Abstract Every Federal income and profits tax act discriminates between various classes of taxpayers. The sixteenth amendment of the U.S. Constitution enacted in 1913 imposed a tax of one per cent upon the net income of corporations. Thus, at the very outset, taxpayers were faced with a discrimination, and in all probability many of them took occasion to adjust their financial organizations to meet the discrimination. The U.S. Congress must have foreseen this, for the Act contained a provision imposing an additional tax upon the individual's pro rata share of corporate income which was accumulated beyond reasonable needs of the business for the purpose of preventing the additional tax upon its stockholders. Accordingly, the penalty of Section 220 under this law is imposed upon any corporation which is formed or availed of for the purpose of preventing imposition of surtaxes upon its stockholders. The penalty is fifty per cent of its net income plus dividends, which is a very severe penalty. The article discusses the impact of this penalty for corporations and stockholders in detail.

Abstract In connection with the accounting terms, assets, liabilities, and net worth, a word of caution is necessary. By definition, it is obvious that in any case the total asset minus the total liabilities is equal to the net worth. As a result of this method of portrayal, the balance sheet has often been completely misunderstood and the layman frequently asks why it is that assets and liabilities are always of equal amount. To explain, the accountant has upon occasion gone so far as to personalize the business as distinct from its owner, and the net worth is referred to as a liability of the business to its owner. This, of course, only leads to confusion and various attempts have been made to explain the situation more clearly. Thus it has been advocated that the term liabilities be abandoned and that there be substituted therefore the term equities. Under this plan all obligations of a business to creditors and others are termed equities and the net worth of the business is termed the equity of the proprietor.