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|| 1452. Computation of the income tax of a corporation for fiscal year ending in 1919.-Receipt is acknowledged of your letter dated March 22, 1919, relative to the proper method of applying the credit for excess profits taxes in arriving at the total income tax under the Revenue Act of 1918 in the case of corporations with a fiscal year ending in 1919. You ask the following question:

"In computing the income tax at the 1918 and 1919 rates respectively, should the excess profits tax actually to be paid by the corporation be used as a credit in both cases or should the amount of the excess profits tax at the 1918 rate be used as a credit in computing the income tax at the 1918 rates and the excess profits tax at 1919 rates as a credit in computing the income tax at the 1919 rates?

In this connection you are advised that Article 1625 of Regulations 45, which is based upon Section 205 of the Act, provides that in the case of the fiscal year of a corporation ending in 1919:

"The method provided for computing the tax for a fiscal year beginning in 1918 and ending in 1919 is as follows: (a) the tax attributable to the calendar year 1918 is found by computing the income of the taxpayer and the tax thereon in accordance with the statute, as if the fiscal year was the calendar year 1918, and determining the proportion of such tax which the portion of such fiscal year falling within the calendar year is of the full fiscal year; (b) the tax attributable to the calendar year 1919 is found by computing the income of the taxpayer and the tax thereon in accordance with the statute as if the fiscal year was the calendar year 1919, and determining the proportion of such tax which the portion of such fiscal year falling with the calendar year is of the full fiscal year; and (c) the tax for the fiscal year is found by adding the tax attributable to the calendar year 1918 and the tax attributable to the calendar year 1919.

In computing the net income of a corporation and the tax thereon in accordance with the statute as if the fiscal year was a calendar year, a credit is allowed under Section 236 (b) against the net income so computed of "the amount of any | taxes imposed by Title III for the same taxable year.” There

fore, in computing the income tax for the respective portions of the fiscal year falling within the years 1918 and 1919, the net income for the full fiscal year is in each case credited with the total excess profits tax for the full fiscal year computed at the rates in effect for 1918 and 1919 respectively. [Letter to Henry Brach, signed by J. H. Callan, Assistant to the Commissioner and dated April 26, 1919.]

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