iiSi^? GIFT OF THE INCOME TAX LAW ii SAVINGS UNION BANK AND TRUST COMPANY MARKET STREET AT GRANT AVENUE OTARRELL STREET AND SAVINGS UNION PLACE SAN FRANCISCO. CALIFORNIA Savings Union Bank and Trust Company Q Authorized by law to act as Executor, Administrator, Guardian, Trustee, Depositary under Order of G)urt, Assignee, Receiver, and prepared to undertake Trusts and Escrows of all kinds for Indi- viduals or Corporations. flFor information concerning the Income Tax and the preparation of statements, consult TRUST DEPARTMENT of SAVINGS UNION BANK AND TRUST COMPANY What can the Trust Company do for me ? fl If you are going away from home and wish your business to have attention during your absence, ^ If you wish to be relieved of the care of your property and the collection of your rents, or other income, ^ U you are concerned about having a guardian appointed for the estate of minor children or those incapable of attending to their own affairs, C[ If you are interested in knowing how you may most easily pro- vide for the distribution of your property, ^ If you wish to know the cost of probating your will and adminis- tering your estate, ^ If you wish financial service of any character. Send for a copy of TRUST COMPANY SERVICE The booklet that tells WHAT A TRUST COMPANY CAN DO FOR YOU AND YOUR PROPERTY? Savings Union Bank and Trust Company THE INCOME TAX LAW ^ CONTAINING I. A Digest of the Income Tax Law, by J. J. Scott, Collector of Internal Revenue . Page 3 II. Full Text of the Income Tax Law . . Page 9 III. Instructions of the United States Treasurer Regarding the Collection of the Income Tax (dated October 25, 1913) .... Page 29 IV. Additional Instructions with Reference to De- duction of Income Tax at the Source on Income of Individuals Other Than That Derived from Interest (dated October 31, 1913) Page 40 SAN FRANCISCO: The Recorder Printing and Publi&hing Company, 1913. 0lf FOREWORD. Public interest naturally centers in the Income Tax Law that is now in effect. To meet the demand for information on this subject the Savings Union Bank and Trust Company has issued this pamphlet, which contains a digest of the law by J. J. Scott, Collector of Internal Revenue, the full text of that portion of the new tariff law providing for a tax on incomes, and the instruc- tions issued by the Treasurer of the United States regarding the collection of the income tax, with reference particularly to the deduction of the income tax, at the source, on interest maturing on bonds issued October 25, 1913; and additional instructions issued October 31, 1913, with reference to deduction of income tax at the source on income of individuals other than that derived from interest. This is the most complete compilation of information con- cerning the Income Tax Law that has yet been made, and is authentic and official. A DIGEST OF THE INCOME TAX LAW By JOSEPH J. SCOTT, U. S. Collector of Internal Revenue. In any consideration of the new Federal Income Tax thought should be given to the two distinct divisions of the tax, viz., the normal tax of one per cent on all net incomes in excess of the specified exemptions and the additional, or graduated tax on incomes above $20,000 a year at increasing percentages. The normal tax is assessable against both individuals and corpor- ations; the additional tax against only individuals. In the abstract of the new law herewith given this distinc- tion is drawn, and should be kept in mind. For convenience the term "Persons" is employed to designate individuals as con- trasted with corporate taxpayers. The latter are assembled under the term "Corporations," but in their number are included all corporations, joint-stock companies or associations, as well as insurance companies. Thus, the general reference to "persons" and "corporations" may be understood. PERSONS AFFECTED. 1. Every citizen of the United States, whether residing at home or abroad. 2. Every resident of the United States, though not a citizen. 3. Every resident of a foreign country deriving income from the United States. RATES. 1. Normal tax of 1 per cent on all incomes in excess of $3,000 a year. 2. Additional tax according to the following scale: (a) One per cent upon the amount by which net income exceeds $20,000 but does not exceed $50,000. (b) Two per cent upon the amount by which net income exceeds $50,000 but does not exceed $75,000. (c) Three per cent upon the amount by which net in come exceeds $75,000 but does not exceed $100,000, (d) Four per cent upon the amount by which net in come exceeds $100,000 but does not exceed $250,000 (e) Five per cent upon the amount by which net in come exceeds $250,000 but does not exceed $500,000 (f) Six per cent upon the amount by which net income exceeds $500,000. WHAT IS INCO>IE? In general the law takes cognizance of the following as con- stituting the income of persons: 1. Gains, profits and income derived from salaries, wages, or compensation for personal services of any kind. 3t^^^' 2. From professions, vocations, businesses, trade and dealings in real and personal property. 3. From interest, rent, dividends, or securities, and the income from, but not the value of property acquired by gift, bequest or descent. j iu J INCOME NOT TAXABLE. Proceeds of life insurance policies received by the beneficiary upon the death of the insured, or payments made to the insured on endowment or annuity contracts are not taxable. DEDUCTIONS FOR PERSONS. Net income of persons for the purpose of the normal tax will be computed by deducting from gross income the following items: 1. Necessary and actual expenses of carrying on business (not including personal living or family expenses). 2. All interest paid during the year on indebtedness. 3. All national, state, county, school and municipal taxes. (Not including taxes assessed against local benefits.) 4. Losses in trade or by fire, storm or shipwreck, not com- pensated for by insurance or otherwise. 5. Worthless accounts actually charged off during the year. 6. Reasonable allowance for exhaustion, wear and tear of property through use. In the case of mines the allowance for depletion of ores and other natural deposits shall not exceed 5 per cent of the value at the mine of the output for the year. This provision also covers oil wells. Under no circumstances is a deduction allowed for any amount paid out for new buildings or permanent improvements. 7. Dividends on stock or from the net earnings of any cor- poration taxable on its net income. The personal return must, however, include such dividends in order that they may be con- sidered in the computation of the additional tax for individuals. As far as the normal tax for individuals is concerned such dividends are not considered a part of personal incomes, being taxed to that extent by direct assessment against the cor- porations. 8. Amount of income upon which the tax has been paid or withheld for payment at the source. 9. General exemption of $3,000. Then $1,000 extra if the person making the return have a wife living with him, or a husband living with her. However, should both husband and wife have taxable incomes and be living together, the total exemption is $4,000. COLLECTION AT SOURCE. The general provision is that the normal tax of 1 per cent shall be withheld by all persons, firms, copartnerships, companies, corporations, joint-stock companies or associations, and insurance companies, in whatever capacity acting. This also applies to lessees or mortgagors of real or personal property, to trustees, executors, administrators, agents, receivers, conservators and em- ployers, having the control, receipt, custody, disposal or payment of interest, rent, salaries, wages, premiums, annuities, or other fixed or determinable annual income of another person exceeding $3,000 for the taxable year. Must Claim Deductions. The person whose income tax is thus withheld must, in order to receive the benefit of the exemption of $3,000 (plus $1,000 for a wife or husband) file with the withholding power a claim in writing at least 30 days before the return is due. This means 30 days prior to March the first. As to the privilege of the person affected by the withholding provision to avail himself of the other detailed deductions, the law provides that a statement in writing shall be filed with the withholding power setting forth the person's income from all other sources and specifying the deductions asked for. The statement will then become a part of the return made in such person's behalf. It, too, must be filed at least 30 days before the return is due. In this latter respect, however, the individual affected can avail himself or herself of filing such a statement directly with the Collector of Internal Revenue, to be considered with the return made in his or her behalf under the withholding provision. Should the claim for exemptions and deductions not be filed in time to become parts of the return of income, there would remain to the person affected only the right of application for a refund of the tax after the payment of the same. Income from Bonds. The normal tax of 1 per cent must be withheld from pay- ments of interest upon bonds, mortgages, or deeds of trust, or similar obligations of corporations, whether payable annually or at shorter or longer periods, even though such interest does not exceed $3,000. Incomes from Foreign Sources. This requirement applies also to coupons, checks or bills of exchange in payment of interest upon the bonds of foreign countries, upon foreign mortgages and the stocks and bonds of foreign corporations, regardless of the amount or how often due. (NOTE — Here it should be noted that the taxpayer should not be confused by the necessity of withholding the tax upon the dividends of foreign corporations, in view of the pro- vision exempting the dividends of domestic corporations from either the withholding requirement or from consid- eration in the assessment of the normal income tax against individuals. The difference must be apparent. In the case of the foreign corporation the government of the United States can tax only the part of the dividends due residents of the United States or citizens of the United States residing abroad. In the case of the domestic cor- poration the government can levy and collect the normal tax upon the dividends by a direct assessment against the corporation.) — 6 — The withholding provision in respect to foreign payments affects all making such collections, and every dealer in coupons representing foreign interest or dividends, except that dealer who purchases the coupons from a banker or another dealer in such coupons, must abide by it. TAX ON CORPORATIONS. Domestic and Foreign. For those corporations organized in the United States the normal income tax will be levied iipon the entire net income; but for those organized under the laws of a foreign country upon the net income accruing from business transacted and capital invested in the United States. Tiiose Exempt. The following exceptions among corporations are specified as exempt from the tax: 1. Labor organizations. 2. Agricultural and horticultural associations. 3. Mutual savings banks not having capital stock represented by shares. 4. Fraternal beneficiary societies and orders. 5. Domestic building and loan associations. 6. Mutual cemetery companies. 7. Religious, charitable, scientific and educational associations. 8. Chambers of commerce, boards of trade, and civic organiza- tions in general. CORPORATION'S TAXABIiE INCOME. The net income of any domestic corporation will be ascer- tained by deducting from gross income the following items: 1. All ordinary and necessary expenses for maintenance and operation, including rent. 2. All losses actually sustained and not compensated for by insurance or otherwise. Here will be considered a reasonable allowance for depreciation by use, wear and tear of property, if any. In the case of mines the allowance will be figured as here- tofore noted in determining the nee income of persons. 3. Amount of interest accrued and paid within the year on indebtedness to an amount of such indebtedness not exceeding one-half the sum of its interest-bearing indebtedness and its paid- up capital at the close of the year. Or, if no capital stock, the amount of interest paid within the year on an amount of its indebtedness not exceeding the amount of the capital employed in the business at the close of the year. In the case of banks, loan and trust companies the interest paid on deposits or money received for investment and secured by certificates. As respects indebtedness wholly secured by collateral which is the subject of sale in the ordinary business of the corporation, the total interest secured and paid. 4. All taxes paid on assessments levied under the authority of the United States, or any state, or foreign government. — 7 — Income of Foreign Corporations. The net income of corporations existing under the laws of a foreign country will be computed in practically the same way, the law taking cognizance only of the gross income accrued during the taxable year from business transacted and capital invested within the United States. The deductions, likewise, will be based wholly on operations within the United States. COLLECTION OF TAX. Returns of incomes, under oath, must be in the hands of the Collector of Internal Revenue not later than March first. The tax will be due June 1 and will become delinquent June 30, when a penalty of 5 per cent will accrue with interest at the rate of 1 per cent a month. Wliile the law fixes the calendar year as the taxable year, it allows any corporation the right to make its own fiscal year its taxable year. INSURANCE COMPANIES. Insurance companies in making returns can deduct from gross income the net addition, if any, required by law to be made within the taxable year to reserve funds; also the sums other than dividends paid on policy and annuity contracts. Mutual fire insurance companies need not make returns of any portions of premium deposits returned to policyholders, but must make returns for taxation of all income from other sources, plus those portions of the premium deposits retained by the companies for purposes other than for loss, expenses, and reinsurance reserves. Mutual marine insurance companies can deduct amounts repaid policyholders on account of premiums paid or on account of interest accruing on such amounts between the time of becoming due and payment. Life insurance companies need not include that portion of any premium paid back or credited to a policyholder, or treated as an abatement of premium. OTHER IMPORTANT PROVISIONS. Public Utilities Exempt. The law provides that states and their political subdivisions are exempted from payment of the tax on any income that accrues to them from the operation of public utilities, or the exercise of any governmental function. This exemption does not, however, apply to the income derived from any public utility by the person or corporation operating it. Public Bonds Not Taxed. In the computation of net income the interest upon the obligations of a state or any political subdivision of a state, also upon the obligations of the United States, is excluded. This covers public bonds in general. — 8 — Persons Exempt. Exempt from the tax are the salaries of the President of the United States, all Federal judges, and all state, county and municipal oflScers and employees. Partners Are Individuals. In dealing with corporate taxpayers the law makes special exception of partnerships and holds that the persons in a partner- ship shall be liable for the tax only in their individual capacity. Must Get License. All persons, firms or corporations undertaking the collection of foreign incomes must obtain a license by application to the Collector of Internal Revenue. Undivided Profits. Undivided and undistributed profits will be considered in ascertaining the net income of persons. Accumulation of profits for the purpose of evading the law will not avail because the fact that profits are allowed to accumulate beyond the reasonable needs of a business will be regarded as prima facie evidence of a fraudulent purpose. No Double Taxation. Double Taxation of corporation dividends is prevented by assessing the normal income tax on such dividends against the corporations and not against the individuals receiving them. It will be noted, however, that when corporation dividends con- tribute to individual incomes subject to the additional tax they enter into the computation of net incomes. The Tax for 1913. The tax for the year 1913, will be collected for that part of the calendar year beginning March 1 and ending December 31. All deductions and exemptions will be figured on a five-sixths basis in order to arrive at five-sixths of the net income, which, for 1913, will be regarded as the taxable income. For information concerning the Income Tax and the preparation of statements consult TRUST DEPARTMENT of SAVINGS UNION BANK AND TRUST COMPANY Savings Union Bank and Trust Company THE INCOME TAX LAW Full text of that portion of "An Act to Reduce Tariff Duties and to Provide Revenue for the Government, and for Other Purposes," providing for a tax upon the incomes of all persons, corporate and private (H. R. 3321). Approved October 3, 1913; in effect November 1, 1913. Section II. A. Subdivision 1. That there shall be levied, assessed, col- lected and paid annually upon the entire net income arising or accruing from all sources in the preceding calendar year to every citizen of the United States, whether residing at home or abroad, and to every person residing in the United States, though not a citizen thereof, a tax of 1 per centum per annum upon such in- come, except as hereinafter provided; and a like tax shall be assessed, levied, collected, and paid annually upon the entire net income from all property owned and of every business, trade, or profession carried on in the United States by persons residing elsewhere. Subdivision 2. In addition to the income tax provided under this section (herein referred to as the normal income tax) there shall be levied, assessed, and collected upon the net income of every individual an additional income tax (herein referred to as the additional tax) of 1 per centum per annum upon the amount by which the total net income exceeds $20,000 and does not exceed $50,000, and 2 per centum per annum upon the amount by which the total net income exceeds $50,000 and does not exceed $75,000, 3 per centum per annum upon the amount by which the total net income exceeds $75,000 and does not exceed $100,000, 4 per centum per annum upon the amount by which the total net income exceeds $100,000 and does not exceed $250,000, 5 per centum per annum upon the amount by which the total net income exceeds $250,000 and does not exceed $500,000, and 6 per centum per annum upon the amount by which the total net income exceeds $500,000. All the provisions of this section relating to individuals who are to be chargeable with the normal income tax, so far as they are applicable and are not inconsistent with this subdivision of paragraph A, shall apply to the levy, assessment, and collection of the additional tax imposed under this section. Every person subject to this additional tax shall, for the purpose of its assessment and col- lection, make a personal return of his total net income from all sources, corporate or otherwise, for the preceding calendar year, under rules and regulations to be prescribed by the Commis- sioner of Internal Revenue and approved by the Secretary of the Treasury. For the purpose of this additional tax the tax- able income of any individual shall embrace the share to which he would be entitled of the gains and profits, if divided or dis- tributed, whether divided or distributed or not, of all corpora- — lo- tions, joint-stock companies, or associations however created or organized, formed or fraudulently availed of for the purpose of preventing the imposition of such tax through the medium of permitting such gains and profits to accumulate instead of being divided or distributed; and the fact that any such corporation, joint-stock company, or association, is a mere holding company, or that the gains and profits are permitted to accumulate beyond the reasonable needs of business shall be prima facie evidence of a fraudulent purpose to escape such tax; but the fact that the gains and profits are in any case permitted to accumulate and become surplus shall not be construed as evidence of a purpose to escape the said tax in such case unless the Secretary of the Treasury shall certify that in his opinion such accumu- lation is unreasonable for the purposes of the business. When requested by the Commissioner of Internal Revenue, or any district collector of internal revenue, such corporation, joint- stock company, or association shall forward to him a correct statement of such profits and the names of the individuals who would be entitled to the same if distributed. B. That, subject only to such exemptions and deductions as are hereinafter allowed, the net income of a taxable person shall include gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from professions, vocations, businesses, trade, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in real or personal property, also from interest, rent, dividends, securities, or the transaction of any lawful business carried on for gain or profit, or gains or profits and income derived from any source whatever, including the income from but not the value of property acquired by gift, bequest, devise, or descent: Pro- vided, That the proceeds of life insurance policies paid upon the death of the person insured or payments made by or credited to the insured, on life insurance, endowment, or annuity con- tracts, upon the return thereof to the insured at the maturity of the term mentioned in the contract, or upon surrender of contract, shall not be included as income. That in computing net income for the purpose of the normal tax there shall be allowed as deductions: First, the necessary ex- penses actually paid in carrying on any business, not including personal, living, or family expenses; second, all interest paid with- in the year by a taxable person on indebtedness; third, all na- tional, State, county, school, and municipal taxes paid within the year, not including those assessed against local benefits; fourth, losses actually sustained during the year, incurred in trade or arising from fires, storms, or shipwreck, and not compensated for by insurance or otherwise; fifth, debts due to the taxpayer actually ascertained to be worthless and charged off within the year; sixth, a reasonable allowance for the exhaustion, wear and tear of prop- erty arising out of its use or employment in the business, not to exceed, in the case of mines, 5 per centum of the gross value at the mine of the output for the year for which the computation is — 11 — made, but no deduction shall be made for any amount of expense of restoring property or making good the exhaustion thereof for which an allowance is or has been made: Provided, That no de- duction shall be allowed for any amount paid out for new build- ings, permanent improvements, or betterments, made to increase the value of any property or estate; seventh, the amount received as dividends upon the stock or from the net earnings of any cor- poration, joint-stock company, association, or insurance company which is taxable upon its net income as hereinafter provided; eighth, the amount of income, the tax upon which has been paid or withheld for payment at the source of the income, under the provisions of this section, provided that whenever the tax upon the income of a person is required to be withheld and paid at the source as hereinafter required, if such annual income does not exceed the sum of $3,000 or is not fixed or certain, or is in- definite, or irregular as to amount or time of accrual, the same sh5,ll not be deducted in the personal return of such person. The net income from property owned and business carried on in the United States by persons residing elsewhere shall be com- puted upon the basis prescribed in this paragraph and that part of paragraph G of this section relating to the computation of the net Income of corporations, joint-stock and insurance companies, or- ganized, created, or existing under the laws of foreign countries, in so far as applicable. That in computing net income under this section there shall be excluded the interest upon the obligations of a State or any political subdivision thereof, and upon the obligations of the United States or its possessions; also the compensation of the present President of the United States during the term for which he has been elected, and of the judges of the supreme and inferior courts of the United States now in oflice, and the compensation of all officers and employees of a State or any political subdivision thereof ex- cept when such compensation is paid by the United States Gov- ernment. C. That there shall be deducted from the amount of the net income of each of said persons, ascertained as provided herein, the sum of $3,000, plus $1,000 additional if the person making the return be a married man with a wife living with him, or plus the sum of $1,000 additional if the person making the return be a married woman with a husband living with her; but in no event shall this additional exemption of $1,000 be deducted by both a husband and a wife: Provided, That only one deduction of $4,000 shall be made from the aggregate income of both husband and wife when living together. D. The said tax shall be computed upon the remainder of said net income of each person subject thereto, accruing during each preceding calendar year ending December thirty-first: Provided, however. That for the year ending December thirty-first, nineteen hundred and thirteen, said tax shall be computed on the net in- come accruing from March first to December thirty-first, nineteen hundred and thirteen, both dates inclusive, after deducting five- sixths only of the specific exemptions and deductions herein pro- vided for. On or before the first day of March, nineteen hundred — 12 — and fourteen, and the first day of March in each year thereafter, a true and accurate return, under oath or aflarmation, shall be made by each person of lawful age, except as hereinafter provided, subject to the tax imposed by this section, and having a net income of $3,000 or over for the taxable year, to the collector of internal revenue for the district in which such person resides or has his principal place of business, or, in the case of a person residing in a foreign country, in the place where his principal business is carried on within the United States, in such form as the Commis- sioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall prescribe, setting forth specifically the gross amount of income from all separate sources and from the total thereof, deducting the aggregate items or expenses and allowances herein authorized; guardians, trustees, executors, administrators, agents, receivers, conservators, and all persons, corporations, or associations acting in any fiduciary capacity, shall make and render a return of the net income of the person for whom they act, subject to this tax, coming into their custody or control and management, and be subject to all the provisions of this section which apply to individuals: Provided, That a return made by one of two or more joint guardians, trustees, executors, administrators, agents, re- ceivers, and conservators, or other persons acting in a fiduciary capacity, filed in the district where such person resides, or in the district where the will or other instrument under which he acts is recorded, under such regulations as the Secretary of the Treasury may prescribe, shall be a sufficient compliance with the require- ments of this paragraph; and also all persons, firms, companies, co- partnerships, corporations, joint-stock companies or associations, and insurance companies, except as hereinafter provided, in whatever capacity acting, having the control, receipt, disposal, or payment of fixed or determinable annual or periodical gains, profits, and income of another person subject to tax, shall in behalf of such person deduct and withhold from the payment an amount equivalent to the normal income tax upon the same and make and render a return, as aforesaid, but separate and distinct, of the portion of the income of each person from which the normal tax has been thus withheld, and containing also the name and address of such person or stating that the name and address or the address, as the case may be, are unknown: Provided, That the provision requiring the normal tax of individuals to be withheld at the source of the income shall not be construed to require any of such tax to be withheld prior t© the first day of November, nineteen hundred and thirteen: Provided further. That in either case above mentioned no return of income not exceeding $3,000 shall be required: Provided further, That any persons carrying on business In partnership shall be liable for in- come tax only in their individual capacity, and the share of the profits of a partnership to whigh any taxable partner would be en- titled if the same were divided, whether divided or otherwise, shall be returned for taxation and the tax paid, under the provisions of this section, and any such firm, when requested by the Commis- sioner of Internal Revenue, or any district collector, shall forward to him a correct statement ot such profits and the names of the individuals who would be entitled to the same, if distributed: Pro- — 13 — vided further, That persons liable for the normal income tax only, on their own account or in behalf of another, shall not be required to make return of the income derived from dividends on the capital stock or from the net earnings of corporations, joint-stock com- panies or associations, and insurance companies taxable upon their net income as hereinafter provided. Any person for whom return has been made and the tax paid, or to be paid as aforesaid, shall not be required to make a return unless such person has other net in- come, but only one deduction of $3,000 shall be made in the case of any such person. The collector or deputy collector shall require every list to be verified by the oath or aflarmation of the party rendering it. If the collector or deputy collector have reason to believe that the amount of any income returned is understated, he shall give due notice to the person making the return to show cause why the amount of the return should not be increased, and upon proof of the amount understated may increase the same accord- ingly. If dissatisfied with the decision of the collector, such person may submit the case, with all the papers, to the Commissioner of Internal Revenue for his decision, and may furnish sworn testi- mony of witnesses to prove any relevant facts. E. That all assessments shall be made by the Commissioner of Internal Revenue and all penions shall be notified of the amount for which they are respectively liable on or before the first day of June of each successive year, and said assessments shall be paid on or before the thirtieth day of June, except in cases of refusal or neglect to make such return and in cases of false or fraudulent returns, in which cases the Commissioner of Internal Revenue shall, upon the discovery thereof, at any time within three years after said return is due, make a return upon the information obtained as provided for in this section or by existing law, and the assessment made by the Commissioner of Internal Revenue thereon shall be paid by such person or persons immediately upon notification of the amount of such assessment; and to any sum or sums due and unpaid after the thirtieth day of June in any year, and for ten days after notice and demand thereof by the collector, there shall be added the sum of 5 per centum on the amount of tax unpaid, and interest at the rate of 1 per centum per month upon said tax from the time the same be- came due, except from the estates of insane, deceased, or insolvent persons. All persons, firms, copartnerships, companies, corporations, joint- stock companies or associations, and insurance companies, in what- ever capacity acting, including lessees, or mortgagors of real or per- sonal property, trustees acting in any trust capacity, executors, ad- ministrators, agents, receivers, conservators, employers, and all ofiicers and employees of tlie United States having the control, re- ceipt, custody, disposal, or payment of interest, rent, salaries, wages, premiums, annuities, compensation, remuneration, emoluments, or other fixed or determinable annual gains, profits, and income of another person, exceeding $3,000 for any taxable year, other than dividends on capital stock, or from the net earnings of corporations and joint-stock companies or associations subject to like tax, who are required to make and render a return in behalf of another, as pro- vided herein, to the collect Dr of his, her, or its district, are hereby — 14-- authorized and required to deduct and withhold from such annual gains, profits, and income such sum as will be sufficient to pay the normal tax imposed thereon by this section, and shall pay to the officer of the United States Government authorized to receive the same; and they are each hereby made personally liable for such tax. In all cases where the income tax of a person is withheld and de- ducted and paid or to be paid at the source, as aforesaid, such per- son shall not receive the benefit of the deduction and exemption allowed in paragraph C of this section except by an application for refund of the tax unless he shall, not less than thirty days prior to the day on which the return of his income is due, file with the per- son who is required to withhold and pay tax for him, a signed notice in writing claiming the benefit of such exemption and thereupon no tax shall be withheld upon the amount of such exemption: Provided, That if any person for the purpose of obtaining any allowance or reduction by virtue of a claim for such exemption, either for himself or for any other person, knowingly makes any false statement or false or fraudulent representation, he shall be liable to a penalty of $300; nor shall any person under the foregoing conditions be al- lowed the benefit of any deduction provided for in subsection B of this section unless he shall, not less than thirty days prior to the day on which the return of his income is due, either file with tlie person who is required to withhold and pay tax for him a true and correct return of his annual gains, profits, and income from all other sources, and also the deductions asked for, and the showing thus made shall then become a part of the return to be made in his behalf by the person required to withhold and pay the tax, or likewise make application for deductions to the collector of the district in which return is made or to be made for him: Provided further. That if such person is a minor or an insane person, or is absent from the United States, or is unable owing to serious illness to make the return and application above provided for, the return and appli- cation may be made for him or her by the person required to with- hold and pay the tax, he making oath under the penalties of this Act that he has sufficient knowledge of the affairs and property of his beneficiary to enable him to make a full and complete return for him or her, and that the return and application made by him are full and complete: Provided further, That the amount of the normal tax hereinbefore imposed shall be deducted and withheld from fixed and determinable annual gains, profits, and income derived from interest upon bonds and mortgages, or deeds of trust or other similar obligations of corporations, joint-stock companies or associations, and insurance companies, whether payable annually or at shorter or longer periods, although such interest does not amount to $3,000, subject to the provisions of this section requiring the tax to be withheld at the source and deducted from annual income and paid to the Government; and likewise the amount of such tax shall be deducted and withheld from coupons, checks, or bills of exchange for or in payment of interest upon bonds of foreign countries and upon foreign mortgages or like obligations (not payable in the United States), and also from coupons, checks, or bills of exchange for or in payment of any dividends upon the stock or interest upon the obligations of foreign corporations, associations, and insurance — 15 — companies engaged in business in foreign countries; and the tax in each case shall be withheld and deducted for and in behalf of any person subject to the tax hereinbefore imposed, although such inter- est, dividends, or other compensation does not exceed $3,000, by any banker or person who shall sell or otherwise realize coupons, checks, or bills of exchange drawn or made in payment of any such interest or dividends (not payable in the United States), and any person who shall obtain payment (not in the United States), in behalf of another of such dividends and interest by means of coupons, checks, or bills of exchange, and also any dealer in such coupons who shall purchase the same for any such dividends or interest (not payable in the United States), otherwise than from a banker or another dealer in such coupons; but in each case the benefit of the exemption and the deduction allowable under this section may be had by complying with the foregoing provisions of this paragraph. All persons, firms, or corporations undertaking as a matter of business or for profit the collection of foreign payments of such interest or dividends by means of coupons, checks, or bills of ex- change shall obtain a license from the Commissioner of Internal Revenue, and shall be subject to such regulations enabling the Gov- ernment to ascertain and verify the due withholding and payment of the income tax required to be withheld and paid as the Commis- sioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall prescribe; and any person who shall knowingly un- dertake to collect such payments as aforesaid without having ob- tained a license therefor, or without complying with such regu- lations, shall be deemed guilty of a misdemeanor and for each offense be fined in a sum not exceeding $5,000, or imprisoned for a term not exceeding one year, or both, in the discretion of the court. Nothing in this section shall be construed to release a taxable person from liability for income tax, nor shall any contract entered into after this Act takes effect be valid in regard to any Federal income tax imposed upon a person liable to such payment. The tax herein imposed upon annual gains, profits, and income not falling under the foregoing and not returned and paid by virtue of the foregoing shall be assessed by personal return under rules and regulations to be prescribed by the Commissioner of Internal Revenue and approved by the Secretary of the Treasury. The provisions of this section relating to the deduction and pay- ment of the tax at the source of income shall only apply to the normal tax hereinbefore imposed upon individuals. F. That if any person, corporation, joint-stock company, associa- tion, or insurance company liable to make the return or pay the tax aforesaid shall refuse or neglect to make a return at the time or times hereinbefore specified in each year, such person shall be liable to a penalty of not less than $20 nor more than $1,000. Any person or any officer of any corporation required by law to make, render, sign, or verify any return who makes any false or fraudulent return or statement with intent to defeat or evade the assessment required by this section to be made shall be guilty of a misdemeanor, and shall be fined not exceeding $2,000 or be imprisoned not exceeding one year, or both, at the discretion of the court, with the costs of prosecution. — 16 — G. (a) That the normal tax hereinbefore imposed upon individ- uals likewise shall be levied, assessed, and paid annually upon the entire net income arising or accruing from all sources during the preceding calendar year to every corporation, joint-stock company or association, and every insurance company, organized in the United States, no matter how created or organized, not including partnerships; but if organized, authorized, or existing under the laws of any foreign country, then upon the amount of net income accruing from business transacted and capital invested within the United States during such year: Provided, however, That nothing in this section shall apply to labor, agricultural, or horticultural organ- izations, or to mutual savings banks not having a capital stock repre- sented by shares, or to frr.ternal beneficiary societies, orders, or asso- ciations operating under the lodge system or for the exclusive bene- fit of the members of a fraternity itself operating under the lodge system, and providing for the payment of life, sick, accident, and other benefits to the members of such societies, orders, or associ- ations and dependents of such members, nor to domestic building and loan associations, nor to cemetery companies, organized and operated exclusively for the mutual benefit of their members, nor to any corporation or association organized and operated exclusively for religious, charitable, scientific, or educational purposes, no part of the net income of which inures to the benefit of any private stockholder or individual, nor to business leagues, nor to chambers of commerce or boards of trade, not organized for profit or no part of the net income of which inures to the benefit of the private stock- holder or individual; nor to any civic league or organization not organized for profit, but operated exclusively for the promotion of social welfare: Provided further. That there shall not be taxed under this section any income derived from any public utility or from the exercise of any essential governmental function accruing to any State, Territory, or the District of Columbia, or any political sub- division of a State, Territory, or the District of Columbia, nor any income accruing to the government of the Philippine Islands or Porto Rico, or of any political subdivision of the Philippine Islands or Porto Rico : Provided, That whenever any State, Territory, or the District of Columbia, or any political subdivision of a State or Terri- tory, has, prior to the passage of this Act, entered in good faith into a contract with any person or corporation, the object and purpose of which is to acquire,, construct, operate or maintain a public utility, no tax shall be levied under the provisions of this Act upon the income derived from the operation of such public utility, so far as the payment thereof will impose a loss or burden upon such State, Territory, or the District of Columbia, or a political subdivision of a State or Territory; but this provision is not intended to confer upon such person or corporation any financial gain or exemption or to re- lieve such person or corporation from the payment of a tax as pro- vided for in this section upon the part or portion of the said income to which such person or corporation shall be entitled under such contract. (b) Such net income shall be ascertained by deducting from the gross amount of the income of such corporation, joint-stock — 17 — company or association, or insurance company, received within the year from all sources, (first) all the ordinary and necessary expenses paid within the year in the maintenance and operation of its business and properties, including rentals or other pay- ments required to be made as a condition to the continued use or possession of property; If second) all losses actually sustained within the year and not compensated by insurance or otherwise, including a reasonable allowance for depreciation by use, wear and tear of property, if any; and in the case of mines a reasonable allowance for depletion of ores and all other natural deposits, not to exceed 5 per centum of the gross value at the mine of the output for the year for which the computation is made; and in case of insurance companies the net addition, if any, required by law to be made within the year to reserve funds and the sums other than dividends paid within the year on policy and annuity contracts; Provided, That mutual fire insur- ance companies requiring their members to make premium deposits to provide for losses and expenses shall not return as income any portion of the premium deposits returned to their policyholders, but shall return as taxable income all income received by them from all other sources plus such por- tions of the premium deposits as are retained by the companies for purposes other than the payment of losses and expenses and reinsurance reserves: Provided further, That mutual marine in- surance companies shall include in their return of gross income gross premiums collected and received by them less amounts paid for reinsurance, but shall be entitled to include in deductions from gross income amounts repaid to policyholders on account of premiums previously paid by them and interest paid upon such amounts between the ascertainment thereof and the payment thereof and life insurance companies shall not include as income in any year such portion of any actual premium received from any individual policyholder as shall have been paid back or credited to such individual policyholder, or treated as an abate- ment of premium of such individual policyholder, within such year; (third) the amount of interest accrued and paid within the year on its indebtedness to an amount of such indebtedness not exceeding one-half of the sum of its interest bearing indebt- edness and its paid-up capital stock outstanding at the close of the year, or if no capital stock, the amount of interest paid within the year on an amount of its indebtedness not exceeding the amount of capital employed in the business at the close of the year: Provided, That in case of indebtedness wholly secured by collateral the subject of sale in ordinary business of such corporation, joint-stock company, or association, the total inter- est secured and paid by such company, corporation, or association within the year on any such indebtedness may be deducted as a part of its expense of doing business: Provided further. That in the case of bonds or other indebtedness, which have been issued with a guaranty that the interest payable thereon shall be free from taxation, no deduction for the payment of the tax herein imposed shall be allowed; and in the case of a bank, banking — 18 — association, loan, or trust company, interest paid within the year on deposits or on moneys received for investment and secured by interest-bearing certificates of indebtedness issued by such bank, banking association, loan or trust company; (fourth) all sums paid by it within the year for taxes imposed under the authority of the United States or of any State or Territory thereof, or imposed by the Government of any foreign country: Provided, That in the case of a corporation, joint-stock company or association, or insurance company, organized, authorized, or existing under the laws of any foreign country, such net income shall be ascertained by deducting from the gross amount of its income accrued within the year from business transacted and capital invested within the United States, (first) all the ordinary and necessary expenses actually paid within the year out of earnings in the maintenance and operation of its business and property within the United States, including rentals or other pay- ments required to be made as a condition to the continued use or possession of property; (second) all losses actually sustained within the year in business conducted by it within the United States and not compensated by insurance or otherwise, including a reasonable allowance for depreciation by use, wear and tear of property, if any, and in the case of mines a reasonable allow- ance for depletion of ores and all other natural deposits, not to exceed 5 per centum of the gross value at the mine of the out- put for' the year for which the computation is made; and in case of insurance companies the net addition, if any, required by law to be made within the year to reserve funds and the sums other than dividends paid within the year on policy and annuity con- tracts: Provided further, That mutual fire insurance companies requiring their members to make premium deposits to provide for losses and expenses shall not return as income any portion of the premium deposits returned to their policyholders, but shall return as taxable income all income received by them from all other sources plus such portions of the premium deposits as are retained by the companies for purposes other than the pay- ment of losses and expenses and reinsurance reserves: Provided further, That mutual marine insurance companies shall include in their return of gross income gross premiums collected and received by them less amounts paid for reinsurance, but shall be entitled to include in deductions from gross income amounts repaid to policyholders on account of premiums previously paid by them, and interest paid upon such amounts between the ascer- tainment thereof and the payment thereof and life insurance companies shall not include as income in any year such portion of any actual premium received from any individual policyholder as shall have been paid back or credited to such individual policyholder, or treated as an abatement of premium of such individual policyholder, within such year; (third) the amount of interest accrued and paid within the year on its indebtedness to an amount of such indebtedness not exceeding the proportion of one-half of the sum of its interest bearing indebtedness and its paid-up capital stock outstanding at the close of — la- the year, or if no capital stock, the capital employed in the business at the close of the year which gross amount of its income for the year from business transacted and capital invested within the United States bears to the gross amount of its income derived from all sources within and without the United States: Provided, That in the case of bonds or other in- debtedness which have been issued with a guaranty that the interest payable thereon shall be free from taxation, no deduc- tion for the payment of the tax herein imposed shall be allowed; (fourth) all sums paid by it within the year for taxes imposed under the authority of the United States or of any State or Territory thereof or the District of Columbia. In the case of assessment insurance companies, whether domestic or foreign, the actual deposit of sums with State or Territorial officers, pur- suant to law, as additions to guarantee or reserve funds shall be treated as being payments required by law to reserve funds. (c) The tax herein imposed shall be computed upon its entire net income accrued within each preceding calendar year ending December thirty-first: Provided, however, That for the year end- ing December thirty-first, nineteen hundred and thirteen, said tax shall be imposed upon its entire net income accrued within that portion of said year from March first to December thirty- first, both dates inclusive, to be ascertained by taking five-sixths of its entire net income for said calender year: Provided fur- ther, That any corporation, joint-stock company or association, or insurance company subject to this tax may designate the last day of any month in the year as the day of the closing of its fiscal year and shall be entitled to have the tax payable by it computed upon the basis of the net income ascertained as herein provided for the year ending on the day so designated in the year preceding the date of assessment instead of upon the basis of the net income for the calendar year preceding the date of assessment; and it shall give notice of the day it has thus desig- nated as the closing of its fiscal year to the collector of the dis- trict in which its principal business office is located at any time not less than thirty days prior to the date upon which its annual return shall be filed. All corporations, joint-stock companies or associations, and insurance companies subject to the tax herein imposed, computing taxes upon the income of the calendar year, shall, on or before the first day of March, nineteen hundred and fourteen, and the first day of March in each year thereafter, and all corporations, joint-stock companies or associations, and insurance companies, computing taxes upon the income of a fiscal year which it may designate in the manner hereinbefore pro- vided, shall render a like return within sixty days after the close of its said fiscal year, and within sixty days after the close of its fiscal year in each year thereafter, or in the case of a corporation, joint-stock company or association, or insurance company, organized or existing under the laws of a foreign country, in the place where its principal business is located within the United States, in such form as the Commissioner of Internal Revenue, with the approval of the Secretary of the — 20 — Treasury, shall prescribe, shall render a true and accurate return under oath or afl5.rmation of its president, vice president, or other principal officer, and its treasurer or assistant treasurer, to the collector of internal revenue for the district in which it has its principal place of business, setting forth (first) the total amount of its paid-up capital stock outstanding, or if no capital stock, its capital employed in business, at the close of the year; (sec- ond) the total amount of its bonded and other indebtedness at the close of the year; (third) the gross amount of its income, received during such year from all sources, and if organized under the laws of a foreign country the gross amount of its income received within the year from business transacted and capital invested within the United States; (fourth) the total amount of all its ordinary and necessary expenses paid out of earnings in the maintenance and operation of the business and properties of such corporation, joint-stock company or associa- tion, or insurance company within the year, stating separately all rentals or other payments required to be made as a condition to the continued use or possession of property, and if organized under the laws of a foreign country the amount so paid in the maintenance and operation of its business within the United States; (fifth) the total amount of all losses actually sustained during the year and not compensated by insurance or otherwise, stating separately any amounts allowed for depreciation of prop- erty, and in case of insurance companies the net addition, if any, required by law to be made within the year to reserve funds and the sums other than dividends paid within the year on policy and annuity contracts: Provided further, That mutual fire insur- ance companies requiring their members to make premium de- posits to provide for losses and expenses shall not return as income any portion of the premium deposits returned to their policyholders, but shall return as taxable income all income received by them from all other sources plus such portions of the premium deposits as are retained by the companies for pur- poses other than the payment of losses and expenses and rein- surance reserves: Provided further, That mutual marine insur- ance companies shall include in their return of gross income gross premiums collected and received by them less amounts paid for reinsurance, but shall be entitled to include in deductions from gross income amounts repaid to policyholders on account of premiums previously paid by them, and interest paid upon such amounts between the ascertainment thereof and the payment thereof and life insurance companies shall not include as income in any year such portion of any actual premium received from any individual policyholder as shall have been paid back or credited to such individual policyholder, or treated as an abate- ment of premium of such individual policyholder, within such year; and in case of a corporation, joint-stock company or asso- ciation, or insurance company, organized under the laws of a foreign country, all losses actually sustained by it during the year in business conducted by it within the United States, not compensated by insurance or otherwise, stating separately any — 21 — amounts allowed for depreciation of property, and in case of insurance companies the net addition, if any, required by law to be made within the year to reserve funds and the sums other than dividends paid within the year on policy and annuity con- tracts: Provided further, That mutual fire insurance companies requiring their members to make premium deposits to provide for losses and expenses shall not return as income any portion of the premium deposits returned to their policyholders, but shall return as taxable income all income received by them from all other sources plus such portions of the premium deposits as are retained by the companies for purposes other than the pay- ment of losses and expenses and reinsurance reserves: Provided further, That mutual marine insurance companies shall include in their return of gross income gross premiums collected and received by them less amounts paid for reinsurance, but shall be entitled to include in deductions from gross income amounts repaid to policyholders on account of premiums previously paid by them and interest paid upon such amounts between the ascer- tainment thereof and the payment thereof and life insurance companies shall not include as income in any year such portion of any actual premium received from any individual policy- holder as shall have been paid back or credited to such indi- vidual policyholder, or treated as an abatement of premium of such individual policyholder, within such year; (sixth) the amount of interest accrued and paid within the year on its bonded or other indebtedness not exceeding one-half of the sum of its interest bearing indebtedness and its paid-up capital stock, outstanding at the close of the year, or if no capital stock, the amount of interest paid within the year on an amount of in- debtedness not exceeding the amount of capital employed in the business at the close of the year, and in the case of a bank, bank- ing association, or trust company, stating separately all inter- est paid by it within the year on deposits; or in case of a cor- poration, joint-stock company or association, or insurance com- pany, organized under the laws of a foreign country, interest so paid on its bonded or other indebtedness to an amount of such bonded or other indebtedness not exceeding the proportion of its paid-up capital stock outstanding at the close of the year, or if no capital stock, the amount of capital employed in the business at the close of the year, which the gross amount of its income for the year from business transacted and capital invested within the United States bear to the gross amount of its income derived from all sources within and without the United States; (seventh) the amount paid by it within the year for taxes imposed under the authority of the United States and separately the amount so paid by it for taxes imposed by the Government of any foreign country; (eighth) the net income of such corporation, joint-stock company or association, or insurance company, after making the deductions in this subsection authorized. All such returns shall as received be transmitted forthwith by the collector to the Com- missioner of Internal Revenue. All assessments shall be made and the several corporations, — 22 — Joint-stock companies or associations, and insurance companies ihall be notified of the amount for which they are respectively liable on or before the first day of June of each successive year and said assessment shall be paid on or before the thirtieth day of June: Provided, That every corporation, joint-stock com- pany or association, and insurance company, computing taxes upon the income of the fiscal year which it may designate in the manner hereinbefore provided, shall pay the taxes due un- der its assessment within one hundred and twenty days after the date upon which it is required to file its list or return of income for assessment; except in cases of refusal or neglect to make su