Form 1040, the regular income tax return, which may be either a long-form return or a short-form return, is used by persons who, by reason of the size or source of their income, are not permitted to use Form 1040A, and by persons who, although eligible to use Form 1040A, find it to their advantage to use Form 1040. Persons with adjusted gross income of less than $5,000, regardless of the source, may elect to file the short-form return on which nonbusiness deductions and tax credits are not reported, the tax being determined on the basis of adjusted gross income, by the taxpayer, from the optional tax table. If the taxpayer whose adjusted gross income is less than $5,000 wishes to claim nonbusiness deductions in excess of the standard deduction allowed through use of the tax table, he must file the long-form return and compute the tax liability on the basis of the net income less the allowable exemptions. Persons with adjusted gross income of $5,000 or more are required to file the long-form return and compute the tax liability. In computing the net income to be taxed, the taxpayer may use, in lieu of nonbusiness deductions, the optional standard deduction which is the smaller of $1,000 or an amount equal to 10 percent of the adjusted gross income, except that in the case of a separate return of a married person, the standard deduction is $500.

The tabulation below sets forth the number of returns filed on the various return forms falling in the taxable and nontaxable categories and indicates the returns with standard deduction and those with itemized deductions. Form 1040A and short-form 1040 automatically have the standard deduction.

Nontaxable returns with adjusted gross income and returns with adjusted gross deficit are included in statistics since they are filed to comply with the requirements that a return be filed by every person whose gross income (not adjusted gross income) is $600 or more, or whose net earnings from self-employment are $400 or more, regardless of allowable deductions and exemptions. Moreover, returns not otherwise required are filed to claim refund of tax overpaid through current payments, this being the most convenient method of claiming the refund.

All data are taken from the returns as filed by the taxpayer, previous to the official audit, and do not include any changes resulting from under-reporting of income, disallowance of exemptions or deductions, ad

Facsimiles of individual income tax returns, Forms 1040 and 1040A, are shown on pages 163-180. CHANGES IN THE INTERNAL REVENUE CODE OF 1939

Important changes in the Internal Revenue Code of 1939 result from amendments contained in the Revenue Act of 1951 and the Social Security Act Amendments of 1950. These amendments affect the comparability of income and tax data for 1951 with those tabulated for 1950. The increase in surtax rates under the 1951 act became effective as of November 1, 1951; the full effect of the increase, however, will not be realized until 1952. The more significant amendments are:

(a) Although the normal tax rate of 3 percent remains unchanged, the surtax rates are increased, effective November 1, 1951, to 19.2 percent of the first $2,000 of surtax net income progressing to 89 percent of such income in excess of $200,000, with the combined normal tax and surtax limited to 88 percent of net income. For 1951 calendar year income, a surtax schedule is provided which incorporates the increased surtax rates for the last 2 months of the year. These rates begin at 17.4 percent of the first $2,000 of surtax net income and range to 88 percent of the excess over $200,000, with a maximum combined normal tax and surtax of 87.2 percent of net income.

(b) Revised tables for the optional tax are provided for the calendar year 1951 and for taxable years beginning on or after November 1, 1951, which reflect the increased surtax rates.

(c) On returns for fiscal years beginning before November 1, 1951, the tax liability is the sum of (1) that portion of a tentative tax, computed at rates in effect before November 1, 1951, which the number of months in such fiscal year before that date bears to the total months in the fiscal year, and (2) that portion of a tentative tax, computed at rates applicable to years beginning on November 1, 1951, which the number of months in such fiscal year after October 31, 1951, bears to the total number of months in the fiscal year.

(d) The amount of tax withheld from wages paid after October 31, 1951, is increased to 20 percent of the excess of wage payments over the withholding exemption; and new withholding tables state the increased amount to be withheld. Withholding in addition to that otherwise required is permissible under agreement between employer and employee.

(e) For taxable years beginning after December 31, 1950, if either the taxpayer or his spouse has attained the age of 65 before the close of the year, the entire medical expense paid for both, plus the amount by which such expenses for the care of dependents exceeds 5 percent of adjusted gross income, may be claimed if within the maximum allowable deduction.

(f) The amount of gross income which an individual may receive and still qualify as a dependent of a taxpayer is increased from $500 to $600, for taxable years

(g) Every individual having net earnings from selfemployment of $400 or more for taxable years beginning on or after January 1, 1951, must file an income tax return, even though he may not otherwise have sufficient income to require the filing of a return.

(h) For taxable years beginning on or after January 1, 1951, there is levied a tax upon the statutory amount of net earnings from self-employment derived from the net profit or loss from trade or business carried on by an individual plus his distributive share of ordinary net income or loss from partnerships. The self-employment tax rate for 1951 is 24 percent.

(i) In case of taxable years beginning on or after October 20, 1951, short- and long-term capital gains and losses are fully taken into account. If the net short-term capital gain exceeds the net long-term capital loss, 100 percent of such excess is to be included in gross income; if the net long-term capital gain exceeds the net short-term capital loss, 50 percent of such excess is to be included in gross income. If all capital losses exceed all capital gains, the excess is allowed as a deduction in an amount not to exceed $1,000. The alternative tax rate on the excess of net long-term capital gain over the net short-term capital loss is 26 percent for taxable years beginning after October 31, 1951. The results of these amendments are not apparent in this report, since they apply only to a negligible number of fiscal year returns.

(j) A separate surtax rate schedule is provided for taxable years beginning after October 31, 1951, for any individual who qualifies as head of household. The graduated surtax rates in this schedule provide heads of households with approximately one-half the benefits provided for married couples under the split-income provision. The effects of this provision, affecting a negligible number of fiscal year returns, are not evident in this report. The provision will be fully effective on 1952 returns.

BASIC ITEMS

Adjusted gross income is defined as gross income minus allowable trade and business deductions, expenses of travel and lodging in connection with employment, reimbursed expenses in connection with employment, deductions attributable to rents and royalties, deductions for depreciation and depletion allowable to life tenants or to income beneficiaries of property held in trust, and allowable losses from sales or exchanges of property.

Adjusted gross income provides a means whereby different kinds of gross income are placed substantially on a par with each other; and in cases where the adjusted gross income is less than $5,000, the income tax liability may be determined on the basis of adjusted gross income, directly from the optional tax table, at the election of the taxpayer. Before the concept of adjusted

applied to the income of persons engaged in business or profession until the net income had been determined, that is, after there had been deducted not only the cost of doing business but also other nonbusiness deductions and credits which the law allows.

The adjusted gross income and its components are tabulated and all taxable income from whatever source is included. However, the income or loss from any source for which deductions are specifically allowed in computing adjusted gross income is the net amount from that source; and the net loss comprises a part of the adjusted gross income (or deficit) as well as the net profit.

Adjusted gross deficit occurs when the deductions allowable for the computation of adjusted gross income, mentioned above, equal or exceed the gross income.

Net income is the income tax net income reported on long-form returns, Form 1040, which have adjusted gross income in excess of the itemized deductions. Net income does not apply to returns, Form 1040A, nor to short-form returns, Form 1040. Although long-form returns, Form 1040, on which taxpayers elected to use the optional standard deduction, do show a net income, the amount thereof is not tabulated in this report.

Net deficit, reported on returns, Form 1040, classified as returns with itemized deductions, includes the adjusted gross deficit on short-form returns and the net deficit on long-form returns resulting from the combination of adjusted gross deficit and itemized deductions or from the excess of itemized deductions over adjusted gross income.

Amount of exemption is that allowed as a credit against income for the purpose of computing normal tax and surtax. A per capita exemption of $600 is allowed for the taxpayer, his spouse, and each closely related dependent (specified by law) who received more than one-half of his support from the taxpayer and who had less than $600 of gross income for the year, together with the additional exemptions of $600 for blindness and $600 for age 65 or over of the taxpayer and/or his spouse. Both the number and amount of exemptions tabulated include the exemptions automatically allowed through use of the optional tax table on returns, Form 1040A and short-form 1040, as well as the exemptions claimed by taxpayers who compute their tax liability on long-term returns. See page 16 for list of closely related dependents.

Slight duplication of exemptions exists on account of those dependents who have earned less than $600 of wages subject to withholding of income tax and who file a return as the most convenient method of claiming refund of tax; such wages are not taxable to the dependent, nor do they constitute a part of the income of the taxpayer claiming the dependent. Nevertheless, the exemption on the return of such a dependent is tabulated as well as exemption for the dependent taken by the taxpayer who rightfully claims the ex

Total tax liability for 1951 includes the income tax liability and the newly imposed self-employment tax. Income tax liability tabulated is after the deduction for the two tax credits relating to income tax paid at source on interest from tax-free covenant bonds and to income tax paid to a foreign country or possession of the United States, allowed only to taxpayers who itemized deductions. The amount of these tax credits is not available. Self-employment tax is paid on net earnings from self-employment for the taxable year and no tax credit is allowed.

Income tax liability is after the deduction for tax credits described above; it consists of the normal tax, surtax, and alternative taxes paid in lieu thereof, that is, the optional tax provided under supplement T of the 1939 Code and the alternative tax provided under section 117 (c) (2) for income which includes net gain from sales of capital assets held more than 6 months. The income tax components are described on pages

13-14.

Self-employment tax is imposed on self-employment income, under subchapter E, chapter 1, of the 1939 Code (added by Social Security Act Amendments of 1950). Self-employment tax is based upon net earnings from self-employment at the rate of 214 percent. Further discussion of this tax occurs on pages 13-14. Taxpayments are made currently throughout the income year by means of tax withheld on wages and payments on the Declaration of Estimated Tax, Form 1040-ES. If these taxpayments are insufficient to cover the total tax liability for 1951, the balance of tax due is paid when the return is filed, except that for returns, Form 1040A, the balance is paid upon assessment by the collector. If the current taxpayments exceed the total tax liability for 1951, the overpayment is refundable to the taxpayer unless he signifies on a return, Form 1040, that he wishes the overpayment to be credited on his 1952 estimated tax on Form 1040-ES. Each of these tax elements is explained on pages 14-15.

CLASSIFICATION OF INDIVIDUAL RETURNS

Individual returns are classified by adjusted gross income classes, by taxable and nontaxable returns, by selected patterns of income, by size of specific source, by taxpayment status, by marital status of the taxpayer, by number of exemptions other than age or blindness, and by States and Territories. Taxable returns are classified by types of tax liability. Returns with itemized deductions are identified in certain tabulations and also classified by size of surtax net income. The business activity of taxpayers who report income from the operation thereof as a sole proprietor is classified by industrial groups.

in

Adjusted gross income classes.-Adjusted gross come, being common to all types of individual returns, supplies the base for adjusted gross income classes. Returns showing adjusted gross deficit, regardless of

and appear as a separate class. This class and the adjusted gross income class, "Under $600," occur among taxable returns for 1951, because a self-employment tax is payable on self-employment earnings irrespective of the income subject to income tax.

Taxable and nontaxable returns.-This classification is based on the existence or nonexistence of a tax liability after the allowable tax credits. The tax liability for 1951, unlike that for former years, includes the newly imposed self-employment tax. Returns with self-employment tax are classified as taxable returns even though there is neither normal tax and surtax nor alternative tax. Tax credits are allowed only to taxpayers who itemized deductions and only against the income tax liability; no tax credit is allowed against the self-employment tax. Tax credits relate to income tax paid at source on interest from tax-free covenant bonds and to income tax paid to a foreign country or possession of the United States. In certain instances the foreign tax credit may eliminate the income tax but not the self-employment tax.

Returns with itemized deductions.-Returns classified as returns with itemized deductions are long-form returns, Form 1040, with nonbusiness deductions itemized in detail; long-form returns, Form 1040, with no deductions (standard or itemized); and all returns with adjusted gross deficit, whether or not deductions are itemized, so that all returns with adjusted gross deficit will be tabulated with this category of returns.

Patterns of income.-Returns are classified into selected patterns of income embracing salaries and wages, dividends, interest, other income, and other loss-singly and in combination. These income items are defined on pages 12-13.

Size of specific source.-Returns are classified according to the size of a specific source for distribution by patterns of income. Five sources-salaries and wages, dividends, interest, other income, and other loss-are so classified. The class intervals are narrow in the lower levels to provide adequate classification of small income items. Also see patterns of income, pages 12-13.

Types of tax liability.-Taxable returns are classified on the basis of three types of tax liability: combined normal tax and surtax, alternative tax on income containing capital gain, and self-employment tax only. The first two types of tax may be in conjunction with the self-employment tax. By so classifying the tax, the two categories-returns with normal tax and surtax, and returns with alternative tax-are maintained on the same basis as that of previous years. Returns with normal tax and surtax include the optional returns, Form 1040A, and short-form returns, Form 1040, on both of which the optional tax is paid in lieu of the regular normal tax and surtax. Returns with alternative tax are long-form returns wherein the income includes a net long-term capital gain or an excess of net long-term capital gain over net short-term capital loss

tax and surtax on income which includes all net gain from sales of capital assets. Returns with only selfemployment tax are returns, Form 1040, on which there is no income tax liability. Further discussion of types of tax will be found on pages 13-14.

Taxpayment status.-Returns are segregated into three groups for this classification: returns with neither tax overpayment nor tax due at time of filing, returns with tax overpayment, and returns with tax due at time of filing. Explanation of these groups appears on page 14.

Marital status.-The classification of returns for marital status of taxpayer is based on the marital status. of the taxpayer at the close of the income year or on the date of the death of a spouse. The three classifications are joint returns of husbands and wives, separate returns of husbands and wives, and returns of single persons. The last two groups are also classified as returns of men and returns of women. Additional description is given on pages 15-16.

Number of exemptions other than age or blindness.For a frequency distribution of returns by number of exemptions, only the per capita exemption of the taxpayer, his spouse on a joint return, and each dependent is utilized. This provides the same basis for this distribution as that used in former years. There is a class for each of 1 through 5 and for 6 or more exemptions, for all returns and for joint returns; and a class for each of 1 through 3 and for 4 or more exemptions, for separate returns of husbands and wives and for returns of single persons.

Size of surtax net income.-Returns with itemized deductions are classified on the basis of surtax net income into classes corresponding to surtax net income brackets. Because of the split-income provision, joint returns are classified, independently, into surtax brackets double the extent of those for other returns.

States and Territories.-This classification consists of the 48 States, Hawaii, and the District of Columbia. The segregation of returns on the basis of States and Territories is determined by the location of the collection district in which the return is filed, except that for the District of Columbia, the segregation is determined from the address of the taxpayer. Collection districts, or groups of such districts, are coextensive with the States and Territories, except that the District of Columbia comprises a part of the district of Maryland and the Territory of Alaska is a part of the district of Washington. The sampling technique employed for obtaining statistical data does not permit separate tabulation of returns from Alaska.

Industrial groups. The business activity of taxpayers reporting income from a solely owned business or profession is classified by industrial groups in accordance with the nature of business as described by the taxpayer in the business schedule. When two or more kinds of businesses are conducted, each kind of business

Other information on industrial groups will be found under sole proprietorships, pages 18-19.

TABULATED DATA

Data tabulated from individual returns for 1951 are estimated from samples of optional returns, Form 1040A; short-form returns, Form 1040; and long-form returns, Form 1040, with adjusted gross income under $50,000. The number of returns with adjusted gross income under $50,000 is obtained from records of the Internal Revenue Service, but the distribution of returns by income classes and the related data, together with their distribution by classes, are estimated based on samples selected from the different strata in each category. The method of selecting the samples, the procedure for extending the data obtained from the samples to the stratum populations, and the resultant sampling variability are fully explained in the description of the sample and limitations of data on pages 19-21. Data for returns with adjusted gross income of $50,000 or more are tabulated from each return.

All data are taken from the returns as filed by the taxpayer and do not reflect any changes executed as a consequence of official audit by the Internal Revenue Service.

In tabulating data by adjusted gross income classes, the nontaxable returns in adjusted gross income class "$4,500 or more" are considered a class unit; and, in tables where the taxable and nontaxable returns are combined, the nontaxable returns in this class remain in this unit, even though they exceed the designated class limit.

In the case of fiscal year returns on which the tax is prorated on account of the change in tax rates effective November 1, 1951, the prorated tax is tabulated. Other data for these returns are not prorated; they are taken from the data reported for computation of the 1951 portion of the tax. For instance, if the taxpayer claimed head of household status in computing his prorated tax for the portion of his income year after November 1, 1951, the classification for marital status is based entirely on the marital status for the earlier part of his income year.

Statistical data for individual returns for 1951 are presented in 16 tables. Data in tables 1 through 11 are tabulated on a national basis; data in tables 12 and 13 are distributed on a State basis; data for sole proprietorships in tables 14 through 16 are tabulated on a national basis. Taxable and nontaxable returns are combined in some of these tables, in others, they are shown separately.

Tables 1, 1a, and 1b show number of returns, adjusted gross income, total tax liability, and their corresponding percentage distributions. New stubs in table la, aggregated from the highest income class, and in table 1b, aggregated from the lowest income class, provide for clarity and ease of use.

Table 2 presents the sources comprising adjusted gross

quency of these items; formerly, frequencies were tabulated in a separate table.

Frequency tabulations of returns by patterns of income are contained in tables 3, 4, and 5. No similar tabulations have been made since 1945.

The table for types of tax, table 6, has an additional type of tax on account of the self-employment tax. Table 7, wherein data are shown by taxpayment status, contains fewer items than similar tables for former years.

Tables 8 and 9 by marital status of taxpayer retain their former character, except that, in the latter table, returns with self-employment tax only have been added. Table 10 showing the amount of surtax net income by surtax income brackets introduces a new table this year.

Tabulation of capital gains and losses, including short- and long-term gain and loss, carryover, and other details, is in table 11.

Data in tables 12 and 13 are distributed by States and Territories. Only returns with adjusted gross income are included, and taxable and nontaxable returns are combined. The adjusted gross income classes in table 13, established especially for this table, are in some instances broader than those used in the national distributions.

Sole proprietorship data are presented in three tables. Table 14 shows limited data by selected industrial groups; table 15 presents the data by size of total receipts; and table 16 gives a frequency of businesses with net profit by size of the profit.

In addition to the tabulations for 1951 data, 6 historical tables, 17 through 22, contain significant data for the period 1944–51.

Throughout the tables, values in thousand dollars and percentages are rounded and, therefore, may not add to the totals.

SIMPLE AND AGGREGATED DISTRIBUTIONS

The tabulations for cumulated distributions of data have been set in separate tables this year, each having an appropriate stub that will facilitate the use of these data.

The number of returns, amount of adjusted gross income, and total tax liability for returns with adjusted gross income are tabulated by adjusted gross income classes in table 1, to show the simple distribution by class with the corresponding percentage distribution. The taxable and nontaxable returns are combined in this distribution. Returns with no adjusted gross income, taxable and nontaxable combined, are shown apart from returns with adjusted gross income.

In table 1a, each of the above items is aggregated from the highest adjusted gross income class to show the cumulation at every income class level together with its percentage of total. Taxable and nontaxable returns are combined and returns with no adjusted gross

In table 1b, each of these items is aggregated from the lowest adjusted gross income class to show the cumulation at every income class level together with the percentage of total. Only returns with adjusted gross income are included and taxable and nontaxable returns are combined.

SOURCES COMPRISING ADJUSTED GROSS INCOME

The amounts of income, profit, or loss, tabulated as sources of income and loss comprising adjusted gross income, are the net amounts to be included in adjusted gross income, that is, gross receipts from business less trade and business expenses, salaries and wages less travel and lodging expenses in connection with employment, gross rents and royalties less expenses attributable thereto, net gain from sales of capital assets and other property, allowable losses from sales of capital assets and other property, net operating loss deduction, and net profit or loss from partnerships. If the respective deductions are such that the result is a net loss from the source to which they relate, the net loss nevertheless comprises a part of the adjusted gross income (or deficit). Therefore, the net loss from rents and royalties, from business, from partnership, from sales of capital assets and other property, and the net operating loss deduction are tabulated as component parts of adjusted gross income as well as the net profits.

The income and loss items comprising adjusted gross income are described below. In table 2, the amount of each is shown, together with the frequency of returns on which each is reported.

Salaries and wages include salaries, wages, tips, bonuses, commissions, and other kinds of compensation used by the employer to pay the employee for personal services; but excludes wages not exceeding $100 per return, upon which no tax was withheld, reported as other income on the optional return, Form 1040A. Salaries and wages include compensation of Federal, State, and local government employees, as well as pensions and retirement pay if subject to withholding tax and reported in the salary schedule. Compensation of persons who received back pay or pay for personal service covering a period of 36 months or more and paid tax under section 107, included in salaries and wages, is only that portion allocated to the income year 1951. Travel and lodging expenses incurred by an employee while away from home on his employer's business are deducted from gross salary reported on Form 1040. For any month during any part of which members of the armed forces of the United States served in a combat zone, enlisted personnel exclude from salaries all compensation and commissioned officers exclude not more than $200 of compensation. Pensions of veterans, disability pay, monthly allowances for support of veterans and their dependents, mustering-out pay, principal of terminal leave bonds, and benefits under Servicemen's Readjustment Act are exempt from tax and,