The preceding chapter explains who must make returns, when they must be made, the period they must cover, and other related matters. A detailed description of the specific procedure to be followed by individuals, partnerships, and corporations in filing their annual returns now follows.1 Annual Returns by Individuals Who shall make returns. LAW. Section 223. (a) The following individuals shall each make under oath a return stating specifically the items of his gross income and the deductions and credits allowed under this title.-3 (1) Every individual having a net income for the taxable year of $1,000 or over, if single, or if married and not living with husband or wife; (2) Every individual having a net income for the taxable year of $2,500 or over, if married and living with husband or wife; and 1 1A discussion of returns of affiliated corporations appears in Chapter VI. Fiduciary returns are discussed in Chapter XLVII. As to exempt income, see Chapter XVII. [Former Procedure] Under the 1918 and 1921 laws the corresponding exemption was $2,000. (3) Every individual having a gross income for the taxable year of $5,000 or over, regardless of the amount of his net income.* REGULATION. Whether or not an individual is the head of a family or has dependents is immaterial in determining his liability to render a return. A husband and wife living together need make no returns unless their aggregate gross income for the taxable year is at least $5.000, or their aggregate net income is at least $2,500. If their aggregate net income for the taxable year is $2,500 or more, or their aggregate gross income is $5,000 or more, either each must make a return, or the income of each must be included in a single joint return. Where the income of each is included in a single joint return, the tax is computed on the aggregate income and all deductions and credits to which either is entitled shall be taken from such aggregate income. The husband shall include in his return the income derived from services rendered by the wife or from the sale of products of her labor if she does not file a separate return or join with him in a return setting forth her income separately. . . . . (Art. 401.) It is apparent that the only individual who can take advantage of the permission to refrain from reporting when his net income exceeds $1,000 but is less than $2,500 (and whose gross income together with that of his wife is less than $5,000) is one who is "married and living with husband or wife." Heads of families who are unmarried must report when they have net incomes in excess of $1,000 even though, because of dependents, they may have "credits" enough to offset all their income above that amount. 8 It should be noted that the terms "net income" and "gross income" are used, so that dividends, exemptions for dependents, and other "credits" may not be deducted from the amount which determines whether or not a return is to be made. Thus there are undoubtedly many individuals who are required to make returns who, after they have applied all their "credits," 10 have no tax to pay. "GROSS INCOME" OF INDIVIDUALS DEFINED.— RULINGS. For the purpose of section 223 of the Revenue Act of 1921 gross income in the case of a taxpayer engaged in merchandising means total sales, less cost of goods sold, plus any income from investments and from incidental or outside operations or sources. (C. B. I-1, page 234; I. T. 1241.) [Former Procedure] This requirement appeared for the first time in the 1921 law. For definition of "head of a family," see Chapter XVII. ⚫ Section 223 (b). Section 223 (b). See Chapter XVII. See Chapter XVII. 10 Section 216. . . A lawyer, who is married and living with his wife, has gross receipts in the form of fees amounting to $6,000, and his necessary business expenses amount of $4,200, leaving a net income of only $1,800. A return would be required in this case, as the taxpayer's gross income as well as gross receipts is $6,000 . . (C. B. I-1, page 233; Mim. 2915.) Individuals whose entire income is derived from interest on taxexempt securities enumerated in section 213 (b-4) need make no return." They do not come under the provision of section 223 (a-3) requiring a return where the gross income is $5,000 or over, because such tax-exempt interest is expressly excluded from gross income. However, if individuals have taxable income which necessitates the filing of a return, section 213 (b-4) requires the submission of a statement showing the number and amount of tax-exempt securities, and the income derived therefrom.12 Return may be filed by agents—when. — LAW. Section 223. . .(c) If the taxpayer is unable to make his own return, the return shall be made by a duly authorized agent or by the guardian or other person charged with the care of the person or property of such taxpayer. REGULATION... The return may be made by an agent when by reason of illness, absence, or nonresidence the person liable for the return is unable to make it, the agent assuming the responsibility for making the return and incurring liability for the penalties provided for erroneous, false, or fraudulent returns. (Art. 402.) The instructions on the form of the personal return state further that the agent may act when the taxpayer is "a minor or incompetent."13 "AGENT" DEFINED.— REGULATION. There may be a fiduciary relationship between an agent and a principal, but the word "agent" does not denote a fiduciary. A fiduciary relationship can not be created by a power of attorney. An agent having entire charge of property, with authority to effect and execute leases with tenants entirely on his own responsibility and without consulting his principal, merely turning over the net profits from the property periodically to his principal by virtue of authority conferred upon him by a power of attorney, is not a fiduciary within the meaning of the statute. In cases where no legal trust has been created in the estate controlled by the agent and attorney the liability to make a return rests with the principal. (Art. 1522.) "C. B. I-1, page 231; I. T. 1223. 12 [Former Procedure] Section 213 of the 1918 law called for a state ment of such income. The 1921 law had no such requirement. 13 Form 1040A (1923), instructions. Fiduciaries use forms 1040 and 1041. An agent uses the form which his principal would file if able to do so in person, usually form 1040. Returns must be under oath. .... .... LAW. Section 1002. (a) Every person liable to any tax imposed by this Act, or for the collection thereof, shall . . . . render under oath such statements, make such returns, .... as the Commissioner, with the approval of the Secretary, may from time to time prescribe. (d) Any oath or affirmation required by the provisions of this Act or regulations made under authority thereof, may be administered by any officer authorized to administer oaths for general purposes by the law of the United States or of any State, Territory, or possession of the United States, wherein such oath or affirmation is administered, or by any consular officer of the United States.1 Section 1018. [Section 3165, Rev. Stat.] Every collector, deputy collector, internal-revenue agent, and internal-revenue officer assigned to duty under an internal-revenue agent, is authorized to administer oaths.... touching any part of the administration of the internalrevenue laws, with which he is charged, or where such oaths. . . . are authorized by law or regulation authorized by law to be taken. The following regulation gives instructions for executing an affidavit: REGULATION. All income tax returns must be verified under oath or affirmation. The oath or affirmation may be administered by any officer duly authorized to administer oaths for general purposes by the law of the United States or of any State, Territory, or possession of the United States, wherein such oath is administered, or by a consular officer of the United States. Persons in the naval or military service of the United States may verify their returns before any official authorized to administer oaths for the purposes of those services. Income tax returns executed abroad may be attested free of charge before United States consular officers. Where a foreign notary or other official having no seal shall act as attesting officer, the authority of such attesting officer should be certified to by some judicial official or other proper officer having knowledge of the appointment and official character of the attesting officer. (Art. 406.) It has been held that a notary public is prohibited from taking acknowledgments on tax returns only when he is otherwise employed in connection with the preparation and filing of the same returns. Should a notary subsequently appear before the Treasury relative to matters involved in a return subscribed and sworn to before him, [Former Procedure] The 1921 law contained no similar provision, but under C. B. 3, page 228; O. D. 701, the Treasury held that oaths should be administered by officers having general rather than specific authority. Postmasters, it was held, cannot therefore properly administer oaths for income tax purposes. the presumption might be raised of the existence of a disqualifying interest at the time the oath was made.15 In some states notaries are required, and in other states they are not required, to authenticate their certificates with their notarial seals. A summary of the requirements of various states will be found in C. B. I-2, page 175; I. T. 1467. Separate returns of husband and wife. LAW. Section 223. (b) If a husband and wife living together have an aggregate net income for the taxable year of $2,500 or over, or an aggregate gross income for such year of $5,000 or over— (1) Each shall make such a return, or (2) The income of each shall be included in a single joint return, in which case the tax shall be computed on the aggregate income. Under the foregoing provision, the requirement that a return must be filed when the gross income is $5,000 or over, is made to apply to the aggregate gross income of husband and wife when they are living together. If husband and wife are not living together, and if the net income of each is $1,000 or more, separate returns must be made. If husband and wife, living together, elect to make a single joint return, the tax “shall be computed on the aggregate income."16 The privilege of applying one spouse's losses or deductions against the other's income may be availed of in the making of a single joint return. It is well to remember that, when husband and wife are living together, they have the option each year of filing either joint or separate returns. RULINGS. A husband and wife may elect to file a joint return one year and separate returns the next, regardless of whether such election results in a benefit to them or a benefit to the Government. (C. B. 5, page 195; O. D. 968.) Where husband and wife clearly indicate on a single return form the net income of each and computes the tax on the basis of such separate income, the return so filed does not constitute a joint return, but the separate return of each individual. Where, however, a single return form is used clearly indicating the separate net income of husband and wife but the tax is computed upon the basis of combined income, such return is a joint return. (C. B. 4, page 255; O. D. 960.)17 15 C. B. II-1, page 235; I. T. 1583. 16 [Former Procedure] This phrase also appeared in the 1921 law but was not included in the 1918 law. "In cases where community property is divided between husband and wife, separate returns must be filed. See page 105. |