ket value at March 1, 1913, was $5,000; fair market value January 1, 1919, was $10,000. Under the federal law there is no tax. REGULATION. . . . . Gifts, whether charitable contributions or otherwise, constitute a disposition of property which may result in a profit or loss to be measured by the difference between the cost (or the value on January 1, 1919, if acquired prior thereto) and the value at the date of the gift." (Art. 91.) Under the foregoing it would seem that there should be returned for taxation $5,000, that being the difference between value at January 1, 1919, and the value at the date of the gift. The state law, however, taxes only "gains, profits and income," and in the opinion of the author no taxable income arises from a gift and no tax can be imposed unless and until the law is amended to require the inventorying of appreciation in values. (For discussion of appreciation of property values, see page 334.) · The fair market value of this stock on January 1, 1919, was $3,500. The gain to be reported to the state is therefore... Income from rents... *The obligor will pay $2 tax on account of this item of interest which is a credit against the individual's federal taxes. The state of New York does not require withholding at the source, therefore no credit can be taken in the New York return. The federal government requires that the $2 be reported as additional income, and the state of New York makes the same requirement. (Art. 21.) For discussion of this subject, see page 413. H thereof, or the District of Columbia, while the state act exempts only interest on the obligations of the state of New York and the municipal corporations or political subdivisions thereof." (A. B. C., question 40.) There would not be reported, however, any "interest on investments upon which the investment tax has been paid since June 1, 1917, under section 331 of the tax law, for the years for which such tax shall have been paid." (A. B. C., question 39.) Interest on mortgage note and bank Taxable interest on obligations of United States issued after September 1, 1917 RULING. "The federal act exempts [interest on] the obligations of the United States or its possessions and bonds issued by the War Finance Corporation, but provides in relation to obligations of the United States issued after September 1, 1917, and in relation to bonds issued by the War Finance Corporation, that the interest shall be exempt only if and to the extent provided in the respective acts authorizing the issue thereof, as amended and supplemented. The state law exempts entirely the interest from those securities. . . . ." (A. B. C., question 40.) Cash dividends received Dividends paid out of surplus accumulated prior to March 1, 1913, are not taxable by the federal government, but all dividends are taxable by the state of New York, except when paid out of capital, capital surplus or capital reserves. Dividends declared prior to January 1, 1919, are not taxable because deemed to be part of the capital of the taxpayer at that date. It may be assumed that all dividends received by taxpayers on January 1, or January 2, 1919, were made payable to stockholders of record prior to January 1, 1919, and therefore are not taxable. Dividends re ceived after January 2, 1919, may be taxable, depending on date of declaration. Under the federal law dividends are free from the normal tax, but no similar credit is granted by the New York law. Even though federal taxes have been paid by the corporations, thus reducing the amount payable in dividends, the amount paid in taxes should not be reported as additional income. REGULATION. ... Dividends are income for the year in which payable, regardless of when the earnings or profits out of which they were paid were accumulated, except that dividends declared payable to stockholders of record prior to January 1, 1919, are to be excluded from gross income even if received on or after January 1, 1919. Although interest on United States bonds and certain other obligations is not taxable when received by a corporation, upon amalgamation with other funds of the corporation such income loses its identity, and when distributed to stockholders in dividends is taxable to the same extent as other dividends." (Art. 61.) Stock dividends REGULATION. A dividend paid in stock of the corporation is income to the amount of the fair market value of the stock received as a dividend. (Art. 63.) See Chapter XXI, "Stock Dividends." Total income from above sources. General deductions not included above Interest paid or accrued The New York law in reference to interest deductions allowed residents is not clear. The section provides: LAW. Section 360. “. . . . 2. In the case of a resident of the state such a proportion of the total interest paid or accrued during the taxable year on indebtedness, as the net income of the taxpayer taxable under this article bears to his total income from all sources; . . . The section is interpreted to mean that the deduction shall be based on the proportion that the taxable gross income bears to total gross income. REGULATION. "A resident is entitled to deduct from gross income that proportion of the total interest paid or accrued as the amount of his gross income, as defined in the Tax Law, Section 359, bears to his total gross income. His total gross income is his gross income, as defined by the Tax Law, Section 359, plus his income exempt from taxation. A taxpayer shall not be entitled to any deduction for interest paid or accrued unless his return discloses his total gross income, whether taxable or exempt." (Art. 136.) Interest paid on all personal 160.00 $410.00 REGULATION. . . . . The proper allowance for such depreciation of any property used in the trade or business is that amount which should be set aside for the taxable year in accordance with a consistent plan by which the aggregate of such amounts for the useful life of the property in the business will suffice, with a salvage value, at the end of such useful life to provide in place of the property its cost, or its value as of January 1, 1919, if acquired by the taxpayer before that date." (Art. 171.) |