, which is to be deducted in assessing the normal income tax can not be made. (Cohen v. Lowe, 234 Fed. 474, 1916.)

PARAGRAPH B.

B. That, subject only to such exemptions and deductions as are hereinafter allowed, the net income of a taxable person shall include gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from professions, vocations, business, trade, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in real or personal property, also from interest, rent, dividends, securities, or the transaction of any lawful business carried on for gain or profit, or gains or profits and income derived from any source whatever, including the income from but not the value of property acquired by gift, bequest, devise, or descent: Provided, That the proceeds of life-insurance policies paid upon the death of the person insured or payments made by or credited to the insured, on life insurance, endowment, or annuity contracts, upon the return thereof to the insured at the maturity of the term mentioned in the contract, or upon surrender of contract, shall not be included as income.

That in computing net income for the purpose of the normal tax there shall be allowed as deductions: First, the necessary expenses actually paid in carrying on any business, not including personal, living, or family expenses; second, all interest paid within the year by a taxable person on indebtedness; third, all national, State, county, school, and municipal taxes paid within the year, not including those assessed against local benefits; fourth, losses actually sustained during the year, incurred in trade or arising from fires, storms, or shipwreck, and not compensated for by insurance or otherwise; fifth, debts due to the taxpayer actually ascertained to be worthless and charged off within the year; sixth, a reasonable allowance for the exhaustion, wear and tear of property arising out of its use or employment in the business, not to exceed, in the case of mines, 5 per centum of the gross value at the mine of the output for the year for which the computation is made, but no deduction shall be made for any amount of expense of restoring property or making good the exhaustion thereof for which an allowance is or has been made: Provided, That no deduction shall be allowed for any amount paid out for new buildings, permanent improvements, or betterments, made to increase the value of any property or estate; seventh, the amount received as dividends upon the stock or from the net earnings of any corporation, joint stock company, association, or insurance company which is taxable upon its net income as hereinafter provided; eighth, the amount of income, the tax upon which has been paid or withheld for payment at the source of the income, under the provisions of this section, provided that whenever the tax upon the income of a person is required to be withheld and paid at the source as hereinafter required, if such annual income does not exceed the sum of $3,000 or is not fixed or certain, or is indefinite, or irregular as to amount or time of accrual, the same shall not be deducted in the personal return of such person.

The net income from property owned and business carried on in the United States by persons residing elsewhere shall be computed upon the basis prescribed in this paragraph and that part of paragraph G of this section relating to the computation of the net income of corporations, joint-stock and insurance companies, organized, created, or existing under the laws of foreign countries, in so far as applicable.

That in computing net income under this section there shall be excluded the interest upon the obligations of a State or any political subdivision thereof, and upon the obligations of the United States, or its possessions; also the compensation of the present President of the United States during the term for which he has been elected, and of the judges of the supreme and inferior courts of the United States now in office, and the compensation of all officers and employees of a State or any political subdivision thereof except when such compensation is paid by the United States Government.

Net income.

LIQUIDATION DIVIDENDS.

Where the capital assets of a corporation increased in value prior to March 1, 1913, and a single and final dividend was made in liquidation of the entire assets in 1914, without further appreciation or addition to the assets having occurred, no part of the dividend received by a stockholder is taxable under the act of October 3, 1913. Citing Collector v. Hubbard, 12 Wall. 1, and Bailey v. Railroad Co., 22 Wall. 604, and 106 U. S. 109, also Gray v. Darlington, 15 Wall. 63. (Lynch v. Turrish, 247 U. S. 221, 1918, affirming 236 Fed. 653.) For income liable to additional tax, see cases under paragraph A (2).

PARTNERSHIP INCOME.

A member of a partnership need not include as a part of his net income subject to normal tax such of his income derived from or through a partnership as has been received by the partnership in the shape of dividends on stocks owned by it in corporations taxable upon their net income. (U. S. v. Coulby, 251 Fed. 982, affirmed in 258 Fed. 27.)

STOCK DIVIDENDS.

Stock dividends declared in 1914 from profits accrued before January 1, 1913, do not constitute taxable income to recipients under section 2 of the act of October 3, 1913. (Towne v. Eisner, 245 U. S. 418, 1918, reversing 242 Fed. 702. See also Macomber v. Eisner, pending in United States Supreme Court.)

SERVICES PERFORMED IN PRIOR YEAR.

Where a life insurance agent holds a contract entitling him to certain specific percentages on first and renewal premium on policies secured through his solicitation when such premium shall be paid; these commissions, when paid on renewal premiums of policies issued before the act became effective but paid after such date, are taxable as "derived income" for the year in which they are received. (Edwards . Keith, 224 Fed. 585, 231 Fed. 110, 243 U. S. 638. Also Woods v. Lewellyn, 252 Fed. 106.)

ALIMONY,

Alimony paid monthly to a divorced wife under a decree of court is not taxable as "income" under the income tax act of October 3, 1913. (Gould e. Gould, 245 U. S. 151; 168 App. Div. 900 affirmed.)

EXPORT SALES.

The net income from the venture of exportation when completed that is to say, after the exportation and sale are fully consummatedis subject to taxation under general laws. (Peck & Co. v. Lowe, 247 U. S. 165, affirming 234 Fed. 125.)

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