Table	Page
No.	No.
1	22
2	27
3	32
5	<;i
12	110

GUIDE TO TABLES BY SUBJECT

Industry measurement:

Minor industry receipts, net income, tax, distributions to stockholders

Major industry income statements

Ma jor industry balance sheet and related income statements

Major industry asset size distribution, selected balance sheet and income statement items

Major industry receipts, net income, total assets, by month accounting period ended..

Industrial division income size distribution, receipts, net income, tax, distribu- tions to stockholders 7 102

Asset size and income size distributions:

Balance sheets and related income statements, by size of total assets A 39

Major industry selected balance sheet and income statement items, by size of total

assets 5 A\

Industrial division total assets, net income or deficit, tax, compensation of offi- cers, and distributions to stockholders, by size of net income or deficit, by size of total assets , 6 76

Industrial division receipts, net income, tax, distributions to stockholders, by

size of net income or deficit 7 102

Type of tax liability, by size of net income 8 106

Ratios from returns:

Ratio of business receipts to total assets, percent of net income on business receipts,

by asset size, by industrial division 13 H?

Depreciation as percent of depreciable assets, by industrial division 14- 126

Payments on declarations of estimated tax, net income, tax, foreign tax credit, by size

of tax less foreign tax credit, by accounting period 9 107

Accounting periods:

Net income or deficit, and tax, by month accounting period ended 10 108

Calendar and noncalendar periods related to size of net income or deficit 11 109

Major industry receipts, net income, total assets, by month accounting period ended... 12 HO

Prior year incomes:

Net income less deficit, two years reported on 1958-59 retiarns, by major industry... 15 127 Net income less deficit, three years reported on 1958-59 returns, by major industry. 16 128 Frequency of returns by 1957-58 and 1958-59 net income size, by size of total

assets 17 1^^

Returns with net income 18-21 133-153

Ginsolidated returns: „

Industrial division, balance sheets and related income statements 22, 24 154, i?^

Asset size distribution, balance sheets and related income statements 23, 25 155* 15a

Credit claimed for foreign taxes

Small business corporation returns, Form 1120-S:

Major industry balance sheet and related income statements 27 161

Asset size distribution, balance sheet and related income statements 28 167

Shareholders: Number, taxable ordinary and long-term capital gain income, distribu- tions, compensation _. • 29, 30 168, m

Minor industry receipts, net income or deficit

Personal holding company income, undistributed income, tax, total assets 31-33 175-176

34-37 181-184 Historical data

CORPORATION INCOME TAX RETURNS WITH ACCOUNTING PERIODS

ENDED JULY 1958 - JUNE 1959

PERIOD COVERED AND RETURNS INCLUDED

This report summarizes corporate financial activ- ities for the business year 1958. Income tax returns of all corporations, filed either for the calendar year 1958 or for noncalendar accounting periods ended July 1958 through June 1959, were sampled to provide benchmark statistics. Chart 1 illustrates the span of accounting periods covered in this volume.

Corporation returns are normally filed within two and a half months after the end of the accounting period. However, many corporations were granted extensions of time in which to file and many of the returns were not available for statistical work un- til the spring of 1960. A distribution of the number of returns and the amount of income by ac- counting period is shown in table 10.

The sample of returns used for 1958-59, which in- cluded both corporation income tax returns (Forms 1120, 1120L, and 1120M) and small business corpora- tion returns of income (Form 1120-S), was designed to provide corporate statistics for all types of business activity in the United States. Every do- mestic and resident foreign corporation, unless expressly exempt, is required to file a return re- gardless of the amount of its income.

Of 1,033,000 corporation returns filed. for the 1958-59 income year, 990,000 were for active corpo- rations. Table A summarizes the number of returns filed, and shows the net income and tax levels for 1958-59 and 1957-58. The tables in this report, derived from returns as filed, combine statistics from the -4^,000 small business corporation returns of income (Form 1120-S) with data from the 94-6,000 income tax returns of other active corporations. Data for small business corporations only are shown

in tables E and 27 through 30. Corporations filing small business returns of income are described un- der "Changes in law," and the methods used in sam- pling returns are described on pages 16-17. Finan- cial data for inactive corporations were excluded from all tables.

A corporation may file its return in the internal revenue district in which is located either its principal off ice or its principal place of business. The return contains data for all units of the cor- poration's activities, even though its operations may extend over several states. Therefore, classi- fication of data by geographic area indicates where the return was filed and does not indicate the place of origin of the income and tax liability. For this reason, the geographic distribution of corpo- ration income tax return data has only limited usefulness and is not included in this volume.

Talilo *.— CORTORATION KETimNS: NUMBER, NET INCOME OR DEFICIT. AND T4X

		Accounting periods ended —	Increase decrease	or (-)
Item	July 1958- June 1959	July 1957- June 1958	Number or amount	Percent
		(1)	(2)	(3)	(4)
	1,032,632 990,381 43,945 42,251 611,131 25,203 43,489,773 43,201,903 287,865 511,760 18,814,304 379,250 18,742 4,966,904 198,975	984, 516 940,147 44,369 572,936 48,664,002 499,395 20,581,934 367,211 4,187,538	48,116 50,234 -2,118 38,195 -5,174,229 12,365 -1,767,630 12,039 779,366	4.9
	5.3

	-4.8
Active corporations: Returns with net tnGome:'-	6.7

Net income, total thous. Form 1120, -L, -M. ..thous. Form 1120-S thous. Income tax:	dol. . dol.. dol..	-10.6 2.5
Amount thous. Returns without net income:	dol..	-8.6 3.3

Deficit, total thous. Form 1120-S thous.	dol.. dol..	13.6

* Income tax liability data for 1958-59 and 1957-58 are not strictly comparable be- cause the net income reported on Form 1120-S (introduced in 1958-59) is not subject to corporation income tax . For both years, returns with net income but no tax lia- bility occur as a result of special statutory deductions from net income. The tax liability is before foreign tax credit.

COMPARISON OF DATA FOR 1958-59 AND PRIOR YEARS

For the year 1958-59, the value of total assets reported on income tax returns filed by nearly one million active corporations moved past the trillion dollar level, a record that contrasts with the $262 billion in total assets reported for 1926-27, the first year that income tax returns were used as a source of corporation balance sheet data. The num- ber of returns, total assets, total compiled re- ceipts, and net income, by size of total assets, for 1958-59 are shown in table B.

CORPORATION INCOME TAX RETURNS, JULY 1958-JUNE 1959

Table D.-ACTIVE CORPORATION RETURNS: TOTAL ASSETS, TOTAL COMPILED RECEIPTS, AND NET INCOME OR DEFICIT, BY SIZE OF TOTAL ASSETS, JULY 1958-JUNE 1959

Size of total assets	Number of returns	Total assets ( Thousand dollars)	Total compiled receipts ( Thousand dollars)	Net income or deficit (Thousand dollars)
	(1)	(2)	(3)	(4)
All active corporation returns..	990,381	-	735,338,092	38,522,869
Returns with assets zero or not	62,746 927,635	1,064,480,945	7,091,350 728,246,742
Rettims with assets greater than	38,366,481

Ihder $25,000	227,173 143,584 166,581 195,025 88,311 46,346 31,003 12,318 7,370 5,322 1,898 1,001 691 512	2,536,537 5,a2,076 12,050,168 31,089,825 30,827,321 32,052,518 47,823,486 43,378,382 54,796,544 80,941,468 65,224,452 69,914,774 105,846,767 482,786,627	8,359,009 11,866,279 24,371,527 58,619,313 54,947,355 53,076,919 61,632,657 40,523,180 38,335,207 47,291,539 34,356,972 40,610,029 57,911,065 196,345,691	1177,691
$25,000 under $50,000	54 238

$100,000 under $250,000	1 119 695


$1,000,000 under $2,500,000 $2,500,000 under $5,000,000 $5,000,000 under $10,000,000 $10,000,000 under $25,000,000 $25,000,000 under $50,000,000 $50,000,000 under $100,000,000 $100,000,000 under $250,000,000... $250,000,000 or more .	2,049,198 1,657,456 1,852,798 2,902,748 2,209,325 2,728,207 4,272,911 16 797 496

ufacturing corporations with assets of less than $100 million. Business receipts of nonmanufacturing corporations (except life insurance companies) were about $2 billion below 1957-58.

In comparing corporate net income for 1958-59 with net income for prior years, an allowance should again be made for life insurance companies. A de- crease of $2.5 billion innet income shown for these insurance companies is largely the result of a change in definition as explained below. Net in- come for companies other than life insurance amounted to $37.6 billion for 1958-59 and $41.0 billion for 1957-58, a drop of $3.4- billion. Returns of manu- facturing corporations with total assets of $100 million or more show the greatest change, a drop in net income of $2.9 billion. The remaining manufac- turing corporation returns show net income $1.3 billion below the 1957-58 level, while nonmanufac- turing companies (except life insurance companies) reported a net income increase of about $800 million.

Table C shows a comparison of corporate business receipts and net income for 1958-59 with similar data for 1957-58. In comparing business receipts (formerly shown as two items, (1) gross sales, and (2) gross receipts from operations), an adjust- ment should be made for business receipts reported by life insurance companies under new tax provi- sions. As explained below, life insurance companies had reported only investment income such as divi- dends, interest, and rents for many years. Begin- ning with 1958-59, they now report premiums and other business receipts.

Total business receipts for 1958-59 amounted to $697 billion. If the data reported by life insur- ance companies are excluded because of the change in reporting, the 1958-59 business receipts are $5 billion below the $685 billion reported for 1957- 58. As shown in chart 2 and table C, returns of manufacturing corporations with total assets in ex- cess of $100 million show a drop in business receipts of $8.6 billion below the 1957-58 level. This was partially offset by a gain of $5 billion among man-

CKon 2.— CHANGE IN AMOUNT OF BUSINESS RECEIPTS, 1957-58 TO 1958-59

(Billions of dollor.)

MAHUFACTUUNG CORPORATIONS

D^oo.. tm. 1957-S(	tocntsa ovM 1957-Sa
All monufocturinfl cofponrtlo	lU


With o».t> (100 nllllon Of more e.6
Wllh Oiini l.o than $100 1	nillion.


1		1	1

NONMANUFACTURING CORPORATIONS (Euapt Lif* Inauranc*)

All (wnmanufacturing corporarion> (Except Lif* Imurance) ).7

With oss«tt S100 million or mora .,

With atMtt \m than S100 nillk

:•

Tabic r.— ACTIVE CORPORATION RETURNS: COMPVRISON OF NUMBER OF RETIRNS, BUSINESS RECEIPTS, AND NET INCOME OR DEFICIT OF MANUFACTURING AND NONMANIFACTIIRING

CORPORATIONS, BY SIZE OF TOTAL ASSETS, 1958-59 AND 1957-58

	Total	Manaracturing corporations	Nonmanufacturing corporations lexcept life insurance companies)	Life insurance companies
Item and size of total assets	1958-59	1957-58	Increase or decrease (-)	1958-59	1957-58	Increase or decrease '-)	1958-59	1957-58	Increase or decrease (-)	1958-59	1957-58	Increase or decrease (-)
	llj	(2J	(3)	(4)	15)	(6)	(7)	(8)	(9)	(10)	(li)	(12)
Number of returns:	990,381 1,203 989,178	940,147 1,1^9 939,018	50,234 74 50,160	150,696 279 150,417	138,566 273 138,293	12,130 6 12,124	838,212 839 337,373	800,115 773 799,342	38,097 66 38,031	1,473 85 1,388	1,466 83 1,383
With total assets of—	2
Less than $100 million	5
	fHiltion dollars)
Business receipts:^	696,594 .^17,395 -.59,199 38,5,i3 ,il,070 17,453	684,883 ,.'29,858 455,025 44,476 25,341 19,135	11,711 7,537 4,174 -5,953 -4,271 -1,682	324,135 143,952 180,183 18,500 10,262 8,238	327,539 152,560 174,979 22,738 13,158 9,580	-3,404 -8,608 5,20; ^,238 -2,896 -1,3..2	355,598 78,541 277,057 19,055 9,905 9,150	357,344 77,298 280,046 18,257 8,928 9,329	-1,746 1,243 -2,989 798 977 -179	16,861 14,902 1,959 968 903 65	3,481 3,255 226	16,861
With total assets of—	14,902

Net income or deficit:^	-2, 513
With total assets of —	-2,352
	-161

^"Business receipts" for 1958-59 includes premiums and other business receipts of life insurance companies. For 1957-58 life insurance companies did not report business receipts eince they were taxed only on investment income such as dividendSj interest, and rents.

^Comparability of net income for the two years is affected by a change In the definition of net income of life insurance companies. For 1958-59 life insurance company net income is the gain from operations less the special deductions applicable only to life insurance companies, such as additions to reserves. For 1957-58, life insurance net income is net iiivestroent income before all special deductions.

CORPORATION INCOME TAX RETURNS, JULY 1958-JUNE 1959

PROFIT AND TURNOVER RATIOS

For the second successive year Statistics of Income provides information about the relationship of corporate profit to turnover of assets. Table 13 shows, for broad industry and asset size classifi- cations, a distribution of the number of returns cross-classified on the basis of two important ratios. These ratios are net income to business receipts and business receipts to total assets. ■'• The use of electronic data processing allows the computation of these ratios separately for each return and the grouping of data into significant categories.

These ratio data allow a comparison between the range of profits of corporations in a given class and the average profit for the class as a whole. For example, the average net income for manufactur- ing corporations with assets greater than zero was 5.7 percent of business receipts.^ Table D, however, shows the variation in net income on busi- ness receipts for manufacturing corporations for two years. Examination of table D shows that only about 9 percent of the manufacturing corporations actually had net income on business receipts of from <+ to 6 percent.

Table D._MANUFACTURING CORPORATION RETURNS WITH ASSETS GREATER THAN ZERO: PERCENTAGE DISTRIBUTION OF NUMBER OF RETURNS BY SIZE OF NET INCOME ON BUSINESS RECEIPTS RATIO

Size of ratio: Net income on business receipts

Total

Deficit and zero percent

Greater than zero, under 2 percent,

2 under 4 percent

4 under 6 percent

6 under 8 percent

8 under 10 percent

10 under 15 percent

15 under 25 percent

25 percent or more

Accounting periods ended —

July 1958- June 1959

July 1957- June 1958

36.7 22.0 12.5

i.l 5.2 3.1 1.7

100.0

36.6

20.7

12.4

3.7

5.8

4.4 6.0 3.8 1.6

4- under 6 percent and an assets turnover rate of 2 under 3, the rate of net income on total assets would be from 8 to 18 percent, computed as follows:

Met Income Business receipts

Business

receipts

Net income

Total assets Total assets

Minimum return on assets

Maximum return on assets

2.0

3.0

8.0^

to the

balance

puting.

DEPRECIATION RATIO

Table 14, page 126, relates the amount of depre- ciation claimed for tax purposes by a corporation amount of gross depreciable assets on the sheet. This table was obtained by com- for each return, the ratio of depreciation claimed to the amount of gross depreciable assets reported, and then grouping the data into appropri- ate ratio size classes. Data are shown for each of the nine broad industry divisions.

The depreciation claimed may comprise amounts computed by one or several of the methods approved by the Internal Revenue Code and described in paragraph 26, page 224-. The amount of depreciable assets is, in some cases, greater than the value of the assets on which depreciation is claimed. The latter figure cannot be readily tabulated from the corporate return form. Depreciable assets re- ported on the balance sheet of the return generally include assets on which accelerated amortization is claimed, and fully depreciated assets, as well as the assets for which depreciation is claimed. In addition, in the "Finance, insurance, and real estate" division, some of the assets associated with the depreciation deduction are reported as other investments or land rather than as depreciable assets.

Table 13 also shows the amount of total assets of corporations in each class. The inclusion of the total assets figure in the table makes it possible to derive an indication of the range in the rate earned on total assets. For manufacturing corpo- rations having net income on business receipts of

■4?hese ratios were computed by performing the Indicated division of data from each return:

(1) Net Income (2) Business receipts

Business receipts Total assets

The former Is frequently stated as the net income "on" business receipts (net on sales). The latter Is variously stated as the "turnover of assets" or the "times" assets were turned over.

%sing data In table 3, column 11, page 33, the average profit on business receipts of manufacturing corporations may be computed as follows:

Net Income (line 69) ^ $18,399.881,000 ^57^

Business receipts (line 38) " $321,676,226,000 ' "

Ratios from tax return data are affected by reporting re- quirements. Net Income Is computed under the Internal Revenue Code (see page 13) while total assets are those shown on the books. The significance of the net Income ratio may vary with size of the corporation. For example, a low ratio may not Indicate unsatisfactory operating re- sults when shareholders' wages and salaries constitute a relatively large part of the total deductions claimed on the tax return.

INCOME SUBJECT TO TAX

A new item, "income subject to tax," is intro- duced in table 8 of this issue of Statistics of Income. It is smaller in amount than "net income" shown throughout this report, and conforms closely to the general definition of taxable income found in the Internal Revenue Code. Because of the com- plexities of the various tax provisions, it is not practicable to present a statistical item defined precisely as the taxable income specified by law for all corporations.

Net income is the difference between the gross income subject to tax and the ordinary and necessary business deductions recognized for tax purposes. Income subject to tax is, for most returns, the net income minus the net operating loss deduction (from prior years) and the special deductions for divi- dends received, certain dividends paid, and Western Hemisphere trade corporations. Partially tax-exempt interest is included in "income subject to tax" although treated as a special deduction in the Code.

Audit adjustments and deductions for operating losses in future years (which are not ordinarily shown on the tax return) are not reflected in the estimates of income subject to tax.

CORPORATION INCOME TAX RETURNS, JULY 1958-JUNE 1959

Each corporation is subject to a normal tax of 30 percent on taxable income as defined by the Code, and to a surtax of 22 percent on taxable income, plus partially tax-exempt interest, in excess of $25,000. Section 1201 of the Code provides a maxi- mum tax rate of 25 percent on net long-term capital gain reduced by net short-term capital loss. Cor- porations with such long-term capital gain compute an "alternative tax" by applying the 25-percent rate to long-term capital gain and the regular nor- mal tax and surtax rates to the balance of the tax- able income. The alternative tax is reported by the corporation only if it is less than the normal tax and surtax on the total taxable income.

Because of the maximum 25-percent tax rate appli- cable to long-term capital gain, data in table 8 are shown separately for returns on which only normal tax and surtax rates were used (regular tax) and for those on which the 25 percent maximum rate on long-term capital gain was used (alternative tax). Effective tax rates computed from data in table 8 will show slight variations arising from the addi- tional 2-percent tax on consolidated returns, the inclusion of partially tax-exempt interest in income subject to tax, special provisions of law, such as those applicable to mutual insurance companies, and classification of the data by size of net income rather than by size of income subject to tax.

INCOME SIZE RELATED TO SIZE OF TOTAL ASSETS

Information relating size of net income to size of total assets is shown in table 6. The number of returns, total assets, net income or deficit, tax, compensation of officers, and distributions to stockholders are shown for each size of net income or deficit and for each size of total assets within six broad industry categories. The total net incomes and the deficits shown in the table include net in- come and deficit reported on Forms 1120-S by small business corporations under the provisions of sub- chapter S, chapter 1 of the Code. The net income of these corporations is taxed through the stock- holders rather than through the corporation. There- fore, net income data for corporation returns other than Form 1120-S are shown separately.

Data similar to that -in table 6 were published for accounting periods ended July 1955 through June 1956 in Statistics of Income-1955 , Corporation Income Tax Returns.

CLASSIFICATION OF RETURNS BY SIZE OF INCOME TAX LESS FOREIGN TAX CREDIT

Table 9 presents the first classification 6f corpo- ration income tax return data by size of tax. The classification used is income tax less foreign tax credit. The table was designed to provide data with respect to the operation of Code provisions dealing with payments on declarations of estimated tax. It shows, for corporations with specified sizes of income tax after foreign tax credit, the net income, income tax liability before foreign tax credit, the credit claimed, and payments on declara- tions of estimated tax.

Corporations are required to file declarations of estimated tax and to make payments thereon during the tax year if the tax liability after credits is expected to exceed $100,000. The declaration and first payment must, in general, be made by the mid- dle of the ninth month of the annual tax year . The second payment must be made by the middle of the twelfth month. For annual accounting periods ended July through November 1958, each of the two payments was required to be 15 percent of the base. For annual accounting periods ended December 31, 1958, through June 30, 1959, the required payments were 20 percent of the base. The payments are based on the estimated actual tax liability less credits and less $100,000. Special rules are pro- vided for part-year accounting periods and for changing estimates of tax during the year.

PRIOR YEAR NET INCOMES

Question K,Form 1120, and question F, Form 1120-S, provide space for the corporation to enter the net income or deficit reported for the two immediately preceding years. Responses to these questions were used to measure changes in the net income of identi- cal groups of taxpayers.

Eighty percent of the 1958-59 full-year returns provided information for one preceding year. Answers for two preceding years were available for 70 per- cent. Forms 1120-L and 1120-M, filed by life and mutual insurance companies, did not require the reporting of prior year income. New companies fil- ing first or second returns could not complete the question. Also, 1958-59 part-year returns were treated as nonresponse cases to maintain compara- bility, in-so-far as possible, in the periods over which the incomes shown in the tables were earned.

The net incomes and deficits for the two and three year periods were classified according to the industrial activity reported on the 1958-59 return. This assured comparison of the incomes and deficits of the same taxpayers in the same industry for the two or three year period, but other differences could not be controlled. For example a taxpayer reporting prior year income may have acquired or disposed of a business unit, or may have reported for a previous accounting period of less than 12 months. Some, but not all, taxpayers with changes during the reporting period apparently adjusted prior year incomes to achieve comparability.

Corporations reporting net income usually replied to the question on the tax return and reported their income or deficit for prior years whereas corporations without net income often did not answer the question. Consequently, the prior year income or deficit was reported on a larger percentage of 1958- 59 returns with net income than those without net income. As a result, the net amounts of 1958- 59 incomes compared to prior year incomes are high relative to the net amount of 1958-59 income shown in other tabulations.

Prior year income data are shown by industry in tables 15 and 16. The frequency with which returns were in the same income or deficit class for both 1957-58 and 1958-59 is shown by assets size groups in table 17. Assets size classification is based on the 1958-59 return.

CORPORATION INCOME TAX RETURNS, JULY 1958-JUNE 1959

CHANGES IN LAW

Small business corporations taxed through share- holders (Form 1120- S). — A new departure in the taxation of small business was introduced by sub- chapter S of chapter 1 which was added to the Internal Revenue Code by the Technical Amendments Act of 1958. Under subchapter S, certain corpora- tions may forego payment of corporate income tax if all shareholders consent to the taxation of corpor- ate profits at the shareholder level. Owners of small businesses may thus have the benefits of incorporation without being subject to both the corporation and individual income taxes. To qualify for subchapter S benefits, a corporation must:

1. Be a domestic corporation with no more than

10 shareholders.

2. Be entirely owned by shareholders who are in-

dividuals (or estates). Shareholders may not be nonresident aliens.

3. Have only one class of stock.

<+. Not be a member of an affiliated group eligible to file a consolidated return.

5. Not receive more than 20 percent of its gross

receipts from personal holding company in- come (rents, royalties, dividends, interest, annuities, and gains from sales or exchanges of stock or securities).

6. Not receive more than 80 percent of its gross

receipts from sources outside the United

States. The provisions of subchapter S are effective for taxable years beginning after December 31, 1957, and ending after date of enactment, September 2, 1958. To use the provisions of subchapter S for accounting periods beginning before September 2, 1958, an election had to be made within 90 days of that date. Owners of •44-,000 businesses made a decision within the 90-day period to use the new provisions for accounting periods ended after September 2, 1958, and before July 1, 1959 (periods covered by this report).

Table E.-SMALL BUSINESS CORPORATION RETURNS, FORM 1120-S: NUMBER, TOTAL COMPILED RECEIPTS, NET INCOME, AND DEFICIT, BY INDUSTRIAL DIVISION, 1958-69

Industrial division	Number of Form 1120-S returns	Total compiled receipts	Net income	Deficit
	(1)	(2)	(3)	(4)
	43,945	(Thousand dollars)
	11,579,638	287,865	198,975

Agriculture, forestry, and fisheries....	542 474 3,765 8,019 1,783 20,167 5,814 13,182 1,171 4,254 4,743 198	90,939 85,600 985,095 2,445,281 304,320 7,055,596 2,861,250 3,799,990 394,356 151,030 459,224 2,553	8,650 2,854 26,034 68,547 11,277 118,862 46,513 64,173 8,176 27,865 23,492 284	3,829 4,866
	16,043
	51,018
Transportation, communication, electric.	8,460
	88,407
	24,258
	59,813
	4,336
Finance, insurance, and real estate	9,878 15,767
Nature of business not allocable	707

These small business corporations, as shown in table E, reported total compiled receipts of over $11.6 billion dollars. Over 60 percent of these receipts were for small business corporations en- gaged in trade activities.

Generally, elections must be made during the first month of the accounting period or in the

month immediately preceding. Elections are not binding for future years, but if terminated, re- strictions are placed on the making of succeeding elections. Other provisions of subchapter S may be found in sections 1371 through 1377 of the Internal Revenue Code.

An annual information return. Form 1120-S, Small Business Corporation Return of Income, must be filed by the corporation. The income and balance sheet statements required are comparable with those on the corporation income tax return, Form 1120, and financial data from the two types of returns were combined, where appropriate, for the corporate statistics in this report. Income and balance sheet data from Form 1120-S are also shown separately, by industry and by size of total assets, in tables 27 and 28. Selected data for these returns are shown separately in many of the tables as well as being included in the totals.

The amount of income tax liability arising from the profits of these corporations is not available, since the profits are included with other income on the individual income tax return. Form 104-0, of the shareholders, and tax attributable to the corporate profit cannot be identified on that form. Statistics for the net operating loss deduction also exclude data for these corporations since this deduction is not used in determining taxable income of the cor- poration under subchapter S. Amounts of income tax, net operating loss deduction,and compiled net profit less income tax shown for 1958-59 are not comparable to similar amounts in prior years to the extent that they are affected by the nonreporting of tax and net operating loss deduction by small businesses filing Forms 1120-S.

Schedule K of Form 1120-S provides information on the number of small business corporation shareholders, the compensation paid them by the corporation, dis- tributions, and the portion of taxable income attributable to long-term capital gain. Data from schedule K are shown in tables 29 and 30. A facsim- ile of the return. Form 1120-S, and instructions is shown on pages 258-267. Most of the items in tables 29 and 30 are described in the instructions for schedule K, page 264. Net income or deficit is the taxable income reported on line 27, page 1 of the return, and dividend distributions out of earn- ings and profits of the tax year is the difference between net income and the undistributed net in- come. All other items in the two tables were taken from schedule K. The quality of data from schedule K is affected by the complexity of the schedule and the taxpayers' unfamiliarity with it.

Life insurance companies. — The method of taxing life insurance companies was revised by the Life Insurance Company Income Tax Act of 1959 many pro- visions of which were retroactive to 1958. Since 1921 life insurance companies had reported only investment income and expense. Beginning with 194-2 the net income for Statistics of Income was the net investment income before gny special deductions. Deductions from net income for reserves and other policy liabilities, allowed in determining taxable income, were based principally on a uniform per- centage of investment income applying to the entire industry. These special deductions were reflected in the statistics only through the amount of tax liability reported.

CORPORATION INCOME TAX RETURNS, JULY 1958-JUNE 1959

For 1958, the new law required these companies to report not only investment income but premium and other income (except capital gains). Deductions were revised to include benefit payments, insurance losses, and other ordinary business expenses. Pro- visions pertaining to reserve and other special needs were also revised to place the determination of each company's deductions on the basis of its own needs and experience.

In addition to changes resulting from the new law, the net income for Statistics of Income was redefined. Net income (or deficit) is now defined as the gain (or loss) from gross taxable income after all reserve and other special deductions per- tinent only to life insurance companies have been made. The amount shown as net income is "Gain (loss) from operations," line 27, schedule E of the return. Form 1120L, adjusted by adding back "Interest par- tially tax-exempt," "Dividends received deduction," and "Operations loss deduction," lines 17, 22, and 23, schedule E of the return. Gain from operations includes net investment income.

The life insurance return differs from other cor- poration returns in the reporting of tax-exempt interest. Since such interest is not a part of net income, adjustments were made to exclude the special deductions pertaining to it from "Other deductions" and from "Total compiled deductions." Therefore, the compiled net profit, which includes tax-exempt interest income, does not reflect deductions shown on Form 1120L with respect to tax-exempt interest.

Table F.— LIFE INSURANCE COMPANY RECEIPTS, DEDUCTIONS. TAX, AND PROFIT, 1958 AND 1957

Number of returns »

Total compiled receipts

Business receipts ^

All other receipts

Total compiled deductions

Cost of sales and operations^

Other regularly itemized deductions

Other deductions (includes special life insurance company de- ductions for 1958)

Compiled net profit or net loss''

Net income or deficit^

Income tax

Accounting period ended December —

1958

1,473

Compiled net profit less income tajc.

16.9 4.5

9.6 0.5

1.1 1.0 0.5

4.0 0.4

0.1

0.3

3.6 3.5

0.3

3.3

^These data were not reported for 1957.

^For 1958, derived from gain or loss from operations a/(er special deductions appli- cable only to life Insurance companies. For 1957, derived from net investment income before all special deductions.

Table F shows the effects of the above changes on the life insurance company data in Statistics of Income. Premiums and other insurance receipts, re- ported for 1958 for the first time since 1920, were treated as "Business receipts." Benefit payments and accruals and losses on contracts, also reported for 1958 for the first time since 1920, were treated as "Cost of sales and operations." The 1958 return form provided only for a summation of most of the other ordinary business expenses. It was often im- possible to classify these business deductions in the usual pattern and the unidentifiable amounts were included in "Other deductions." "Other deduc- tions" also includes reserve and other deductions peculiar to life insurance companies (specifically, deductions shown in schedule E of Form 1120L,line 8,

col. 2, and lines K, 15, 19, and 25). Since many of the expenses could not be classified, the levels of the deduction items in this report, other than "Cost of sales and operations," "Other deductions," and "Total compiled deductions," were not greatly affected by the new insurance law. The difference in net income for the two years is largely due to the new definition for 1958 which places net income after