regulations as the Commissioner with the approval of the Secretary may prescribe, a return made by one of two or more joint fiduciaries and filed in the office of the collector of the district where such fiduciary resides shall be a sufficient compliance with the above requirement. The fiduciary shall make oath that he has sufficient knowledge of the affairs of such individual, estate or trust to enable him to make the return, and that the same is, to the best of his knowledge and belief, true and correct.

Fiduciaries required to make returns under this Act shall be subject to all the provisions of this Act which apply to individuals.

An administrator or executor may, immediately after his discharge upon final accounting, file with the proper collector of internal revenue a return covering the income and deductions of the estate for the period from the end of the last taxable year to the date of his discharge. To such a return there should be attached a certificate, under seal, setting forth the fact of the final accounting and discharge of the administrator or executor. The tax assessed against that return may be paid immediately after receipt from the collector of a notice of the amount assessed and a demand therefor.16 It should be understood, however, that if, upon an audit of that return, a further assessment of tax is made, the administrator or executor will be held liable for its proper payment.1

FIDUCIARY DEFINED.—

17

REGULATION. "Fiduciary" is a term which applies to all persons that occupy positions of peculiar confidence toward others, such as trustees, executors and admi..istrators, and a fiduciary for income tax purposes is a person who holds in trust an estate to which another has the beneficial title or in which another has a beneficial interest, or receives and controls income of another as in the case of receivers. A committee of the property of an incompetent person is a fiduciary. .. (Art. 1521.)

It should also be noted that a fiduciary must make returns not only for the estate for which he acts, but also a personal

This exception, granting permission to report before the expiration of the taxable year, is made "as a matter of convenience to those concerned. by reason of the fact that the period to be covered by the return has completely elapsed." (Reg. 33, 1918, Art. 26.)

17

"See Chapter XXXIV.

return for the deceased in accordance with the following regulation.

REGULATION. As soon as possible after his appointment and qualification, without waiting for the close of the taxable year, an executor or administrator shall file a return of income for the decedent. Upon the completion of the administration of an estate and final accounting an executor or administrator shall file a return of income of the estate for the portion of the taxable year in which the administration was closed, attaching to the return a certified copy of the order for his discharge. An ancillary administrator need make no separate return if the domiciliary administrator includes in his return the entire income of the estate. Similarly, upon the termination of any other trust the trustee shall make a return without waiting for the close of the taxable year. In any such case the requirements with respect to the payment of the tax are the same as if the return were for a full taxable year closing at the end of the month during which the decedent dies or the estate is settled or the trust is terminated, as the case may be. The payment of the tax before the end of the taxable year in such circumstances does not relieve the taxpayer from liability for any additional tax which might subsequently be imposed upon income of the taxable year. (Art. 442.)

FORMS TO BE USED BY FIDUCIARIES.

REGULATION. Every fiduciary, or at least one of joint fiduciaries, must make a return of income (a) for the individual whose income is in his charge, if the net income of such individual is $2,000 or over if married and living with husband or wife or is $1,000 or over in other cases, or (b) for the estate or trust for which he acts, 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. The return in case (a) and also in case (b) if the tax is payable by the fiduciary shall be on form 1040 (revised), except that it may be on short form 1040 A (revised) where the net income does not exceed $5,000. The return shall be on form 1041 (revised) in case (b) if the tax is payable by the beneficiaries. . . . . (Art. 421.)

RESPONSIBILITY OF FIDUCIARY.-A fiduciary cannot be held personally responsible for erroneous or fraudulent returns by the decedent, but any additional tax arising from such returns would be a charge against the estate. It might properly be held that a fiduciary should not make a final distribution until all past returns had been audited.

RULING. Is any other than a return of income required of a fiduciary?

Yes. Fiduciaries come within the provisions of section 256, of the revenue act of 1918, and will be required to render to the Commissioner of Internal Revenue a return of information, if, during the taxable year, any income has been paid to an individual, partnership, corporation, joint-stock company, etc., equal to, or in excess of $1,000. (Income Tax Primer, 1919, question 106.)

RETURNS WHERE TWO TRUSTS.

REGULATION. In the case of two or more trusts the income of which is taxable to the beneficiaries, which were created by the same person and are in charge of the same trustee, the trustee shall make a single return on form 1041 (revised) for all such trusts, notwithstanding that they may arise from different instruments. When, however, a trustee holds trusts created by different persons for the benefit of the same beneficiary, he shall make a return on form 1041 (revised) for each trust separately. (Art. 423.)

RETURNS BY COMMITTEE FOR AN INCOMPETENT.—

REGULATION. . . . . A fiduciary acting as the committee of an insane person having an income of $1,000 or $2,000, according to the marital status of such person, must make a return for such incompetent on form 1040 (revised) or 1040 A (revised) and pay the tax. (Art. 422.)

Annual Returns by Partnerships and Personal

Service Corporations

Partnerships, it will be recalled, pay no taxes as entities, but the partners are individually taxable on their distributive shares. Nevertheless, every partnership must, under the 1918 law,18 file an annual return giving the data necessary for the determination of the distributive shares. Personal service corporations, as has been pointed out, are identified with partner

18 [Former Procedure] Before 1918 partnerships were required to file returns only upon special request of the Commissioner or collector. (Reg. 33, 1918, Art. 30.) Such requests were made in 1914, but none subsequently except that under the 1917 law returns were required from all partnerships as a basis for the assessment of excess profits tax. (Section 211.)

ships and the individual stockholders with partners, but personal service corporations must make returns as corporations. in all other respects.'

19

There will be certain differences between the return of an ordinary corporation and that of a personal service corporation. The accrued net income of individual stockholders of the latter must be reported and there are other differences, but the law does not operate to change the corporate character of the company.

In states where an income tax is imposed on taxpayers who pay an income tax to the United States it would seem that personal service corporations would not be taxed. Of course the individual stockholders would be subject to the tax, but if there were any differential against corporations, as such, personal service corporations would escape.

In states, such as New York, where a tax is specifically imposed upon corporations, irrespective of the method of reporting to the United States, personal service corporations would be taxed.20

Partnership returns.—

LAW. Section 224. That every partnership shall make a return for each taxable year, stating specifically the items of its gross income and the deductions allowed by this title, and shall include in the return the names and addresses of the individuals who would be entitled to share in the net income if distributed and the amount of the distributive share of each individual. The return shall be sworn to by any one of the partners.

REGULATION. . . . The return of a partnership shall state specifically (a) the items of its gross income enumerated in section 213 of the statute; (b) the deductions enumerated in section 214, other than the deduction provided in paragraph (1) of subdivision (a) of that section; (c) the amounts specified in subdivisions (a) and (b) of section 216 received by the partnership; (d) the amount of any income, war profits and excess profits taxes of the partnership paid during the taxable year to a foreign country or to any possession of the United States, and the amount of any such taxes accrued

19Sections 218 (e), 239.

20 See Chapter XXXIX.

but not paid during the taxable year; (e) the names and addresses of the individuals who would be entitled to share in the net income of the partnership if distributed; (f) the amount of the distributive share of such net income of each such individual; and (g) such other facts as are required by form 1065 (revised).21 (Art. 412.)

...

DISTRIBUTIVE SHARES OF PARTNERS-TAXABILITY.— REGULATION. Partnerships as such are not subject to taxation under the statute, but are required to make returns of income. Individuals carrying on business in partnership are, however, taxable upon their distributive shares of the net income of such partnerships, whether distributed or not, and are required to include such distributive shares in their returns. The net income of a partnership shall be computed in the same manner and on the same basis as the net. income of an individual, except that the deduction of contributions or gifts is not permitted. . . . . (Art. 321.)

REGULATION. . . . . The distributive share of the net income of a partnership which a partner is required to include in his return is his proportionate share of the net income of the partnership, either (a) for the taxable year upon the basis of which the partner's net income is computed, or (b), if the partner's net income is computed upon the basis of a taxable year different from that upon the basis of which the net income of the partnership is computed, for, the taxable year of the partnership ending within the taxable year upon the basis of which the partner's net income is computed. Amounts earned and distributed to a partner by a partnership after the end of its taxable year and before the end of his corresponding taxable year should be accounted for both by the partnership and by the partner in their returns for their next succeeding taxable years. (Art. 322.)

Changes in partnership during taxable year.-There are many changes in partnership relations which do not involve dissolution of an existing partnership. When changes occur during a fiscal year, because of the death or withdrawal of a partner or the admission of a new partner, and when the partnership continues except as to the changes mentioned, no good purpose would seem to be served by making returns until the end of the taxable year.

REGULATION.

Whenever a new partner is admitted to a partnership, or any existing partnership is reorganized, the facts as

"See page 76.