It would not have been practicable for me to have revised satisfactorily the 1918 edition of this book without a great deal of help. This I found in my friend and colleague at Columbia University, Professor Robert Murray Haig. A considerable part of the matter in the 1918 edition had to be rearranged or condensed or this book would have been too large. Professor Haig rearranged and rewrote and improved so much of it that it has become partly his book, and I wish to testify to the tremendous amount of work and intelligent thought which were required to prevent this edition from being a volume half again as large. The introductory chapter in this edition is almost wholly the work of Professor Haig. It is a difficult matter to present an historical summary of the progress of the income tax within the bounds of one chapter, but in a book on procedure more space cannot be allotted. Having this limitation in mind it will be found that the subject is adequately covered. As was the case with former editions, I again have reason to be grateful to my partner, Walter A. Staub, C. P. A.,who read the manuscript and who made many helpful suggestions. I am also indebted to Mr. James Rattray of the Guaranty Trust Company of New York, who wrote the following chapters: "Information at the Source," "Payment of Tax at the Source," "Non-Resident Aliens," "Fiduciaries." The material in these chapters is almost entirely technical and it is necessary that it should be authoritative. I think this desired object has been attained. I also express my appreciation of the authoritative material contained in the Income and War Tax Services of the Corporation Trust Company, New York, which I used very freely, with the company's kind permission. If readers fail to find in this book solutions of their problems, or if the new arrangement is not as satisfactory as it might be, I shall be glad to receive criticisms and suggestions. I cannot promise to answer all questions bearing on special problems. This time will not permit, and such problems more properly should be referred to local accountants and lawyers familiar with income tax procedure. I shall, however, be grateful for the help which the criticisms of others always afford, and as far as feasible I shall reply to the letters I receive. As it is necessary for this book to go to press before the end of February it has not been possible to incorporate comments on Regulations No. 45, relating to the income tax, nor the regulations relating to the excess and war profits tax, nor to include explanations of the new forms. A cursory study of the forms and regulations which have appeared since the book was written does not indicate any substantial change in my interpretation of the new law. It will, however, again be necessary, although annoying and regrettable, to issue a supplement to this book, which will be forthcoming during March. 55 Liberty Street, New York, February 28, 1919. ROBERT H. MONTGOMERY. THE DEVELOPMENT OF INCOME TAXATION: Extent of adoption. Income as a test of faculty. Income taxation in England. INCOME TAXATION IN THE UNITED STATES: State income tax- ation. (The Wisconsin income tax law. The Massachusetts law. Income tax in other states.) Early federal laws. (The Civil War tax. The income tax of 1894.) Recent federal legislation. (The corporation special excise tax of 1909. The sixteenth amendment. The 1913 law. The 1916 law. The 1917 law. The excess profits PAGE THE REVENUE ACT OF 1918-COMMENT AND CRITICISM: The new income tax law. The new excess profits tax. Differentiation between capital and income. Differentiation between earned and unearned income. Taxation on the basis of averages. Retroactive THE ADMINISTRATION OF THE LAW: Organization of the Bureau of Internal Revenue. Rulings, regulations and decisions. APPLICATION OF THE LAW-EXEMPTIONS INCOME EXEMPT FROM NORMAL TAX Only—“CrediTS": personal exemptions-wife and dependents. ("Head of a family" defined. Exemptions to be calculated by months. What consti- tutes "living with husband or wife"? Husband and wife living apart. Individual's fiscal year-personal exemption not deductible twice. Personal exemption valid for normal tax only. Personal exemptions of non-resident aliens. Personal exemptions of wards, beneficiaries and estates.) Specific credit to corporations. Dividends which are exempt from normal tax. Interest which is INCOME EXEMPT FROM BOTH NORMAL AND SURTAXES: Life insurance-extent to which exempt. Accident and health insur- ance exempt. Gifts and inheritances exempt. Interest which is exempt from both normal and surtaxes. Compensation for active war service exempt. Income of states, etc., from public utilities, etc., exempt. Income of foreign governments exempt. Compen- sation of the President, judges, and state employees no longer EXEMPT CORPORATIONS: Types of corporations exempt. (Labor and agricultural organizations. Mutual savings banks. land banks. Personal service corporations.) Establishing a right to exemption. Exempt corporations must withhold taxes and fur- GENERAL: Who shall make returns. Commissioner may re- quire any returns "necessary." Time for filing returns. ("Last due date." Returns filed by mail.) Period for which returns are made. ("Taxable year" and "fiscal year" defined. Fiscal year basis now available to individuals, partnerships and corporations alike. The establishment of the fiscal year. Returns when ac- counting period is changed. Return must not cover period ex- ceeding twelve months.) Place for filing returns. Blank forms of returns. (Forms for current year must be used. Informal returns forestall penalties. Forms for 1919.) Return must be ANNUAL RETURNS BY INDIVIDUALS: Return may be filed by agent-when. Separate returns of husband and wife-when de- sirable. Returns by minors. Returns by fiduciaries. Returns by ANNUAL RETURNS BY PARTNERSHIPS AND PERSONAL SERVICE CORPORATIONS: Income from partnerships included in individual returns of partners. Partnerships with fiscal years must file ex- ANNUAL RETURNS BY CORPORATIONS: "Corporation" defined. Return sworn to by two officials. Return of foreign corporation filed by agent. Returns by receivers, trustees in bankruptcy or assignees. Returns of mergers, reorganizations and corporations with changed names. Corporations "not doing business" may have to make returns. (Holding companies with income only from dividends must make returns. Incomplete corporations must file returns unless specifically relieved.) Consolidated returns. (“Af- filiated corporations" defined. Only one $2,000 credit permitted in a consolidated return. Distribution of the tax among the sub- sidiaries. New "government contract" corporations must make MISCELLANEOUS "INFORMATION" RETURNS: Corporation re- turns of dividends paid. Brokers' returns of customers' profits and losses. Copies of government contracts. Returns under systems of "information at source" and "payment at source." AMENDED RETURNS: Tax adjustment when amended returns EXTENSIONS OF TIME FOR FILING RETURNS: Certain 1918 ex- tensions illegally conditioned upon prepayment of taxes. Exten- sion of time for filing 1919 returns. Application for thirty-day extension in case of absence or sickness. Applications to commis- |