Place for filing returns.-In the case of individuals the law prescribes that:

LAW. Section 227.

(b) Returns shall be made to the collector for the district in which is located the legal residence or principal place of business of the person making the return, or, if he has no legal residence or principal place of business in the United States, then to the collector at Baltimore, Maryland.

An individual whose legal residence and principal place of business are not in the same district plainly has the option as to the place in which he will file his annual return, but "for administrative reasons the Commissioner of Internal Revenue desires that it be filed with the collector of the district" in which one's "legal residence is located."16

In the case of corporations returns must be filed in the district in which is located the principal place of business of the corporation.

LAW. Section 241.

(b) Returns shall be made to the collector of the district in which is located the principal place of business or principal office or agency of the corporation, or, if it has no principal place of business. or principal office or agency in the United States, then to the collector at Baltimore, Maryland.

RETURNS FILED BY MAIL.-Returns may be either delivered by hand or mailed.

REGULATION. .. If placed in the mails the return should be posted in ample time to reach the collector's office, under ordinary handling of the mails, on or before the date on which the return is required to be filed. If a return is made and placed in the mails in due course, properly addressed and postage paid, in ample time to reach the office of the collector on or before the last due date, no penalty will attach should the return not be actually received by such officer until subsequently to that date. Where a question may be raised as to whether or not the return was posted in ample time to reach the collector's office on or before the due date, the envelope in which the return was transmitted will be preserved by the collector and forwarded to the Commissioner with the return. (Art.

Income Tax Primer, 1918, question 2.

Period for which returns are made.

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"TAXABLE YEAR" AND "FISCAL YEAR" DEFINED.-Returns of net income are ordinarily made for the "taxable year. Only in unusual circumstances are returns made for a shorter period, such as in the cases of corporations entering or going out of business, persons changing fiscal years and administrators who have made final accountings of estates. The terms "taxable year" and "fiscal year" are defined in the law as follows:

LAW. Section 200. The term "taxable year" means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the net income is computed under section 212 or section 232. The term "fiscal year" means an accounting period of twelve months ending on the last day of any month other than December. The first taxable year, to be called the taxable year 1918, shall be the calendar year 1918 or any fiscal year ending during the calendar year 1918;

FISCAL YEAR BASIS NOW AVAILABLE TO ALL TAXPAYERS.— By 191718 corporations and partnerships had acquired the privilege of reporting on the basis of a fiscal rather than the calendar year. The 1918 law at last extended the privilege to individuals. The law reads:

LAW. Section 212. . . (b) The net income shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be) 19 . . . . If the taxpayer's annual accounting period is other than a fiscal year as defined in section 200 or if the taxpayer has no annual accounting period or does not keep books, the net income shall be computed on the basis of the calendar year.

If a taxpayer changes his accounting period from fiscal year to calendar year, from calendar year to fiscal year, or from one fiscal year to another, the net income shall, with the approval of the Commissioner, be computed on the basis of such new accounting period, subject to the provisions of section 226.20

"Returns may not be made for a period exceeding twelve months. (See page 74.)

[Former Procedure] The 1917 law, section 8 (e) extended to partnerships the fiscal year privilege given in the 1913 and 1916 laws to corporations.

See section 218.

20 See page 73.

FISCAL YEAR REQUIRED IF ACCOUNTS ARE KEPT ON THAT BASIS. A taxpayer having an existing accounting period. which is a fiscal year within the meaning of the statute is required to make his return on the basis of such a taxable year regardless of the former basis of rendering returns.2

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22

Recognition of accounting periods as taxable years.-A sharp distinction must be drawn between the procedure which applies in cases of a fiscal year already established and cases in which it is desired to change one's accounting period and to have the newly established year accepted as the taxable year.2 The passage of the 1918 law made it obligatory for all taxpayers, both individuals and corporations, to report on the basis of their accounting periods, whether they ended on December 31 or on the last day of any other month of the year. Consequently the question arose as to what formality was required to effect the transition in the cases of those taxpayers who had been keeping their books on one basis and preparing their tax returns on another. The procedure in such cases is discussed in the following paragraph. The case of taxpayers who desire both to establish a new accounting year and to have it recognized for tax purposes is treated on page 73.

RECOGNITION OF EXISTING FISCAL YEAR AS "TAXABLE" YEAR. The law provides no formality such as a notice to the collector23 as a condition to the recognition of a fiscal year already established in the taxpayer's accounts. When any change is made in the taxable year, section 212 (b), quoted on

"Art. 25. See next page.

Including cases in which taxpayers making their first returns do so on the basis of fiscal years.

[Former Procedure] Under the 1916 law, section 13, (a) notice was required of the day designated as the closing date of the fiscal year "not less than thirty days prior to the first day of March of the year in which its return would be filed if made on the basis of the calendar year." In the case of a change from a fiscal year to a calendar year, a thirty-day notice was required "prior to March 1 next following the closing date of the established fiscal year." (Reg. 33, 1918, Art. 217.) the absence of notice fiscal year returns were not acceptable. (Ibid., Art. 203.)

In

page 70, provides that the net income shall "with the approval of the Commissioner" be computed on the basis of such new accounting period. But the Commissioner has ruled that his permission need not be specifically sought when the question is merely one of recognition of an existing status. As will be seen from the following regulation the fiscal year in such cases becomes established as the taxable year by the mere act of the taxpayer in reporting on that basis. of particular significance to individuals who prior to the passage of the 1918 law kept their accounts on a fiscal year basis.

This point is

REGULATION. The return of a taxpayer is made and his income computed for his taxable year, which means his fiscal year, or the calendar year if he has not established a fiscal year. The term "fiscal year" means an accounting period of twelve months ending on the last day of any month other than December. No fiscal year will, however, be recognized unless before its close it was definitely established as an accounting period by the taxpayer and the books of such taxpayer were kept in accordance therewith. The taxable year 1918 is the calendar year 1918 or any fiscal year ending during the calendar year 1918. . . . . A taxpayer having an existing accounting period which is a fiscal year within the meaning of the statute not only needs no permission to make his return on the basis of such a taxable year, but is required to do so, regardless of the former basis. of rendering returns. A person having no such fiscal year must make return on the basis of the calendar year. The first return under the present statute of a taxpayer who has heretofore made return on a basis different from his accounting period will necessarily overlap his next previous return. . . . . Section 226 has no application to this situation. Except in the cases of a return for the taxable year 1918 and of a first return for income tax a taxpayer shall make his return on the basis (fiscal or calendar year) upon which he made his return for the taxable year immediately preceding unless, with the approval of the Commissioner, he has changed the basis of computing his net income. (Art. 25.)

Taxpayers who kept books on a fiscal year basis during 1918 but reported on the calendar year basis, because the 1918 law was not passed in time to permit an adjustment, should have changed in 1919 by reporting for the fraction of the year from January 1, 1919, to the end of the fiscal

year. If this was not done at the time, it is probable that taxpayers should report for the calendar year 1919 in order to escape a charge of delinquency in filing returns within the proper time after the end of their fiscal year. Of course all taxpayers have been on notice since February, 1919, that section 212 (b) reads: . . The net income shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year as the case may be) The Commissioner is not given any discretion as

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to requiring returns on the basis stated. If any taxpayer has been reporting on a calendar year basis when his or its books have been kept on a fiscal year basis, there has been a technical but clear violation of the law which should be adjusted as speedily as possible.

RECOGNITION OF A CHANGED ACCOUNTING PERIOD AS A TAXABLE YEAR.—Whereas in the case described in the preceding paragraph the Commissioner waives his privilege of requiring that his permission be formally sought, nevertheless, when taxpayers desire to change from one accounting period already established and recognized for tax purposes to some other period, he insists that they give a thirty-day written notice and reasons for the contemplated change. It is quite proper that changes of this character should be made subject to the approval of the Commissioner, for the taxpayer should not be free to change frequently and arbitrarily from one fiscal year to another.

Return when accounting period is changed.— LAW. Section 226. That if a taxpayer, with the approval of the Commissioner, changes the basis of computing net income from fiscal year to calendar year a separate return shall be made for the period between the close of the last fiscal year for which return was made and the following December thirty-first. If the change is from calendar year to fiscal year, a separate return shall be made for the period between the close of the last calendar year for which return was made and the date designated as the close of the fiscal year. If the change is from one fiscal year to another fiscal year a separate return shall be made for the period between the close of the former