Regulations 86 Relating to the Income Tax Under the Revenue Act of 1934

CHAPTER II

RATES OF TAX

Subtitle B-General Provisions, Part I-Rates of Tax

SEC. 11. NORMAL TAX ON INDIVIDUALS.

There shall be levied, collected, and paid for each taxable year upon the net income of every individual a normal tax of 4 per centum of the amount of the net income in excess of the credits against net income provided in section 25.

ART. 11-1. Income tax on individuals.—Title I of the Act, which applies only to taxable years beginning after December 31, 1933 (see section 1), imposes an income tax on individuals, including a normal tax (section 11) and a surtax (section 12). The tax is upon net income which is determined by subtracting the allowable deductions from the gross income. (See generally sections 21-24.) In certain cases credits are allowed against the net income before computing the tax (section 25) and in other cases against the amount of the tax (sections 31, 32, and 131). In general the tax is payable upon the basis of returns rendered by persons liable thereto (sections 51, 53, 142, and 216), except that in some instances it is to be paid at the source of the income (section 143). Exceptions and additional provisions applicable to certain special classes of taxpayers are listed in section 4. See section 102 as to shareholders of corporations formed or availed of to prevent imposition of surtax. See section 351 as to shareholders of personal holding companies. See section 117 as to treatment of capital gains and capital losses.

ART. 11-2. Citizens or residents of the United States liable to tax.—In general, citizens of the United States, wherever resident, are liable to the tax, and it makes no difference that they may own no assets within the United States and may receive no income from sources within the United States. Every resident alien individual is liable to the tax, even though his income is wholly from sources outside the United States. As to nonresident alien individuals, see sections 211-217.

ART. 11-3. Who is a citizen.-Every person born or naturalized in the United States, and subject to its jurisdiction, is a citizen. When any naturalized citizen has left the United States and resided for two years in the foreign country from which he came, or for five years

in any other foreign country, it is presumed that he has ceased to be an American citizen. This presumption does not apply, however, to residence abroad while the United States was at war, nor does it apply in the case of individuals born in the United States subject to its jurisdiction. However, even though an individual born in the United States, subject to its jurisdiction, of either citizen or alien parents, resided in a foreign country for a number of years, he would still be a citizen of the United States, unless he had become naturalized in, or taken an oath of allegiance to, the foreign country of residence or some other foreign state. A foreigner who has filed his declaration of intention of becoming a citizen of the United States but who has not yet received his final citizenship papers is an alien. See articles 211-1 to 211-4 for distinction between a resident alien individual and a nonresident alien individual.

SEC. 12. SURTAX ON INDIVIDUALS.

(a) Definition of "surtax net income ".-As used in this section the term surtax net income" means the amount of the net income in excess of the credits against net income provided in section 25 (b). (b) Rates of surtax.-There shall be levied, collected, and paid for each taxable year upon the surtax net income of every individual a surtax as follows:

Upon a surtax net income of $4,000 there shall be no surtax; upon surtax net incomes in excess of $4,000 and not in excess of $6,000, 4 per centum of such excess.

$80 upon surtax net incomes of $6,000; and upon surtax net incomes in excess of $6,000 and not in excess of $8,000, 5 per centum in addition of such excess.

$180 upon surtax net incomes of $8,000; and upon surtax net incomes in excess of $8,000 and not in excess of $10,000, 6 per centum in addition of such excess.

$300 upon surtax net incomes of $10,000; and upon surtax net incomes in excess of $10,000 and not in excess of $12,000, 7 per centum in addition of such excess.

$440 upon surtax net incomes of $12,000; and upon surtax net incomes in excess of $12,000 and not in excess of $14,000, 8 per centum in addition of such excess.

$600 upon surtax net incomes of $14,000; and upon surtax net incomes in excess of $14,000 and not in excess of $16,000, 9 per centum in addition of such excess.

$780 upon surtax net incomes of $16,000; and upon surtax net incomes in excess of $16,000 and not in excess of $18,000, 11 per centum in addition of such excess.

$1,000 upon surtax net incomes of $18,000; and upon surtax net incomes in excess of $18,000 and not in excess of $20,000, 13 per centum in addition of such excess.

$1,260 upon surtax net incomes of $20,000; and upon surtax net incomes in excess of $20,000 and not in excess of $22,000, 15 per centum in addition of such excess.

$1,560 upon surtax net incomes of $22,000; and upon surtax net incomes in excess of $22,000 and not in excess of $26,000, 17 per centum in addition of such excess.

$2,240 upon surtax net incomes of $26,000; and upon surtax net incomes in excess of $26,000 and not in excess of $32,000, 19 per centum in addition of such excess.

$3,380 upon surtax net incomes of $32,000; and upon surtax net incomes in excess of $32,000 and not in excess of $38,000, 21 per centum in addition of such excess.

$4,640 upon surtax net incomes of $38,000; and upon surtax net incomes in excess of $38,000 and not in excess of $44,000, 24 per centum in addition of such excess.

$6,080 upon surtax net incomes of $44,000; and upon surtax net incomes in excess of $44,000 and not in excess of $50,000, 27 per centum in addition of such excess.

$7,700 upon surtax net incomes of $50,000; and upon surtax net incomes in excess of $50,000 and not in excess of $56,000, 30 per centum in addition of such excess.

$9,500 upon surtax net incomes of $56,000; and upon surtax net incomes in excess of $56,000 and not in excess of $62,000, 33 per centum in addition of such excess.

$11,480 upon surtax net incomes of $62,000; and upon surtax net incomes in excess of $62,000 and not in excess of $68,000, 36 per centum in addition of such excess.

$13,640 upon surtax net incomes of $68,000; and upon surtax net incomes in excess of $68,000 and not in excess of $74,000, 39 per centum in addition of such excess.

$15,980 upon surtax net incomes of $74,000; and upon surtax net incomes in excess of $74,000 and not in excess of $80,000, 42 per centum in addition of such excess.

$18,500 upon surtax net incomes of $80,000; and upon surtax net incomes in excess of $80,000 and not in excess of $90,000, 45 per centum in addition of such excess.

$23,000 upon surtax net incomes of $90,000; and upon surtax net incomes in excess of $90,000 and not in excess of $100,000, 50 per centum in addition of such excess.

$28,000 upon surtax net incomes of $100,000; and upon surtax net incomes in excess of $100,000 and not in excess of $150,000, 52 per centum in addition of such excess.

$54,000 upon surtax net incomes of $150,000; and upon surtax net incomes in excess of $150,000 and not in excess of $200,000, 53 per centum in addition of such excess.

$80,500 upon surtax net incomes of $200,000; and upon surtax net incomes in excess of $200,000 and not in excess of $300,000, 54 per centum in addition of such excess.

$134,500 upon surtax net incomes of $300,000; and upon surtax net incomes in excess of $300,000 and not in excess of $400,000, 55 per centum in addition of such excess.

$189,500 upon surtax net incomes of $400,000; and upon surtax net incomes in excess of $400,000 and not in excess of $500,000, 56 per centum in addition of such excess.

$245,500 upon surtax net incomes of $500,000; and upon surtax net incomes in excess of $500,000 and not in excess of $750,000, 57 per centum in addition of such excess.

$388,000 upon surtax net incomes of $750,000; and upon surtax net incomes in excess of $750,000 and not in excess of $1,000,000, 58 per centum in addition of such excess.

$533,000 upon surtax net incomes of $1,000,000; and upon surtax net incomes in excess of $1,000,000, 59 per centum in addition of such excess.

(d) Avoidance of surtaxes by incorporation. For surtax on corporations which accumulate surplus to avoid surtax on stockholders, see section 102.

ART. 12-1. Surtax. In addition to the normal tax imposed by section 11 a surtax is imposed at the rates specified in section 12 upon the surtax net income of every individual, resident or nonresident. The surtax net income is the amount of the net income in excess of the personal exemption and credit for dependents. (See generally articles 25-1 to 25-7.) For surtax on corporations improperly accumulating surplus, see section 102. As to surtax on personal holding companies, see section 351.

ART. 12-2. Computation of surtax.-The following table shows the surtax due for taxable years beginning after December 31, 1933, upon certain specified amounts of surtax net income. In each instance the first figure of the surtax net income in the surtax netincome column is to be excluded and the second figure included. The percentage given opposite applies to the excess of income over the first figure in the surtax net-income column. The last column gives the total surtax on a surtax net income equal to the second figure in the surtax net-income column.

The surtax for any amount of surtax net income not shown in the table is computed by adding to the surtax for the largest amount shown which is less than the surtax net income, the surtax upon the excess over that amount at the rate indicated in the table. Accordingly, the surtax upon a surtax net income of $63,128 would be $11,886.08, computed as follows:

Surtax on $62,000 from table_-.

Surtax on $1,128 at 36 per cent---

Total__.

SEC. 13. TAX ON CORPORATIONS.

$11, 480.00 406. 08

11, 886. 08

(a) Rate of tax.—There shall be levied, collected, and paid for each taxable year upon the net income of every corporation, a tax of 134 per centum of the amount of the net income in excess of the credit against net income provided in section 26.

(b) Exempt corporations.-For corporations exempt from tax, see section 101.

(d) Improper accumulation of surplus.—For surtax on corporations which accumulate surplus to avoid surtax on stockholders, see section 102.

ART. 13-1. Income tax on corporations. In general, the Act imposes an income tax on all corporations not expressly exempt (see section 101) at the rate of 1334 per cent of the net income subject to tax. For rate of tax on railroad corporations making consolidated returns, see section 141 (c). Every corporation not exempt under section 101 is liable to the tax, and it makes no difference that a domestic corporation may receive no income from sources within the United States. The tax is upon net income, that is, gross income as defined by the Act, less allowable deductions. (See sections

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