CHAPTER I SCOPE OF REGULATIONS Be it enacted by the Senate and House of Representatives of the Title I-Income Tax, Subtitle A-Introductory Provisions SEC. 1. APPLICATION OF TITLE. The provisions of this title shall apply only to taxable years beginning after December 31, 1935. Income, war-profits, and excess-profits taxes for taxable years beginning prior to January 1, 1936, shall not be affected by the provisions of this title, but shall remain subject to the applicable provisions of prior revenue Acts, except as such provisions are modified by legislation enacted subsequent to this Act. ARTICLE 1-1. Scope of regulations.-These regulations deal with the taxes upon net income imposed by Title I of the Revenue Act of 1936, including the tax imposed by section 102 of Title I of that Act upon the net income of certain corporations, and the tax imposed by Title IA of that Act upon the undistributed adjusted net income of personal holding companies (see section 351). The articles of these regulations have been given key numbers corresponding to the numbers of the sections, subsections, or paragraphs of the Act. For example, articles 23 (a)-1 to 23 (a)–12, relating to deduction for expenses, bear the key number 23 (a), which corresponds to subsection 23 (a) of the Act. The articles bearing a given key number are the regulations prescribed with respect to the corresponding section, subsection, or paragraph of the Act; and the section, subsection, or paragraph of the Act shall be considered as a part of the respective articles to which it corresponds. SEC. 2. CROSS REFERENCES. The cross references in this title to other portions of the title, where the word "see" is used, are made only for convenience, and shall be given no legal effect. SEC. 3. CLASSIFICATION OF PROVISIONS. The provisions of this title are herein classified and designated as- Subtitle B-General provisions, divided into Parts and sections, ART. 3-1. Division of regulations.-These regulations have been divided into 35 chapters. Chapter I relates to Introductory Provisions, Subtitle A of Title I. Chapters II to IX relate to General Provisions, Subtitle B of Title I. Chapters X to XXII relate to Supplements A to D of Supplemental Provisions, Subtitle C of Title I. Chapters XXIII to XXIX relate to Supplements E to K of Supplemental Provisions, Subtitle C of Title I. Chapters XXX to XXXIII relate to Supplements L to O of Supplemental Provisions, Subtitle C of Title I. Chapter XXXIV relates to Title IA, Surtax on Personal Holding Companies. Chapter XXXV relates to Title VIII, General Provisions of the Act. SEC. 4. SPECIAL CLASSES OF TAXPAYERS. The application of the General Provisions and of Supplements A to D, inclusive, to each of the following special classes of taxpayers, shall be subject to the exceptions and additional provisions found in the Supplement applicable to such class, as follows: (a) Estates and trusts and the beneficiaries thereof,-Supplement E. (b) Members of partnerships,-Supplement F. (c) Insurance companies,-Supplement G. (d) Nonresident alien individuals,—Supplement H. (e) Foreign corporations,-Supplement I. (f) Individual citizens of any possession of the United States who are not otherwise citizens of the United States and who are not residents of the United States,--Supplement J. (g) Individual citizens of the United States or domestic corporations, satisfying the conditions of section 251 by reason of deriving a large portion of their gross income from sources within a possession of the United States,-Supplement J. (h) China Trade Act corporations,-Supplement K. ART. 4-1. Application of regulations to special classes of taxpayers.With respect to certain classes of taxpayers, the application of the provisions of Chapters II to XXII is subject to certain exceptions and additional provisions, which are discussed in Chapters XXIII to XXIX, as follows: Chapter XXIII-Estates and trusts. Chapter Chapter Chapter XXIV-Partnerships. XXV-Insurance companies. XXVI-Nonresident alien individuals. Chapter XXVII-Foreign corporations. Chapter XXVIII-Income from sources in possessions of the Chapter XXIX-China Trade Act corporations. For provisions interpretative of section 351, surtax on personal holding companies, see articles 351-1 to 351-9, inclusive. For provisions relative to surtax on corporations improperly accumulating surplus, see articles 102-1 to 102-6. 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, 1935 (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 217), 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 211-219. 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 (4) 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 211-2 to 211-5 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. |