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Plan of treatment.—The following chapters discuss in detail the various types of income subject to the income tax. Income from personal services, income from business, from property, from interest, from rents, from dividends, etc.,' are taken up in regular order and the procedure peculiar to them is explained. However, in addition to these particular subjects there are many questions which are general in their nature and application. These are brought together for treatment in this introductory chapter.

Variations according to class of taxpayer.-It should be observed that, in the absence of an indication to the contrary, statements made in the text are to be accepted as applicable to corporations and individuals alike. So much of the procedure applies to all classes of taxpayers that it has been deemed desirable to isolate only the exceptional points, indicating plainly in such cases the limitations upon the application.

It is almost impossible to frame a revenue law which will distribute the tax burden with exact equality over various classes of taxpayers. There are fundamental points of difference between businesses operated by corporations and by individuals, which cannot easily be equalized. Partnerships are held to be nothing more than two or more individuals acting together for convenience. Attempts have been made to regard partnerships as entities, but, so far, the courts have not departed from the common-law principle that partnerships enjoy no privileges and need bear no burdens other than those incident to individuals. This principle, however, is an ancient one

'Note should be made of the fact that in making a return, income received from fiduciaries must be included (see Chapter XXXIV).

and it is within the range of possibilities that in the near future some court will hold that common-law partnerships are independent legal entities, taxable as such, and with privileges and burdens which differentiate them from individuals or corporations.

The 1918 revenue act seems to open the way to the establishment of a new method of taxation. There has been constituted a new taxable class, viz., the personal service corporation. Here appears a corporation whose activities are limited in scope, the stockholders of which are to be taxed as are the members of a partnership.

“Catch-all” provision.-The law states (section 213) that “gains or profits and income derived from any source whatever" are subject to the tax. To provide for possible lapses in the law and regulations the following “catch-all” provision was included in a previous edition of the regulations. The statements made are still pertinent.

REGULATION. The intent and purpose of the income tax law is that all gains, profits, and income of a taxable class shall be charged and assessed with the corresponding income tax, normal and additional, and such tax shall be paid by the owner of such income or the proper representative thereof having the receipt, custody, control, or disposal of the same. In any case where the conditions which obtain do not appear to fall within the law and regulations for the assessment and collection of the income tax, the proper tax shall be assessed in the particular case by the Commissioner of Internal Revenue upon his findings concerning the same. Ownership of income and liability for tax thereon shall be determined as of the year for which the return is required to be rendered. (Reg. 33, 1918, Art. 49.)

See Massachusetts Income Tax Law, Chapter 269, Acts of 1916, section 10 which reads in part as follows:

"The tax shall be assessed on such a partnership by the name under which it does business, and the partners shall not be taxed with respect to the income derived by them from such a partnership."

See Oliver v. Lynn (130 Mass. 143), which holds that the tax on partnership property is a separate tax against the partnership, the legality of which an individual partner cannot question.

'Sections 200, 218.

Nature of taxable income.—The concept of income adopted in the law is not an entirely clear and logical one. The tax is imposed not merely on "income" in the very narrow sense, but in certain cases on appreciation of property values as well. In general it imposes the tax only when the income is reduced to money, but in certain cases this rule is not followed, the law taxing some income in forms other than money.

The 1918 law is a decided improvement over past laws. Capital gains and profits are still subject to the tax, and should be unless and until the Supreme Court of the United States decides that the sixteenth amendment is not broad enough to tax gains or profits which arise out of the realization, through sale, of appreciation in the value of capital assets.

What is needed is an authoritative definition of "income.” It cannot be found in the Supreme Court decisions, because there are too many differentiations and limitations to make it at all clear what a decision will be in any future case.

It would appear from some court decisions that doubt exists as to the taxability of certain transactions which involve so-called capital. In a recent case the Circuit Court of Appeals, Southern District of New York, held that a gift to a corporation is not taxable income. In defining the word "income” the court said: “.... it (income) should

*See page 255.
U. S. v. Oregon-Washington R. & Nav. Co., 251 Fed. 211.

“However, the tax, though it includes income 'from all sources,' nevertheless includes ‘income' only, and the meaning of that word is not to be found in its bare etymological derivation. Its meaning is rather to be gathered from the implicit assumptions of its use in common speech. The implied distinction, it seems to us, is between permanent sources of wealth and more or less periodic earnings. Of course, the term is not limited to earnings from economic capital, i.e., wealth industrially employed in permanent form. It includes the earnings from a calling, as well as interest, royalties, or dividends, though in the case of corporations this may be of slight importance. Yet the word unquestionably imports, at least so it seems to us, the current distinction between what is commonly treated as the increase or increment from the exercise of some economically productive power of one sort or another, and the power itself, and it should not include such wealth as is honestly appropriated to what would customarily be regarded as the capital of the corporation taxed."

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