7. Tax on Undistributed Net Income. In addition to the in come and excess profits taxes, banks are subject to the tax of io per cent upon the amount of the total net income remaining un distributed six months after the end of the calendar or fiscal year. The tax is not imposed upon that portion of the undistributed net income which is actually invested and employed in the busi ness or is retained for employment in the reasonable requirements of the business. The purpose of Congress in passing this law was to prevent corporations from defeating the income tax laws by simply refraining from distributing their earnings, the cor poration not being subject to surtaxes as are the individual stock holders on dividends received. Congress did not attempt in such cases to collect a surtax from stockholders but imposed an additional flat rate tax on the corporation itself. In order to be taxable the accumulation of earnings must be with the purpose of evasion of the tax and must be unreasonable in amount. The government permits without tax the retention in the business of profits enough for the reasonable present need and for a prospective need within the reasonably near future.
8. Stamp Taxes. The War Revenue Act of October 3, 1917, imposed numerous stamp taxes, some of which vitally affect bank ing operations. These went into effect December r, 1917. Among the many items and tax rates specified, the act requires that stamps be affixed to bonds, debentures, or certificates of indebtedness issued on or after that date by any person, corpora tion, partnership, or association; on each $roo of face value or fraction thereof, a 5-cent stamp; on all indemnity or surety bonds, a 50-cent stamp; on original issues (on organization or reorganiza tion) of capital stock, on each $1oo of face value or fraction thereof, a 5-cent stamp; on all sales, or agreements to sell, or memoranda of sales or deliveries of, or transfers of legal title to, shares or certificates of stock, on each $ioo of face value or frac tion thereof, a 2-cent stamp; on drafts or checks payable other wise than at sight or on demand, promissory notes, except bank notes issued for circulation, and for each renewal of the same, for a sum not exceeding $100, a 2-cent stamp, and for each addi tional $ Too or fractional part thereof, a 2-cent stamp; on all con veyances—deeds, instruments, or writings—of real property sold, for value exceeding $ioo but less than $500, a 50-cent stamp, and for each additional $5oo or fractional part thereof, a 50-cent stamp; on powers of attorney, a 25-cent stamp; and for parcel post packages, on which postage amounts to 25 cents or more, a tax of r cent for each 25 cents or fractional part thereof charged for postage.
Borrowed Bond Books Since only United States bonds are accepted by the Treasury as security for national bank notes, banks find it convenient at times to borrow and lend these bonds rather than to buy or sell them outright. Borrowing and lending of bonds may, of course, have other occasions and be concerned with other than United States bonds. The records of these operations are kept in special books. In the case of bonds borrowed by the bank, record is kept of the parties from whom it borrows, the date of their receipt, the owner of the bonds, description, amount, rate, time, interest paid to, and date returned. When bonds are borrowed, receipts are made in duplicate, the original is handed to the loaner, and the dupli cate filed in the department. Interest for the use of the bonds may be payable quarterly or in instalments, as agreed upon. Interest is figured on the amount of the securities, for the number of days in the quarter, at the rate per annum which has been agreed upon, and payment is made by cashier's check or some times is credited direct if the party owning the bonds has an account with the bank. A descriptive record is likewise kept of bonds loaned, showing to whom loaned, date, classification, amount loaned, amount returned, and date returned.
A second book contains a record of the changes in the United States bonds to secure circulation . These changes embrace: i. A substitution of 2 per cent bonds for other than 2's, or the reverse.
2. A deposit to retire circulation, thereby permitting the bank to retake some of its bonds.
3. An application to increase its circulation, which necessi tates putting up more bonds.
The Interest Balance Book The entries in the interest balance book are made by the interest clerk from interest statements. These statements are taken off by the individual ledger bookkeeper, and, to make sure of their correctness, may be checked against the original posting on the general ledger by the interest clerk. in the largest Wall Street banks the number of such statements checked in this way daily reaches several thousands. When remittances arc received for the credit of any accounts which are on a special interest basis, they are carefully checked to detect any errors in posting. The transit department prepares and provides a list for this purpose, showing the non-interest items. A card file is kept of the terms under which interest is paid to each correspondent.