mon sense for a definition of a "head of a family" which insists that the head and the dependent live "in one household" and that in cases of temporary absence "the common home" be maintained. This was so evident that the Treasury made haste to modify its position before the 1919 taxes were assessed. Under a ruling reported in the newspapers of February 23, 1919, a person living in one community acting as the principal support of a person living elsewhere may be considered the head of a family and entitled to the additional $1,000 exemption. In almost any city there are thousands of children who are the sole support of parents who live in their old homes. Such persons will not now be denied the additional $1,000 exemption while others also the support of their parents but who chance to work in the neighborhood of their homes are permitted to qualify as heads of families. This is quite just, for persons in the second class, as a matter of fact, usually have lower living expense than the first, for they are not forced to maintain two establishments' in order properly to perform their duty as the heads of their families.

If a taxpayer can qualify as the head of a family under the definition formulated above, he can claim the second $1,000 of the personal exemption even though he be not married. On the other hand, under the 1918 law it is no longer necessary that he be the head of a family to claim the $200 for each dependent, provided he supplies the "chief support" of such dependent. Practically every unmarried person who is the chief supporter of a dependent should be able to qualify as a head of a family and avail himself of the $1,000 additional deduction in addition to the $200 deduction. A widow or a widower supporting minor children is clearly a "head of a family." A child acting as the main support of a dependent parent or a minor brother or sister is entitled to the additional $1,000 exemption, plus the $200 exemption for each minor child or dependent person mentally or physically defective.

An unmarried person, regardless of the amounts he may contribute to the support of a dependent relative, may claim

neither the $200 nor the additional $1,000, unless, in the words of the statute, the relative receives "his chief support from the taxpayer," or, in the words of the ruling, the taxpayer “actually supports and maintains" the relative. In cases where several persons combine to contribute to the joint support of several dependents, it may be desirable to allocate their contributions to particular persons in the group of dependents to the extent of making the taxpayer clearly the main supporter of certain individuals. By so doing they provide a basis for an exemption claim which otherwise could not be allowed.

Where, in a family group, one claims the exemption of $2,000 by reason of being the head of the family, the income of minors who are dependent upon him should be included in his return, as the law contemplates for this purpose the computation of the tax upon the family as a unit. A minor as such is not exempt. If he has a substantial income a separate return should be made for him and the $1,000 exemption should be claimed.1

EXEMPTIONS TO BE CALCULATED BY MONTHS.-Under a new regulation the exemptions are to be divided fractionally according to the number of months of eligibility. If a taxpayer was entitled to any of the personal exemptions during part of the year only, he may claim as many twelfths of the exemptions stated as there were months in such part of the year. Any part of a month may be counted as a month. Thus $200 may be claimed for a child born January 31 and $50 (three-twelfths of $200) for a child born October 31.2

WHAT CONSTITUTES "LIVING WITH HUSBAND OR WIFE"?— REGULATION. . . . . In the absence of continuous actual residence together, whether or not a man or woman has a wife or husband living with him or her within the meaning of the statute must depend

'See page 46.

[Former Procedure] The new ruling was first announced among the instructions on form 1040A. The previous practice had been to recognize the status at the end of the vear as determining the exemption. (Reg. No. 33, 1918, ¶ 156.)

upon the character of the separation. If merely occasionally and temporarily a wife is away on a visit or a husband is away on business, the joint home being maintained, the additional exemption applies. The unavoidable absence of a wife or a husband at a sanitarium or asylum on account of illness does not preclude claiming the exemption. If, however, the husband voluntarily and continuously makes his home at one place and the wife hers at another, they are not living together for the purpose of the statute, irrespective of their personal relations. . . . . (T. D. 2692, April 8, 1918.)

HUSBAND AND WIFE LIVING APART.-Under the 1918 law [Section 216 (c)] a personal exemption of $2,000 is given to "the head of a family or a married person living with husband or wife." It is inferred that a married person not living with husband or wife is not to receive the $2,000 exemption. However, the Treasury definition of a "head of a family" does not clearly exclude a case such as that of a husband who supports a wife' living apart from him. The husband and the wife may each claim $1,000 exemption but probably neither may claim more than the amount by virtue of his relationship to the other.

INDIVIDUAL'S FISCAL YEAR-PERSONAL EXEMPTION NOT DEDUCTIBLE TWICE.-Under the 1918 law an individual under certain conditions may report on the fiscal-year basis, in which case parts of the income may be subject to rates for different years. In such cases the law provides for a full allowance of credits. A double deduction of the personal exemption is not permitted.

2

LAW. Section 206. . . . . In determining the income, any deductions, exemptions or credits of a kind not plainly and properly chargeable against the income taxable at rates for a preceding year shall first be applied against the income subject to rates for the most recent calendar year; but any balance thereof shall be applied against the income subject to the rates of the next preceding year or years until fully allowed.

PERSONAL EXEMPTION VALID FOR NORMAL TAX ONLY.—If a head of a family has more than fifteen dependents, it is pos

'The same holds true, of course, where a wife supports a husband. 'See Chapter IV.

sible for him to be subject to a surtax while at the same time being exempt from all normal tax.

REGULATION. Personal exemptions from tax are granted in respect of the normal income tax only. Where the total of allowable exemptions and credits exceeds the amount of net income, the excess of such exemptions may not be availed of as against the additional tax [surtax]. (Reg. No. 33, 1918, ¶ 154.)

PERSONAL EXEMPTIONS OF NON-RESIDENT ALIENS.

LAW. Section 216. (e) In the case of a nonresident alien individual who is a citizen or subject of a country which imposes an income tax, the credits allowed in subdivisions (c) and (d) [$200 for each dependent and $1,000 and $2,000, as the case may be, for heads of families (see page 47)] shall be allowed only if such country allows a similar credit to citizens of the United States not residing in such country.

LAW. Section 217. That a nonresident alien individual shall receive the benefit of the deductions and credits allowed in this title only by filing or causing to be filed with the collector a true and accurate return of his total income received from all sources corporate or otherwise in the United States, in the manner prescribed by this title, including therein all the information which the Commissioner may deem necessary for the calculation of such deductions and credits: Provided, That the benefit of the credits allowed in subdivisions (c) and (d) of section 216 [the personal exemptions] may, in the discretion of the Commissioner, and except as otherwise provided in subdivision (e) of that section, be received by filing a claim therefor with the withholding agent. In case of failure to file a return, the collector shall collect the tax on such income, and all property belonging to such nonresident alien individual shall be liable to distraint for the tax.1

[Former Procedure] Under the 1916 law [Section 7 (b)], nonresident alien individuals were entitled to the benefit of the personal exemption, either $3,000 or $4,000 according to their status, but only on condition that they filed or caused to be filed with the collector a return of the total income received from all sources in the United States within the year for which the exemption was claimed. It will be observed that under the 1918 law the failure to give this information involves the denial of all the deductions and credits, not merely the personal exemption.

The 1917 law amended Section 7 (a) of the 1916 law by restricting its application to a "citizen or resident of the United States" and repealed (b) referred to above. The effect was to make a non-resident alien subject to one normal tax only of 2 per cent, but subject to the surtaxes under both laws. Further, in 1917, a non-resident alien was not entitled to the specific exemption even though he filed a return. This applies likewise to non-resident alien trusts and estates.

For a full treatment of non-resident aliens, see Chapter XXVIII.

PERSONAL EXEMPTIONS OF WARDS, BENEFICIARIES AND ESTATES.-Wards and other beneficiaries receiving their income from estates are entitled to claim exemption according to their status, and the guardian or trustee is allowed to deduct this personal exemption from the amount of income derived from the property of which he has charge in favor of each ward or beneficiary [Section 219 (d)]. Where the estate is subject to a tax by reason of income received by it but not distributed during the year, a deduction of $1,000 is allowed in computing the tax upon the estate [Section 219 (c)]. This is the only instance in which the personal exemption may be claimed by anyone other than the individual taxpayer.1

For a detailed discussion of the subject of fiduciaries, see Chapter XXIX.

Specific credit to corporations.

LAW. Section 236.

.

(c) In the case of a domestic cor

poration, $2,000.

This is a new provision and corresponds closely with the specific exemption from normal tax which is extended to individuals. It will eliminate the payment of any tax by a corporation whose net income is less than $2,000.3 In case a consolidated return is filed for several corporations, only one $2,000 specific credit is allowed.*

[Former Procedure] Prior to the enactment of the 1917 law this exemption (but $3,000 in amount) applied to all estates [Section 7 (a)], but as amended by that law the exemption was limited to citizens or residents of the United States, excluding non-resident aliens. The 1918 law once more permits the exemptions in the case of all estates, domestic and foreign.

[Former Procedure]

Under the 1913, 1916, and 1917 laws corporations did not receive any specific exemption. Under the 1909 law corporations received a $5,000 exemption.

For a discussion of the credit allowed corporations for excess profits taxes imposed, see Chapter XXI, "Deductions for Taxes."

'Section 240 (a).