(a) Net worth
is the sum of the taxpayer's issued and outstanding capital stock, surplus and
undivided profits as per books set forth on the income tax return filed by the
taxpayer with the Federal government, or if no return is made, as would have
been set forth had a return been made.
(b) In the case of a taxpayer which has
investments in the common stock of another corporation, net worth is the
consolidated net worth of the taxpayer computed in accordance with generally
accepted accounting principles. Book value for investments of stock of other
corporations includes original cost plus the investor's share of the investee's
earnings or losses. For the purpose of this subsection, investments in the
common stock of another corporation means investments which shall be accounted
for using the equity method of accounting or which shall be consolidated under
generally accepted accounting principles.
(c) Net worth may not be less than
zero.
(d) Net worth does not
include the cost of treasury stock.
(e) Net worth as reported by the taxpayer is
subject to correction by the Department for fraud, evasion or error.
(f) Net worth includes the amount of a
contingent liability or surplus reserve which is not recorded as a liability or
a reduction in an asset account by an entry in the books of account of the
corporation. Contingent liability or surplus reserve which is included as a
parenthetical comment in the main body of the financial statements or by a
footnote to the financial statements may not result in a reduction or increase
to net worth.
(g) Changes in a
taxpayer's capital structure, including contributions and distributions of
capital, purchases of treasury stock and liquidation distributions, may not be
prorated.
Example 1. The taxpayer, which files
on a calendar year basis, issued common stock on July 1. The value of the
common stock issued is $300,000. The net worth at the end of the tax year is $1
million. The net worth to be used in computing capital stock value is $1
million.
Example 2. The taxpayer, which reports
on a calendar year basis, has discontinued business operations. On January 1 of
the taxable year, taxpayer has a net worth of $100,000 and total assets of $1
million. On December 1 of the taxable year, taxpayer distributes all of its
assets. The net worth to be used in computing capital stock value is
zero.
(h) Commencing with
calendar year 1987 and fiscal years beginning in 1987 and each year thereafter,
the following rule applies: if net worth as arrived at under subsections
(a)-(g) for the current tax year is greater than twice or less than 1/2 of the
net worth which would have been calculated under subsections (a)-(g) as of the
first day of the current tax year, then net worth for the current tax year
shall be the average of these two amounts.
