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certain conditions are corporations permitted to arrive at the fair value of the capital stock of the respective companies through a consolidated report, that is, where the fair value cannot be determined independently.

In interpreting the letter above mentioned, distinction must be drawn between the word "return” and the word “report.” Under all circumstances individual returns are required of every corporation regardless of the basis used in arriving at the fair value. (Letter to The Corporation Trust Company, signed by Deputy Commissioner J. Hagerman, and dated November 11, 1919.)

When return must be filed before information is available.-

RUI ING. Answering your letter of July 3, 1919, in which you nake inquiry as follows:

"What is the best procedure for reporting net income under exhibit C of capital stock tax returns, form 707, in the case of corporations whose fiscal year ends June 30, and who have not filed return for Federal income tax purposes before the time for

filing capital stock tax returns has expired ?". you are advised paragraph 3, special instructions 1, page 4, form 707, states:

.... and the taxpayer will complete each exhibit or state why the required data are not available.”

The law provides that capital stock tax returns shall be filed during the month of July for the taxable period beginning July 1 and that the collector is empowered to grant an extension of thirty days beyond the due date of filing only in case of sickness or absence of the officer charged with the preparation of the return. You will therefore note there is no authority under the law for granting an extension for any reason beyond thirty days from July 31, 1919.

Capital stock tax returns should therefore be completed so far as practicable and filed with the collectors within the prescribed time with the statement that unavailable data will be furnished in a supplemental report at the earliest possible date.

In the case of any failure to make and file a return within the prescribed time a penalty of 25 per centum of the amount of the tax attaches, except that when the failure to file was due to a reasonable cause and not to willful neglect no such addition shall be made to the tax.

The above procedure will avoid any assertion of the penalty or question as to what constitutes a reasonable cause. (Letter to The Corporation Trust Company, signed by Deputy Commissioner J. Hagerman, and dated July 11, 1919.)

The law should be amended to provide ample time within which to file accurate returns.

Additional returns for taxable year ended June 30, 1919, when required on account of retroactive features of law.

REGULATION. Under the Revenue Act of 1916 the time for filing capital stock tax returns for the fiscal year ending June 30, 1919, was extended to September 30, 1918, and in the case of Hawaii to October 31, 1918. Any corporation which failed to file a return for such fiscal year for the former tax, whether or not it was liable thereto, must file a return for such fiscal year under the present statute before June 1, 1919. .... Where returns were filed for the fiscal year ending June 30, 1919, such returns will be used so far as practicable in making the additional or original assessments for such taxable period. In the case of domestic and foreign mutual insurance companies, the new basis for the tax will necessitate supplemental statements, which should be furnished upon request. For the taxable period July 1, 1918, to June 30, 1919, letters will be forwarded to taxpayers showing how the original or additional assessment has been determined, in order that the collector's bill when presented may be understood and payment promptly made. .... (Reg. 50, Art. 105.)

As previously stated the provisions of the 1918 law were made retroactive to July 1, 1918. Formerly some corporations were not required to file returns but due to the small exemption provided by the 1918 law the Treasury decided to require returns from all corporations beginning with returns for the taxable year July 1, 1918, to June 30, 1919. Returns made necessary by the new regulations of the Treasury were due before June 1, 1919. So far as practicable the tax at the increased rate after giving effect to the reduced exemption for the year ended June 30, 1919, was computed by the Treasury from information contained in the returns previously filed.

Payments
Time of payment of tax.-

REGULATION. All assessments shall be made by the Commissioner. The collector shall within ten days after receiving any list of taxes from the Commissioner give notice to each corporation liable to pay any tax stated therein, to be left at its place of business or to be sent by mail, stating the amount of such tax and demanding payment thereof. If such corporation does not pay the tax within ten days after the service or the sending by mail of such

notice, it shall be the duty of the collector to collect the tax with a penalty of 5 per cent add tional upon the amount of the tax and interest at the rate of i per cent a month. A collector has no authority to extend the time for payment of the tax, and any extension granted by him would be at his own risk. The collector may accept payment of the tax when the return is filed as an “advance collection," sụbject to any adjustment later found necessary, but no corporation is required to pay the tax until after notice and demand. (Reg. 50, Art. 111.)

Tax paid under former law, credit for.

REGULATION. Where a corporation has paid the tax for the fiscal year July 1, 1918, to June 30, 1919, under the Revenue Act of 1916, the amount so paid may be credited against the tax imposed by the present statute for such period and only the excess of the tax over such amount will be collected. For the rates of the former tax and its other provisions see Reg. 38 (revised). Because of the reduction of the exemption from $99,000 to $5,000 in the case of domestic corporations and of the abolition of any exemption in the case of foreign corporations, many corporations must now pay the tax which were formerly exempt. .... (Reg. 50, Art. 81.)

Penalties
Failure to pay.-

REGULATION. (a) Any corporation which fails to pay the tax when due and payable is liable to a penalty of $1,000. If it willfully refuses to pay or willfully attempts to evade the tax, it is also liable to a fine of $10,000 and costs and to a 100 per cent penalty to be added to the tax. See also article 91. (b) Any officer or employee of a corporation who in the course of his duty fails to pay the tax when due and payable is liable to a penalty of $1,000. If he willfully refuses to pay or willfully attempts to evade the tax, he is also liable to a fine of $10,000 and costs and to imprisonment for a year, and to a penalty of the amount of the tax unpaid or evaded. (Reg. 50, Art. 121.)

Failure to make return and for false return.

REGULATION. (a) Any corporation which fails to make a return at the required time is liable to a penalty of $1,000. If it willfully refuses to make a return it is also liable to a fine of $10,000 and costs. (b) Any officer or employee of a corporation who in the course of his duty fails to make a return at the required time is liable to a penalty of $1,000. If he willfully refuses to make a return he is also liable to a fine of $10,000 and costs and to imprisonment for a year. (c) Section 3176 of the Revised Statutes, as amended by section 1317 of the Revenue Act of 1918, also provides:

“In case of any failure to make and file a return or list within the time prescribed by law, or prescribed by the Commissioner of Internal Revenue or the collector in pursuance of law, the Commissioner of Internal Revenue shall add to the tax 25 per centum of its amount, except that when a return is filed after such time and it is shown that the failure to file it was due to a reasonable cause and not to willful neglect, no such addition shall be made to the tax. In case a false or fraudulent return or list is willfully made, the Commissioner of Internal Revenue shall add to the tax 50 per centum of its amount."

The amount so added to any tax shall be collected at the same time and in the same manner and as part of the tax unless the tax has been paid before the discovery of the neglect, falsity, or fraud, in which case the amount so added shall be collected in the same manner as the tax. (Reg. 50, Art. 122.)

Doing business without payment of tax.

REGULATION. Every corporation which does business without having paid the tax is liable to a penalty of $1,000. A corporation paying the capital stock tax is not on that account exempt from any occupational tax. For other penalties see articles 121 and 122. (Reg. 50, Art. 91.)

Foreign Corporations Law. Section 1000. (a) .... (2) Every foreign corporation shall pay annually a special excise tax with respect to carrying on or doing business in the United States, equivalent to $1 for each $1,000 of the average amount of capital employed in the transaction of its business in the United States during the preceding year ending June thirtieth.

Scope of tax.

REGULATION. The tax is payable by every foreign corporation engaged in business in the United States. The term “foreign” means created or organized outside the United States. In general, the same kinds of companies and associations are included as in the case of domestic corporations. . . . . A foreign corporation is engaged in business in the United States if it maintains agents or an office or warehouse here, or in the case of an insurance company writes insurance policies here, or in any other way enters the United States for the purpose of its business. (Reg. 50, Art. 31.)

FOREIGN MUTUAL INSURANCE COMPANY.

LAW. Section 1000. (c).... Provided, That in the case of a foreign mutual insurance company the tax shall be equivalent to $1 for each $1,000 of the same proportion of the sum of such surplus and reserves, which the reserve fund upon business transacted within the United States is of the total reserve upon all business transacted, as of the close of the preceding accounting period used by such company for purposes of making its income tax return.23

Rate of tax.

REGULATION. The tax is at the rate of $1 for each full $1,000 of the capital of a foreign corporation actually employed24 in the transaction of its business in the United States, and is in all cases to be computed on the basis of the average amount of capital so employed during the preceding year ending June 30. The basis of the tax is accordingly different from that in the case of domestic corporations, which pay a tax measured by the fair average value of their capital stock. No deduction from the total fair average value is allowed in computing the tax. (Reg. 50, Art. 32.)

Capital “employed” in the United States.

REGULATIONS. The "capital employed in the transaction of its business in the United States” means that portion of the total capital, surplus and undivided profits of the foreign corporation utilized for the purpose of doing business in the United States. A foreign corporation may have income from sources within the United States for the purpose of the income tax and yet not have capital employed in the transaction of business here for the purpose of the capital stock tax. Compare articles 91-93 and 550 of Regulations 45. A foreign corporation actually itself not doing business in the United States is not subject to the tax, and accordingly the investment of a part of its funds in United States stocks and securities would not constitute capital employed in its business in the United States. See articles 17-21 as to doing business. But if a corporation does business here, then, although the mere investment of funds in United States securities is not as such a taxable employment of capital, such investment will constitute capital employed in the transaction of business in the United States if made in a subsidiary corporation which the foreign corporation uses as an instrumentality for the successful conduct of its own business here. Thus funds of a foreign corporation invested in the purchase of facilities, though apparently independent, for the purpose of its business here, or the

23See Reg. 50, Art. 63, page 901.
**The word "invested" was used in the 1916 law.

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