dependent person is under eighteen years of age or is incapable of self-support because mentally or physically defective.21

In other words, the individual's first $1,000 of taxable income is always exempt from the normal tax; a second $1,000 is exempt in case the taxpayer is the head of a family or a married person living with husband or wife; and $200 additional is exempt for each person who can be classified under the law as "dependent" upon the taxpayer.

TEST OF DEPENDENCY.

REGULATION. A taxpayer receives a credit of $200 for each person (other than husband or wife), whether related to him or not and whether living with him or not, dependent upon and receiving his chief support from the taxpayer, provided the dependent is either (a) under eighteen or (b) incapable of self-support because defective. The credit is based upon actual financial dependency and not mere legal dependency. It may accrue to a taxpayer who is not the head of a family. But a father whose children receive half or more of their support from a trust fund or other separate source is not entitled to the credit. (Art. 304.)

"HEAD OF A FAMILY" DEFINED.—

REGULATION. A head of a family is a person who actually supports and maintains in one household22 one or more individuals who

"[Former Procedure] The provision allowing a $200 exemption for dependents first appeared in an amendment to the 1916 law passed in 1917 (section 7). The provision differed from the one quoted above in several particulars. In the first place the condition was imposed that the person making the return should be the head of a family, a phrase defined above. The 1918 law makes no such condition. Second, the 1917 law allowed the deduction for each child. The 1918 law uses the word "person," thus avoiding the question as to the maximum age at which a defective person may be termed a child. The 1917 law omitted the age limit but inferred that the defective person must be a child. This was interpreted to mean that a defective was to be considered a child, no matter what his or her age. Finally, the 1918 law substitutes the phrase "dependent upon and receiving his chief support from the taxpayer" for the phrase of the 1917 law which reads "dependent upon such person." There was some question as to whether or not the $200 exemption was applicable to both the 1916 and the 1917 income taxes, but the Treasury ruled that it was to be counted twice. (Reg. 33, 1918, Art. 14.)

22[Former Procedure] The objectionable phrase "in one household" was first introduced by T. D. 2692, April 8, 1918. Before that time the regulations were entirely silent on the point of a common home. T. D. 2692 was considerably more narrow than the present regulation, the test of the common home being insisted upon irrespective of the necessity which might account for the dependent's residence elsewhere.

are closely connected with him by blood relationship, relationship by marriage, or by adoption, and whose right to exercise family control and provide for these dependent individuals is based upon some moral or legal obligation. In the absence of continuous actual residence together, whether or not a person with dependent relatives is a head of a family within the meaning of the statute must depend on the character of the separation. If a father is absent on business or at war, or a child or other dependent is away at school or on a visit, the common home being still maintained, the additional exemption applies. If, moreover, through force of circumstances a parent is obliged to maintain his dependent children with relatives or in a boarding house while he lives elsewhere, the additional exemption may still apply. If, however, without necessity the dependent continuously makes his home elsewhere, his benefactor is not the head of a family, irrespective of the question of support. A resident alien with children abroad is not the head of a family. (Art. 302.)

The foregoing regulation does not impair the right of a parent to claim the $200 for each dependent wherever the latter may reside.

When "without necessity the dependent continuously makes his home elsewhere," it may be reasonable to hold that the taxpayer is not to be considered the head of a family. If, however, a resident alien has children abroad "with" necessity, it would seem that, in addition to the credit of $200 for each dependent, the resident alien should be classed as the head of a family because every resident alien individual is subject to the income tax, even though his income is wholly from sources outside the United States.23

If a taxpayer can qualify as the head of a family under the definition formulated above, he can claim the second $1,000 of the personal exemption even though he be not married. On the other hand, under the 1918 law it is no longer necessary that he be the head of a family to claim the $200 for each dependent, provided he supplies the "chief support" of such dependent. Practically every unmarried person who is the chief supporter of a dependent should be able to qualify as a head of a family and avail himself of the $1,000 additional deduction as well as the $200 deduction. A widow or a

23Section 210.

widower supporting minor children is clearly a "head of a family." A child acting as the main support of a dependent parent or a minor brother or sister is entitled to the additional $1,000 exemption, plus the $200 exemption for each minor child or dependent person mentally or physically defective.

An unmarried person, regardless of the amounts he may contribute to the support of a dependent relative, may claim neither the $200 nor the additional $1,000, unless, in the words of the statute, the relative receives "his chief support from the taxpayer," or, in the words of the regulation, the taxpayer "actually supports and maintains" the relative. In cases where several persons combine to contribute to the joint support of several dependents, it may be desirable to allocate their contributions to particular persons in the group of dependents to the extent of making the taxpayers clearly the main supporters of certain individuals. By so doing they provide a basis for exemption claims which otherwise could not be allowed.

Where, in a family group, one claims a total exemption of $2,000 by reason of being the head of the family, the income of minors who are dependent upon him should be included in his return, as the law to this extent contemplates the computation of the tax upon the family as a unit.

There seems to have been no basis in the statute or in common sense for a definition of a "head of a family" such as that which was in force for part of 1918 under T.D. 2692, which insisted that the head and the dependent must always live "in one household" and that in cases of temporary absence "the common home" be maintained. The present rule which imposes the test of the "common home," except in cases of necessary separation, would be very objectionable if the phrase "without necessity" were interpreted narrowly. In almost every city there are thousands of children who are the sole support of parents who live in their old homes. Such persons must not be denied the additional $1,000 exemption while others, also the support of their parents but who chance to work in the neighborhood of their homes, are permitted to

qualify as heads of families. Their residence in the city is necessary to the proper furtherance of their economic interests. As a matter of fact they usually have higher living expenses, for they are forced to maintain two establishments in order properly to perform their duty as the heads of their families.

If in one household there are more than one who are the main support of different dependents there is no good reason why there should not be more than one "head of a family" in the same household. In effect there would then be more than one household. Otherwise an undue penalty would be imposed upon those who otherwise would clearly be entitled to be classed as heads of families.

If the law must be interpreted so that no more than one additional credit of $1,000 can be claimed in one household, those who ordinarily would be classed as heads of families should be permitted to divide the additional allowance.

MINORS NOT EXEMPT.-A minor as such is not exempt. If he has a substantial income a separate return should be made for him and the $1,000 exemption should be claimed."

STATUS AT END OF YEAR DETERMINES EXEMPTION.-The status of the taxpayer on the last day of his taxable year (which in most cases is December 31) is the significant factor in establishing his right to the personal exemptions.

REGULATION. The status of the taxpayer on the last day of his taxable year determines his right to an additional exemption and to a credit for dependents. If then he is the head of a family, the personal exemption of $2,000 may be taken. If then he is the chief support of a dependent who is under eighteen years of age or incapable of self-support because mentally or physically defective, the credit of $200 may be taken. But an unmarried individual or a married individual not living with husband or wife, who during the taxable year has ceased to be the head of a family or to have dependents, is entitled only to the personal exemption of $1,000 allowed a single person. A husband and wife living together at the end of the taxable year may receive but one personal exemption of $2,000,

"See page 82.

divisible as they please, against their aggregate net income. If an individual dies during the taxable year, his executor or administrator in making a return for him is entitled to claim his full personal exemption according to his status at the time of his death. . . . .25 If a husband or wife so dies and the joint personal exemption is 'used by the executor or administrator in making a return for the decedent, an undiminished personal exemption according to the status of the survivor at the end of the taxable year may be claimed in the survivor's return. If a taxpayer makes a return for a period other than a taxable year, the last day of such period shall be treated as the last day of the taxable year for the purpose of this article. . . . . (Art. 305.)26

WHAT CONSTITUTES "LIVING WITH HUSBAND OR WIFE"?—

REGULATION. In the case of a married man or married woman the joint exemption replaces the individual exemption only if the man lives with his wife or the woman lives with her husband. In the absence of continuous actual residence together, whether or not a man or woman has a wife or husband living with him or her within the meaning of the statute must depend on the character of the separation. If merely occasionally and temporarily a wife is away on a visit or a husband is away on business, the joint home being maintained, the additional exemption applies. The unavoidable absence of a wife or husband at a sanatorium or asylum on account of illness does not preclude claiming the exemption. If, however, the husband voluntarily and continuously makes his home at one place and the wife hers at another, they are not living together for the purpose of the statute, irrespective of their personal relations. A resident alien with a wife residing abroad is not entitled to the joint exemption. (Art. 303.) 27

PERSONAL EXEMPTION VALID FOR NORMAL TAX ONLY.In computing the surtax, the personal exemption may not be deducted from the net income.28 Therefore, if a head of a family has more than fifteen dependents, or if all of a tax

25See Chapter XXXIV.

24See pages 70-74.

[Former Procedure] The status at the end of the year has always been the determining factor except for a period of a few weeks at the beginning of the 1919 assessment period. When form 1040A was issued shortly after the passage of the 1918 law, it bore instructions that personal exemptions should be calculated by months. This method proved to be so confusing that it was almost immediately abandoned, the rescinding order being issued March 11, 1919.

"See Chapter XXXIII.

28 See section 216.