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fiscal year and the date designated as the close of the new fiscal year. If a taxpayer making his first return for income tax keeps his accounts on the basis of a fiscal year he shall make a separate return for the period between the beginning of the calendar year in which such fiscal year ends and the end of such fiscal year.

In all of the above cases the net income shall be computed on the basis of such period for which separate return is made, and the tax shall be paid thereon at the rate for the calendar year in which such period is included; and the credits provided in subdivisions (c) and (d) of section 216 shall be reduced respectively to amounts which bear the same ratio to the full credits provided in such subdivisions as the number of months in such period bears to twelve months.

The credits which must be prorated [section 216 (c) and (d)] are the $1,000 or $2,000 exemptions and the $200 credits for dependents.

REGULATION. . . . . If a taxpayer changes his accounting period, and not merely his taxable year to conform with his existing accounting period, he shall as soon as possible give to the collector for transmission to the Commissioner written notice of such change and of his reasons therefor. The Commissioner will not approve a change of the basis of computing net income unless such notice is given at a time which is both (a) at least thirty days before the due date of the taxpayer's return on the basis of his existing taxable year and (b) at least thirty days before the due date of his return on the basis of the proposed taxable year. If the change in the basis of computing the net income of the taxpayer is approved by the Commissioner, the taxpayer shall thereafter make his returns upon the basis of the new accounting period in accordance with the requirements of section 226 of the statute and his net income shall be computed as therein provided. .... (Art. 26.)

RETURN MUST NOT COVER PERIOD EXCEEDING TWELVE MONTHS.—Throughout the law reference is made to a taxable year or to a calendar year and to parts of a taxable year, and it is stated that a fiscal year means an accounting period of twelve months.24 In no case is there a specific prohibition in the law against a return covering a period of more tiian twelve months; but the direction to file for a year or less would be held to be a prohibition. A regulation specifically prohibits the use of a period of more than twelve months,

**Section 200.

REGULATION. No return can be made for a period of more than twelve months. ... . (Art. 431.)

Blank forms for returns.25—Returns must be made in the form prescribed by the Commissioner, with the approval of the Secretary of the Treasury. Blank forms are to be had from collectors. They are mailed without special request to the taxpayers on the records, but failure to receive a form does not excuse the taxpayer from reporting in due season. If the form is not received in ample time to prepare and file it on or before the due date, usually March 15, application for a copy should be made to the office of the local collector of internal revenue or to any bank or post-office. Taxpayers should retain exact copies of returns as filed. The forms used in 1919 for individual returns included a “taxpayer's work sheet” as an integral part of the return which served as a duplicate and eliminated the necessity of securing an extra copy of the form. In the case of forms which do not include work sheets taxpayers should secure extra copies of the blanks and retain exact duplicates of all returns filed. When not obtainable from collectors application should be made direct to the Commissioner in Washington.

REGULATION. Copies of the prescribed return forms will so far as possible be furnished taxpayers by collectors. Failure on the part of any taxpayer to receive a blank form will not, however, excuse him from making a return. .... In lack of a prescribed form a statement made by a taxpayer disclosing his gross income and the deductions therefrom may be accepted as a tentative return, and if filed within the prescribed time a return so made will relieve the taxpayer from liability to penalties, provided that without unnecessary delay such a tentative return is replaced by a return made on the proper form. .... (Art. 407.)

FORMS FOR 1920.--Form 1040A will be used for filing individual income tax returns of $5,000 and less, and form 1040 for filing returns of income in excess of that aniount. Form 1041 will be used for filing returns of fiduciaries, 26

25See Appendix.. *See Chapter XXXIV for the use of other forms by fiduciaries.

form 1065 for partnerships and personal service corporations and form 1120 for corporations. For copies of forms, see Appendix.

It has been suggested to the Treasury that it would be a great improvement if returns such as those required from corporations were prepared on forms not over 872 x 11 inches in size, using as many sheets as necessary.

CHAPTER IV

RETURNS OF INDIVIDUALS, PARTNERSHIPS AND

CORPORATIONS

The preceding chapter explained the law and regulations as to who must make returns, the time for filing returns and other such requirements. The specific procedure to be followed by individuals, partnerships, personal service corporations and corporations now follows.

Annual Returns by Individuals LAW. Section 223. That every individual having a net income for the taxable year of $1,000 or over if single or if married and not living with husband or wife, or of $2,000 or over if married and living with husband or wife, shall make under oath a return stating specifically the items of his gross income and the deductions and credits allowed by this title. ....1

REGULATION. .... Whether or not an individual is the head of a family or has dependents is immaterial in determining his liability to render a return. If an individual is a married person living with husband or wife, no return need be made where their aggregate net income is less than $2,000; but a separate return must be made by each of them, regardless of the amount of the individual income of each, where their aggregate net income is $2,000 or over, unless they join in a single return. The husband shall include in his return the income derived from services rendered by the wife or from the sale of products of her labor if she does not file a separate return or join with him in a return setting forth her income separately. .... (Art. 401.)

It should be noted that the term "net income” is used, which means that dividends, exemptions for dependents and other “credits" may not be deducted from the amount which determines whether or not a return is to be made. Thus there are undoubtedly many individuals who are required

See pages 61, 62. *See page 25.

to make returns who, after they have applied all their "credits,''will have no tax to pay. On the other hand there are many other persons who have incomes, but not "net incomes” as defined in the law, far in excess of $1,000 or $2,000 and yet are required to file no return at all. Such are they who receive their incomes from interest on tax-exempt secur

ities.

It is apparent, also, that the only individual who can take advantage of the permission to refrain from reporting when his net income exceeds $1,000 but is less than $2,000, is one who is “married and living with husband or wife.” Heads of families who are unmarried must report when they have net incomes in excess of $1,000 even though, because of dependents, they may have "credits” enough to cancel all their income above that amount.

Certain taxpayers should file returns even though no taxable income be shown.

Ruling. Reference is made to your letter of March 10, 1919, in which you ask the following question: “An individual has had a loss determined in 1918 by the courts that will exceed all income. In view of the fact that the income is large, and my client has always filed a report, would it be wise to file a report this year and thus dispose of the matter rather than to omit such filing and eventually have the government take up the matter of the non-filing, etc.”

In reply you are advised that if this individual's net income for 1918 was less than the exemption to which he was entitled according to his marital status on December 31, 1918, he is not required to file an income tax return. However, as you state he has filed a return for all previous years it would be advisable for him either to fill out a return showing his total income and deductions, or notify the collector of the circumstances which precluded his rendering a return for 1918, in order that it may be determined whether the loss, which he has sustained, is deductible for income tax purposes. (From letter to A. J. Lindsay, N. Y., signed by J. H. Callan, Assistant to the Commissioner, and dated May 6, 1919.)

*Section 216.

'Except such information statements as the Commissioner may require as to tax-exempt securities,

Section 213 (b). 'See page 29.

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