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EXECUTORS, ADMINISTRATORS, TRUSTEES

AND GUARDIANS, ETC. Q. Does an executor, trustee, guardian or other fiduciary have to file a return?

A. Every fiduciary (except Receivers appointed by authority of law in possession of part only, of the property of an individual) must make a return for the individual, estate or trust for which he acts:

1. If the income of such individual is $1,000 or over, if single, or if married and not living with husband or wife; or $2,000 or over if married and living with husband or wife; or

2. If the income of such estate or trust is $1,000 or over, or if any beneficiary of such estate or trust is a nonresident alien. Q. How is the net income of the estate or trust com

puted?

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A. On the same basis as that applying to individuals, except that there is also allowed as a deduction any part of the gross income, which, pursuant to the terms of the will or deed creating the trust, is during the taxable year paid to or permanently set aside for the United States, any state, territory, or any political subdivision thereof, or the District of Columbia, or any corporation organized and operated exclusively for religious, charitable, scientific or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholders or individual.

Q. Are estates and trusts subject to both the normal tax and surtax?

A. Both the normal tax and the surtax apply to the incomes of estates or any kind of property held in trust including;

(1) Income received by estates of deceased persons during the period of administration or settlement of the estate.

(2) Income accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent interests.

(3) Income held for future distribution under the terms of the will or trust.

(4) Income which is to be distributed to the beneficiaries periodically, whether or not at regular intervals, and the income collected by a guardian of an infant to be held or distributed as the court may direct. Q. Who pays the tax?

A. In cases under paragraph (1), (2) or (3) above, the tax is imposed upon the net income of the estate or trust and is to be paid by the fiduciary, except that in determining the net income of the estate of any deceased person during the period of administration or settlement there may be deducted the amount of any income properly paid or credited to any legatee, heir or other beneficiary. In such cases the estate or trust for the purpose of the normal tax is allowed the same personal exemptions and credits as are allowed to single persons.

Q. Does the fiduciary pay the tax on income that is distributed or credited to the beneficiaries during the period of administration or settlement and in cases covered by paragraph (4) above?

A. In such cases the tax is not to be paid by the fiduciary, but the beneficiary in his income tax return must include his distributive share whether distributed or not, of the net income of the estate or trust for the taxable year, or if his net income for such taxable year is computed upon the basis of a period different from that upon the basis of which the net income of the estate or trust is computed, then his distributive share of the net income of the estate or trust for any accounting period of such estate or trust ending within the fiscal or calendar year, upon the basis of which such beneficiary's net income is computed. In such cases the beneficiary for the purpose of the normal tax is allowed as credits, his proportionate share of dividends on stock of corporations and interest on government bonds received by the estate or trust.

PARTNERSHIPS.
Q. Must partnerships file returns for the income tax?

A. Every partnership shall make a return for each taxable year, stating specifically the items of its gross income and the deductions allowed by the statute to individuals, and must include in the return the names and addresses of the individuals who would be entitled to share in the net income if distributed, and the amount of the distributive share of each individual. The return may be sworn to by any one of the partners.

Q. Must the partnership, as such, pay an income tax?

A. No, the partners will be taxable as individuals and are obliged to include in their individual returns their shares in the net income of the partnership whether divided and distributed or not.

Q. I am a member of a partnership whose fiscal year differs from the calendar year. How shall I report my partnership income in my individual return, which covers the calendar year 1919?

A. Your return should include therein your distributive share of the net income of the partnership for any accounting period of the partnership ending within the calendar year 1919.

Q. Since my partnership’s fiscal year takes in part of 1918 and part of 1919, will any allowance be made for the difference in the rates of tax for those two years?

A. The rates for 1918 apply to an amount of your share of the partnership’s net income (determined under the law applicable to such year), equal to the proportion which the part of the fiscal year falling within 1918 bears to the full fiscal year and the rates for 1919 apply to an amount of your share of the partnership’s net income (determined under the law applicable to such year), equal to the proportion which the part of the fiscal year falling within 1919 bears to the full fiscal year.

Q. My partnership received dividends from corporations and interest on government bonds, may I be allowed a credit for these items in my individual return?

A. Yes, you will be allowed a credit for your proportionate share of such dividends and interest. The dividends re

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ferred to are those received from corporations which are subject to the income tax and dividends received from personal service corporations paid out of earnings upon which an income tax has been imposed.

Q. How should partnership profits be computed?

A. In the same manner and on the same basis as in the case of individuals except that the deduction of contributions or gifts to charitable, etc., organizations is not allowed.

PERSONAL SERVICE CORPORATIONS.
Q. What is a personal service corporation?

A. A corporation whose income is to be ascribed primarily to the activities of the principal owners or stockholders who are

themselves regularly engaged in the active conduct of the affairs • of the corporation and in which capital (whether invested or borrowed) is not a material income-producing factor; but does not include any foreign corporation, nor any corporation 50 per centum or more of whose Gross Income consists either (1) of gains, profits, or income derived from trading as a principal, or (2) of gains, profits, commissions, or other income, derived from a government contract or contracts made between April 6, 1917, and November 11, 1918, both dates inclusive.

Q. Is a personal service corporation subject to the income tax?

A. No, they are placed in the same class as partnerships and it is provided that any amounts distributed, during the taxable year, shall be accounted for by the distributees; and any portion of the net income remaining undistributed at the close of its taxable year shall be accounted for by the stockholders of such corporation at the close of its taxable year in proportion to their respective shares.

Q. Must a personal service corporation file a Return?
A. Yes. See next heading.

Q. I am a stockholder in a “personal service” corporation. I received dividends in 1919, paid from earnings accumulated by the corporation in 1919. On December 31, 1919, I was still a stockholder in the corporation. What must I report in my individual return, and how?

A. The dividends must be reported in the same manner as a partner reports profits received from a partnership and such dividends will be subject to both the Normal Tax and the surtax. You must also report your share of the 1919 earnings of the corporation, remaining undistributed on December 31, 1919, the close of the taxable year of the corporation.

Q. Referring to the preceding question, suppose I sold my stock in November, 1919, what would I report and what would my transferee report?

A. You would account for the dividends received in the manner indicated in the preceding answer and your transferee, if he was still a stockholder on December 31, 1919, would report his share of the 1919 earnings of the corporation remaining undistributed on that date, the close of the taxable year of the corporation.

CORPORATIONS.
Q. When must income tax returns be filed?

A. Any time after January 1st, but not later than March 15th.

If, however, the return is made on the basis of a fiscal year it must be filed on or before the 15th day of the third month following the close of the fiscal year.

Q. Where must Returns be filed?
A. In the district in which the principal office is located.

Q. What corporations and associations are required to file a return?

A. Every corporation subject to the income tax and every personal service corporation must file a return.

Q. What corporations and associations are exempt from the tax?

A. The Act expressly exempts several classes of corporations and associations such as charitable organizations, trade leagues, personal service corporations, etc. See section 231.

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