and attach thereto a statement setting out fully the facts mentioned above. This will enable it to avoid the imposition of penalties should the Treasury Department later hold it not to be tax-exempt.

Exempt corporations must withhold taxes and furnish information.-A corporation exempt as to its income is not thereby exempt from "the withholding requirements1 nor from furnishing information in accordance with the provisions of the Act2

While under the law only such corporations as are subject to the tax imposed are specifically required to make an annual return of net income, the Treasury Department under the 1918 law may require such returns. It would not be an unreasonable requirement.

Salaries paid by an exempt corporation are, of course, taxable to the recipient."

Holding .companies now exempt on dividends received.— The provisions of the 1918 law permitting corporations to deduct dividends received from other corporations [Section 234 (a) (6)] operates to exempt the income of the "not doing business" type of holding company from this source." This, of course, is not an express exemption of this type of corporation. Practically it amounts to this, however, in the case of a holding company which receives no income except dividends from other companies. Even though it has no taxable income a holding company must make a return.

'See Chapter VII.

See Chapter VI.

T. D. 2693, April 8, 1918.

'T. D. 2090, 2135.

'Section 1305.

"[Former Procedure] Under the 1909 law most holding companies were held to be exempt (Butterick Co. v. Ú. S., U. S. District Court for the Southern District of New York, March 5, 1917). Under the 1913, 1916, and 1917 laws, holding companies are held to be taxable (Boston Terminal Co. v. Gill, Collector, U. S. District Court for Massachusetts). For other cases, see Chapter XV.

Territorial Exemptions

The 1918 income tax applies first to individual citizens and residents of the United States and to domestic corporations (those created or organized within the United States) and, second, to non-resident alien individuals and to foreign corporations so far as their income arises from sources within the United States. A person whose stay in the United States is only temporary is not considered a resident.

The law states that "the term 'United States' when used in a geographical sense includes only the States, the Territories of Alaska and Hawaii, and the District of Columbia" (Section 1). This definition, it will be noted, does not include Porto Rico or the Philippine Islands,' where the 1916 revenue law is still in force (1918 law, Section 261). Income which falls outside the geographical limitations thus established, is, of course, exempt from the tax.

[Former Procedure] The 1916 law states "that the word 'state' or 'United States' when used in this title shall be construed to include any territory, the District of Columbia, Porto Rico, and the Philippine Islands, when such construction is necessary to carry out its provisions" (Section 15). The 1917 law imposing the war income tax did not extend to Porto Rico and the Philippines, as is shown by the following section: "That the provisions of this title shall not extend to Porto Rico or the Philippine İslands, and the Porto Rican or Philippine Legislature shall have power by due enactment to amend, alter, modify or repeal the income tax laws in force in Porto Rico or the Philippine Islands respectively."

CHAPTER III

RETURNS

General

Who shall make returns.-Every individual having a net income of $1,000 (unless married and living with husband or wife, when the amount is $2,000)1 and every partnership and every corporation2 (not specifically exempt3) no matter how small its net income, is required to file an annual income tax return. Partnerships and personal service corporations are not taxable upon the net income so reported, the partners and shareholders instead being taxable upon their distributive shares, but the returns must nevertheless be made."

In addition to these statements of total net income received, there are various other returns to be made under the income tax law which give to the Treasury information considered essential to proper administration.

The more important of the various types of returns are considered individually later.

Commissioner may require any returns "necessary."-In addition to making specific provisions for certain returns, the law grants to the Commissioner the broad and inclusive power to require any returns which he may consider necessary. The authority is given in the following sections:

'For cases of changes in marital status, see page 49. Fiduciaries must make returns for individuals, trusts or estates for which they act. See Chapter XXIX. For returns of non-resident aliens, see Chapter XXVIII.

"The term "corporation" includes insurance companies (Section 1). Corporations must, of course, file excess profits tax returns in addition. See Chapter XXXII.

The law (Section 239) states the requirement positively rather than negatively. See page 86.

'For a definition of personal service corporation, see page 66. Before 1918 the return was required only

[Former Procedure]

upon call from the Commissioner.

LAW. Section 1305. That . . . . every person liable to any tax imposed by this Act, or for the collection thereof, shall keep such records and render, under oath, such statements and returns, and shall comply with such regulations as the Commissioner, with the approval of the Secretary, may from time to time prescribe.

Whenever in the judgment of the Commissioner necessary he may require any person, by notice served upon him, to make a return or such statements as he deems sufficient to show whether or not such person is liable to tax.

LAW. Section 1309. That the Commissioner, with the approval of the Secretary, is hereby authorized to make all needful rules and regulations for the enforcement of the provisions of this Act.

Time for filing returns.'-The following section of the law applies to the annual returns of both individuals and corporations :2

LAW. Section 227. (a) That returns shall be made on or before the fifteenth day of the third month following the close of the fiscal year, or, if the return is made on the basis of the calendar year, then the return shall be made on or before the fifteenth day of March.❜

"LAST DUE DATE."

REGULATIONS. "Last due date," as used in these regulations, is construed to mean the last day upon which a return is required to be filed in accordance with the provisions of the law, or the last day of the period covered by an extension of time granted by the collector or Commissioner of Internal Revenue.

When the last due date as above defined falls on Sunday or a legal holiday the last due date for filing returns will be held to be the day following such Sunday or legal holiday and the return should be made to the collector not later than such following day, or, if placed in the mails, it should be posted in ample time to reach the collector's office, under ordinary handling of the mails, on or before the date on which the return as here indicated is required to be filed in the office of the collector. (Reg. No. 33, 1918, ¶¶ 635, 636.)

'For extension of time see page 97.

For corporations, see Section 241 (a).

[Former Procedure] The earlier laws made March 1 the date for filing returns, except for taxpayers reporting on the basis of fiscal years. In such cases the return was due sixty days after the close of the fiscal year [1913 law, Section (G-c); 1916 and 1917 laws, Section 13 (b) ].

RETURNS FILED BY MAIL.—

REGULATION. If a return is made and placed in the United States mails in due course, properly addressed, and postage paid, in ample time to reach the office of the collector or deputy collector on or before the last due date, no penalty will be held to attach should the return not be actually received by such officer until subsequent to that date. In cases wherein a question may be raised as to whether or not the return was posted in ample time to reach the collector's office on or before the date due, the envelope in which the return was transmitted should be preserved by the collector of internal revenue and forwarded to the Commissioner of Internal Revenue with the return. (Reg. No. 33, 1918, ¶ 637.)

Period for which returns are made.

"TAXABLE YEAR" AND "FISCAL YEAR" DEFINED.-Returns of net income are ordinarily made for the "taxable year." Only in unusual circumstances are returns made for a shorter period, such as in the cases of corporations entering or going out of business,' persons changing fiscal years and administrators who have made final accountings of estates. The terms "taxable year" and "fiscal year" are defined in the law as follows:

LAW. Section 200. . . . . The term "taxable year" means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the net income is computed under section 212 or section 232. The term "fiscal year" means an accounting period of twelve months ending on the last day of any month other than December. The first taxable year, to be called the taxable year 1918, shall be the calendar year 1918 or any fiscal year ending during the calendar year 1918;

FISCAL YEAR BASIS NOW AVAILABLE TO INDIVIDUALS, PARTNERSHIPS AND CORPORATIONS ALIKE.-Corporations and partnerships have previously2 had the privilege of reporting on the basis of a fiscal rather than the calendar year but the 1918 law for the first time extends the privilege to individuals. The law reads:

'Reg. No. 33, 1918, ¶¶ 608, 612.

[Former Procedure] The 1917 law, Section 8 (e) extended to partnerships the fiscal year privilege given in the 1913 and 1916 laws to corporations.