Income statement

“ In determining the amount of earnings or profits (whether of the taxable year, or accumulated prior to March 1, 1913) due consideration must be given to the facts, and, while mere bookkeeping entries increasing or decreasing surplus will not be conclusive, the amount of the earnings or profits in any case will be dependent upon the method of accounting properly employed in computing net income. ”

“ Section 212 (b) provides that the net income shall be computed 'in accordance with the method of accounting regularly employed in keeping the books of such taxpayer,' unless the method employed does not clearly reflect the net income. ”

“ Gross income' includes 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, trades, businesses, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property ”

“ Under the second paragraph the net income is to be ascertained by certain deductions from the gross amount of income received within the year 'from all sources;' and the return to be made to the collector of internal revenue under the third section is required to show the gross amount of the income, received during the year 'from all sources.' The evident purpose is to secure a return of the entire income, with certain allowances and deductions which do not suggest a restriction to income derived from property actively engaged in the business. ”

“ Approved standard methods of accounting will ordinarily be regarded as clearly reflecting income. A method of accounting will not, however, be regarded as clearly reflecting income unless all items of gross income and all deductions are treated with reasonable consistency. See section 200 of the statute for definitions of 'paid,' 'paid or accrued,' and 'paid or incurred' * * * in any case in which it is necessary to use an inventory, no accounting in regard to purchases and sales will correctly reflect income except an accrual method. ”

“ This income comprises the items of income received in advance of the full performance of the service required to earn it. In cases of this kind there are in the possession of the business certain assets which must be used to perform the service not yet completed in order to entitle the business to the full enjoyment of the income. ”

“ We now turn to what information is available upon the subject of individual incomes. So far as the poorer classes of income tax payers are concerned, some clear light is afforded by the Income Tax Commissioners in a table showing the number of persons claiming abatements. ”

“ The net difference between the income and the cost of securing the income, as indicated by the expense accounts, will represent the value added to the assets of the business, and will therefore be reflected tangibly in an increase in the value of the assets by that amount. This increase will usually be reflected either in the cash holdings or in claims against customers. ”

“ Thus, if the income of the company is to be taken by the appraising engineers, or the gross income, it may have to be given a different interpretation from the net income, and 252if the surplus earnings depend on transient causes or on excessive rates for service it will lead to a totally erroneous conclusion. ”

“ A small portion of the American people are in receipt of incomes that necessitate a report to the revenue officers. Among those persons, a small number are in receipt of incomes that might be termed large—incomes of $10,000 or over, for example. Among these persons with large incomes the majority of the income is secured in the form of rent, interest, dividends and profits. The higher the income group, the larger is the percentage of the income that comes from property holdings. ”

“ Why should a man, whose income, perhaps derived from land or funded property below £150, pay nothing, while a hard working clerk, attorney, or country surgeon, who makes £155, and is not worth a tenth part of the other's realised capital, pays income-tax? ”

“ Income.—Income is usually of two types: operating and non-operating. These terms are always relative; that is, what is an operating income in one business may be a non-operating income in another business. The term “operating income” is used to indicate the main sources of income in a given business. It is always the duty of the accounting department to indicate the sources of income. Thus in a trading or mercantile business, the selling of goods to customers is the main source of income. ”

“ It could not, I think, be seriously contended that a professional man, say a Senator or a Congressman, who attends a convention to read a paper or conduct a seminar with all expenses paid has received 'income' within the meaning of the Internal Revenue Code. Nor would it matter, I assume, that he took his wife and that her expenses were also paid. Income has the connotation of something other than the mere payment of expenses. ”

“ The taxpayers contend that an adjustment should be made in the year of original receipt of the salary; the Government that an adjustment should be made in the year of payment of the transferee liability.
One of the basic aspects of the federal income tax is that there be an annual accounting of income. [6] Each item of income must be reported in the year in which it is properly reportable and in no other. ”

“ The difficulties of a fair income tax have elicited a proposition for a direct tax of so much per cent, not on income but on expenditure; the aggregate amount of each person's expenditure being ascertained, as the amount of income now is, from statements furnished by the contributors themselves. ”

“ The annual tax is, for domestic corporations, a specified percentage of the net income of the corporation for the next preceding fiscal or calendar year. By section 7 of the statute, 'net income' is defined as 'gross income' less certain allowed deductions, and section 6 provides that 'gross income * * * includes * * * all interest received from federal, state, municipal or other bonds. ”

“ In common language the word income applies to money received from any source. It may be qualified as gross income and net income. It may be limited by words defining the source of the income, as, from land, merchandise or banking, but, in its general sense, it means gross savings from all sources. When received in money it is an income and not until then. ”

“ This net income is used as a measure applicable to all corporations alike. While not an income tax according to strict definition, in substance it affects net income alone, is measured by net income alone, is reasonable in amount and incidence, and is payable out of net income. ”

“ All persons with incomes of over £150 per annum are required to send in an annual declaration of their full income, divided according to four main sources— (a) capital; (b) landed property; (c) trade and industry; (d) employment bringing gain, this latter including the salary or wages of workmen, servants and industrial assistants, military persons and officials; also the receipts of authors, artists, scientists, teachers and tutors. Liability for income tax, however, begins with an income of £45, and rises by a regular system of progression, the rate being about 3% of the income. ”

“ Underlying the reasoning in these cases is the thought that income is 'realized' by the assignor because he, who owns or controls the source of the income, also controls the disposition of that which he could have received himself and diverts the payment from himself to others as the means of procuring the satisfaction of his wants. ”

“ Thus may any Gentleman, with very little trouble, apportion his Income:—and as no two Gentlemen live exactly alike, this Table will shew, by inspection only, what branch of Expense may best be curtailed, so as to afford an addition to any other branch, and still keep his whole Expenses short of his actual Revenue. ”

“ Computing the average annual return from these funds at five and one-half per cent, we should have an assured income of five hundred and fifty thousand dollars a year, or about seven dollars for each man, woman, and child. ”

“ Such expenses need not relate directly to the production of income for the business. It is enough that the expense, if 'ordinary and necessary,' is directly connected with or proximately results from the conduct of the business. ”

“ For years past an annual income of £2000 has satisfied me. I live regularly, and am aware that any sudden increase of means and expenditure with nothing to account for it, is likely to render one an object of suspicion. ”

“ INCOME DERIVED FROM ANY PUBLIC OFFICE OR EMPLOYMENT OF PROFIT.—Liability to income tax under this head attaches to: Persons holding any parliamentary or judicial appointment, or a public office in the Civil Service; officers in the Army, Navy, Militia, or Volunteers; persons holding any Office or employment of profit in the Church, or in any public corporation, company, society, or public institution, or in any county or borough, or in any other public office or employment of profit of a public nature. ”

“ The varieties of income charged being very great, and special claims for consideration having been set up at different times, the result has been the formation of an income tax code, defining the methods and rules for assessing the different classes of profits and income, and prescribing the way in which abatements and exemptions are to be obtained. A leading peculiarity is the avoidance of special inquisition into the aggregate of individual incomes. ”

“ By way of example, if in year 6, est has gross income equal to ten million dollars then the possible profit participation sum for employees would be one million dollars and the possible profit participation sum for Employee would be five hundred thousand dollars. ”

“ Adjustment of Profit and Loss from different Sources of Income.—Where a person has sustained a loss, as distinguished from a mere decrease in profits, during any year, either in any trade, profession or employment, or in the occupation of lands for the purpose of husbandry, he may, on giving notice in writing to the Surveyor of Taxes for the district, within six months after the year of assessment, apply to the Commissioners of Income Tax for an adjustment, by setting off the loss against the total aggregate amount of his income from other sources, if any. ”

“ When a law-abiding taxpayer mistakenly receives income in one year, which receipt is assailed and found to be invalid in a subsequent year, the taxpayer must nonetheless report the amount as 'gross income' in the year received. ”

“ As we have already noticed, the £160 line at which assessment to income tax begins, divides the national income into two almost equal parts. Those persons who have more than £160 per annum enjoy an aggregate income of £909,000,000. Those persons who have less than £160 per annum enjoy an aggregate income of £935,000,000. ”

“ Certain deductions can be made in calculating income—such as working expenses, office expenses, pensions and other burthens, amounts paid for direct taxation, dues to commune and church, tithe, tenant and farming charges, heirs’ allowances and similar burthens ”

“ The man who derives an income of £1000 a-year from landed property, or from the funds, is in a far better position than the divine, the lawyer, the physician, or the military officer, whose incomes perish with their persons. ”

“ Nevertheless, as a result of court decisions and rulings, there have developed many divergencies between the computation of income for tax purposes and income for business purposes as computed under generally accepted accounting principles. ”

“ For five or six years the income has not been forty thousand, but there has been no reduction in the style of expenditure. Whence comes the money? Not a burden has been shaken off, fresh are annually heaped on. ”

“ Then there is needless complication in dividing the income into eighty-eight parts, splitting it up into small proportions, so that it reaches the hands of those who have to distribute it in driblets, giving an amount of trouble and anxiety out of all proportion to the importance of the sums, or the benefit to those receiving them. ”

“ No more do I; no more does anybody else that I have asked. I came upon it in an income-tax paper, brought to me because there was some irregularity in it. The man paying the tax declares that his income is derived from the profession of character-changer. ”

“ What the formula does assume is this, that barring exceptional conditions there will be throughout the system such an average relation between revenues and expenses as will cause the net income of a part to vary, in proportion to the mileage, with the net income of the whole. The implications of the formula being what they are, a taxpayer does not escape the application of the statute by evidence directed to only one of the related terms. ”