Return may be filed by agent-when.

LAW. Section 223. .. If the taxpayer is unable to make his own return, the return shall be made by a duly authorized agent or by the guardian or other person charged with the care of the person or property of such taxpayer.

In the case of a personal return, "the affidavit must be executed by the person whose income is reported unless he is a minor or incompetent or unless he is ill, absent from the country or otherwise incapacitated, in which case the legal representative or agent may execute the affidavit."

REGULATION. There may be a fiduciary relationship between an agent and a principal, but the word "agent" does not denote a fiduciary. A fiduciary relationship can not be created by a power of attorney. An agent having entire charge of property, with authority to effect and execute leases with tenants entirely on his own responsibility and without consulting his principal, merely turning over the net profits from the property periodically to his principal by virtue. of authority conferred upon him by a power of attorney, is not a fiduciary within the meaning of the statute. In cases where no legal trust has been created in the estate controlled by the agent and attorney the liability to make a return rests with the principal. 1522.)

(Art.

Fiduciaries use form 1041. An agent uses the form (usually form 1040) which his principal would file if able to do so in person. For copies of forms, see Appendix.

REGULATION. . . . The return may be made by an agent when by reason of illness, absence or nonresidence the person liable for the return is unable to make it, the agent assuming the responsibility for making the return and incurring liability to the specific penalties provided for erroneous, false or fraudulent returns. (Art. 402.)

Return must be under oath.-The law requires that "every person liable to any tax imposed by this act, or for the collection thereof, shall . . . . render, under oath, such statements

[Former Procedure] The earlier law stated that returns could be made by an agent "when by reason of illness, absence, or non-residence" the person was unable to make the return. [1917 law, section 8 (b).] *Form 1040A (1919), instructions.

and returns . . . . as the Commissioner, with the approval of the Secretary, may from time to time prescribe. The following regulation gives instructions for executing an affidavit:

REGULATION. . . . All income tax returns must be verified under oath or affirmation, before an officer duly authorized to administer oaths either by the laws of the United States or by the laws of the state or territory where such officer resides. Persons in the naval or military service of the United States may verify their returns before any official authorized to administer oaths for the purposes of those services. Income tax returns executed abroad may be attested free of charge before United States consular officers. Where a foreign notary or other official having no seal shall act as attesting officer, the authority of such attesting officer should be certified to by some judicial official or other proper officer having knowledge of the appointment and official character of the attesting officer. (Art. 406, as amended by T. D. 2951, November 19, 1919.)

Separate returns of husband and wife-when desirable.

LAW. Section 223. . . . . If a husband and wife living together have an aggregate net income of $2,000 or over, each shall make such a return unless the income of each is included in a single joint return.10

In practically every case where a husband and a wife have a substantial income separate returns should be filed in order that the surtax be applied separately. It is not necessary to file separate returns to secure the benefit of the calculation if the taxpayer is careful to segregate the income and deductions of each. Usually, however, it is far better to file separate returns.11

In case husband and wife each received an independent net income equal to or in excess of $1,000, separate returns may be made but a joint return will ordinarily serve unless the combined net income exceeded $5,000. Below that figure

'Section 1305. For verification of corporations returns, see page 93. 10 This section of the law is new.

"[Former Procedure] The Treasury officers have not always assessed the surtax separately, but have in some cases levied and collected an excessive tax which would not have been imposed if separate returns had been made.

the taxes would, with one exception, be the same even though the incomes were merged-4 per cent on the amount by which the total net income exceeded the "credits," whether individual or joint returns were filed.

The exception when a combined return is desirable even though the incomes are substantial arises in case the husband or wife has allowable charitable contributions in excess of the 15 per cent limitation, full credit for which would be lost if separate returns were made. When the net income shown in a single return exceeds $5,000, the surtaxes begin to apply. By rendering separate returns the application of the surtaxes is forestalled to the extent of an additional $5,000.

In addition to the surtaxes which begin to apply when a net income reaches $5,000, there is also the 8 per cent normal rate which applies in place of the 4 per cent rate when the excess of net income over credits (personal exemptions, dividends, etc., see page 28) is greater than $4,000.

In the case of a married man (citizen or resident of the United States) having a net income of $40,000 (none from dividends) the tax would be arrived at as follows:

He receives an exemption of $2,000, pays normal tax of 4 per cent on the next $4,000, and 8 per cent on $34,000. Surtax begins at $5,000 and is I per cent on the first $1,000 in excess of that amount and I per cent additional on each $2,000 above $6,000 until it reaches 18 per cent on the last $2,000 of the $40,000. The normal tax is $2,880 and the surtax $3,410, a total of $6,290.

If husband and wife each have income of $20,000, each will presumably take $1,000 exemption. The normal tax is then 4 per cent on the next $4,000 and 8 per cent on $15,000. Surtax begins as before at $5,000 and runs to 8 per cent on the $2,000 between $18,000 and $20,000. The tax for each is normal $1,360, surtax $710; total $2,070. The combined tax is $4,140, a saving of $2,150 by making separate

returns.

Returns by minors.—

REGULATION. An individual under 21 years of age or under the statutory age of majority where he lives, whatever it may be, is required to render a return of income if he has a net income of his own of $1,000 or over for the taxable year.12 If he is married see article 401.13 If the aggregate of the net income of a minor from any property which he possesses, and from any funds held in trust for him by a trustee or guardian, and from any earnings for his own use, is at least $1,000, a return as in the case of any other individual must be made by him or by his guardian or some other person charged with the care of his person or property for him.14 . . . . If, however, a minor is dependent upon his parent, who appropriates or may appropriate his earnings, such earnings are income of the parent and not of the minor for the purpose of the normal tax and surtax. In the absence of proof to the contrary a parent will be assumed not to have emancipated his minor child and must include in his return any earnings of the minor. (Art. 403.)

The latter part of the article which holds that a parent will be assumed not to have emancipated his minor child is reasonable, otherwise minor children with taxable incomes might erroneously assume that they were not individually responsible for making returns and the parent in turn might assume that as the minor had a taxable income, the latter was responsible for the making of return.

The regulations seem to attach significance to the word "earnings" as distinguished from "income." The theory no doubt is that a minor is not supposed to hold title to property, and income arising from property belonging to a minor will be paid to a guardian or trustee. On the other hand, earnings arising from services rendered would appear to be received constructively by a parent, but only if "a minor is dependent upon his parent." Usually, however, the minor who is earning money helps to support the parent; thus the regulation does not cover all cases. When a minor owns property

[Former Procedure] Under the 1916 and 1917 laws, the returns of minors were filed by their guardians. (Reg. 33, 1918, Art 27.) The words "of lawful age" are omitted from section 223 of the 1918 law, requiring returns of "every individual," etc.

13See page 77.

"See page 84.

but does not have a legal guardian, or income from some other source, there seems to be no obligation to report his income unless it reaches $1,000. There is no good reason why a parent subject to a surtax rate of more than 50 per cent, who is a natural guardian of a minor having, say, $900 annual income from his separate property, should pay $450 or more income tax on the minor's income. Otherwise the parent could better afford to give the minor property yielding $101 per annum and see to it that the minor filed a separate return showing a trifling tax.

Returns by soldiers and sailors. All persons in the military or naval service of the United States who are unable to file returns within the statutory time limit may obtain an extension of time, or returns may be made for them by agents. They may file their returns in "the district in which they have a legal residence, or with the collector of internal revenue at Baltimore, Maryand."15

REGULATION.

....

persons in the military or naval service of the United States, may file their returns of income with the collector at Baltimore. (Art. 448.)

Returns by fiduciaries.-The duties of fiduciaries are fully explained in Chapter XXXIV. The law specifically classes fiduciaries as individuals in so far as returns are concerned. Annual returns must be filed in accordance with the following provisions of the law:

LAW. Section 225. That every fiduciary (except receivers appointed by authority of law in possession of part only of the property of an individual) shall make under oath a return for the individual, estate or trust for which he acts (1) if the net income of such individual is $1,000 or over if single or if married and not living with husband or wife, or $2,000 or over if married and living with husband or wife, or (2) if the net income of such estate or trust is $1,000 or over or if any beneficiary of such estate or trust is a nonresident alien, stating specifically the items of the gross income and the deductions and credits allowed by this title. Under such

For verification of such returns, see page 80.