Regulations 86 Relating to the Income Tax Under the Revenue Act of 1934

made, and commonly referred to as dividends, by mutual insurance companies other than life, and is not limited to the definition applicable to corporations generally. (See section 115 (a).)

(B) Class (b) (1) and (2).—Companies coming within class (b) (1) and (2), if not exempt under section 101 (11), will make their returns as follows:

(I) Class (b) (1).—In addition to the items of gross income which are required to be returned by corporations generally under section 22 and the regulations thereunder companies falling under class (b) (1) will return the amount of premium deposits received or receivable during the year, depending upon the basis on which the books are kept and the returns are made, plus the amount of such deposits retained for the payment of losses, expenses and reinsurance reserves at the close of the preceding taxable year.

(1) The amount of premium deposits returned to policyholders during the year;

(2) The amount of premium deposits retained at the end of the taxable year for the payment of losses, expenses and reinsurance reserves. As used in this article the term "losses" means incurred losses; the term "expenses means accrued expenses and the term reinsurance reserves means the amount necessary to reinsure outstanding policies for their unexpired terms;

(3) The actual deposit of sums, if any, made out of the income of the taxable year with State or Territorial officers pursuant to law as additions to guarantee or reserve funds. (II) Class (b) (2).-Companies coming within class (b) (2) will include in gross income, in addition to the items of gross income which are required to be returned by corporations generally under section 22, the amount of assessments received or receivable during the year depending upon the basis on which the books are kept and the returns are made.

In addition to the deductions and credits to which corporations generally are entitled as defined and limited under sections 23, 24, and 26, insurance companies of this type are entitled to deduct from gross income the amount of assessments returned to policyholders during the year and the actual deposit of sums, if any, made out of the income of the taxable year with State or Territorial officers pursuant to law as additions to guarantee or reserve funds.

(C) Class (c).-Reciprocal insurance exchanges or associations operate generally on the premium deposit plan. Such companies are subject to the same requirements, are permitted the same deductions, and will make returns under the same conditions and in the same manner as assessment premium deposit companies.

(D) Class (d).-Mutual marine insurance companies will include in gross income the amount of gross premiums collected and received by them less amounts paid for reinsurance in addition to the items of gross income required to be returned by corporations generally under section 22.

In addition to deductions and credits to which corporations generally are entitled as defined and limited under sections 23, 24, and 26, and to which mutual insurance companies other than life are entitled under section 207 (c) (1) insurance companies of this type are entitled to deduct from gross income amounts repaid to policyholders and interest thereon as provided in section 207 (c) (2).

(E) General.-If the business of a mutual insurance company other than life partakes of the character of more than one of the classes hereinabove described its aggregate income from all classes shall be determined by computing the income received from each class separately according to the method applicable to that class.

A copy of the report made to the insurance department of the State, Territory, or District of Columbia which shows the reserves used in computing the net income reported on the return shall be filed therewith. The return shall be on Form 1030.

As to the limitation on deductions generally, see section 24 (a) (5). Mutual insurance companies other than life not coming within the specific provisions of section 207 (b) and (c) shall make their returns under the same provisions of the law and regulations and shall be taxable in the same manner as corporations generally.

CHAPTER XXVI.

NONRESIDENT ALIENS

Supplement H-Nonresident Alien Individuals

SEC. 211. GROSS INCOME.

(a) General rule. In the case of a nonresident alien individual gross income includes only the gross income from sources within the United States.

(b) Ships under foreign flag.-The income of a nonresident alien individual which consists exclusively of earnings derived from the operation of a ship or ships documented under the laws of a foreign country which grants an equivalent exemption to citizens of the United States and to corporations organized in the United States, shall not be included in gross income and shall be exempt from taxation under this title.

ART. 211-1. Definition.-A "nonresident alien individual" means an individual—

(a) Whose residence is not within the United States; and (b) Who is not a citizen of the United States.

An alien actually present in the United States who is not a mere transient or sojourner is a resident of the United States for purposes of the income tax. Whether he is a transient or not is determined by his intentions with regard to the length and nature of his stay. A mere floating intention, indefinite as to time, to return to another country is not sufficient to constitute him a transient. If he lives in the United States and has no definite intention as to his stay, he is a resident. One who comes to the United States for a definite purpose which in its nature may be promptly accomplished is a transient; but if his purpose is of such a nature that an extended stay may be necessary for its accomplishment, and to that end the alien makes his home temporarily in the United States, he becomes a resident, though it may be his intention at all times to return to his domicile abroad when the purpose for which he came has been consummated or abandoned. An alien whose stay in the United States is limited to a definite period by the immigration laws is not a resident of the United States within the meaning of this article, in the absence of exceptional circumstances.

ART. 211-2. Alien seamen, when to be regarded as residents.—In order to determine whether an alien seaman is a resident within the meaning of the income tax law, it is necessary to decide whether the presumption of nonresidence is overcome by facts showing that he has

established a residence in the United States. Residence may be established on a vessel regularly engaged in coastwise trade, but the mere fact that a sailor makes his home on a vessel flying the United States flag and engaged in foreign trade is not sufficient to establish residence in the United States, even though the vessel, while carrying on foreign trade, touches at American ports. An alien seaman may acquire an actual residence in the United States within the rules laid down in article 211-3, although the nature of his calling requires him to be absent for a long period from the place where his residence is established. An alien seaman may acquire such a residence at a sailors' boarding house or hotel, but such a claim should be carefully scrutinized in order to make sure that such residence is bona fide. The filing of Form 1078 or taking out first citizenship papers is proof of residence in the United States from the time the form is filed or the papers taken out, unless rebutted by other evidence showing an intention to be a transient. The fact that a head tax has been paid on behalf of an alien seaman entering the United States is no evidence that he has acquired residence, because the head tax is payable unless the alien who is entering the country is merely in transit through the country.

ART. 211-3. Proof of residence of alien.—The following rules of evidence shall govern in determining whether or not an alien within the United States has acquired residence therein within the meaning of the Act. An alien, by reason of his alienage, is presumed to be a nonresident alien. Such presumption may be overcome—

(1) In the case of an alien who presents himself for determination of tax liability prior to departure for his native country, by (a) proof that the alien, at least six months prior to the date he so presents himself, has filed a declaration of his intention to become a citizen of the United States under the naturalization laws, (b) proof that the alien, at least six months prior to the date he so presents himself, has filed Form 1078 or its equivalent, or (c) proof of acts and statements of the alien showing a definite intention to acquire residence in the United States or showing that his stay in the United States has been of such an extended nature as to constitute him a resident;

(2) In other cases by (a) proof that the alien has filed a declaration of his intention to become a citizen of the United States under the naturalization laws, (b) proof that the alien has filed Form 1078 or its equivalent, or (c) proof of acts and statements of an alien showing a definite intention to acquire residence in the United States or showing that his stay in the United States has been of such an extended nature as to constitute him a resident.

In any case in which an alien seeks to overcome the presumption of nonresidence under (1) (c) or (2) (c), if the officer who examines the alien is in doubt as to the facts, such officer may, to assist him in determining the facts, require an affidavit or affidavits setting forth the facts relied upon, executed by some credible person or persons, other than the alien and members of his family, who have known the alien at least six months prior to the date of execution of the affidavit or affidavits.

ART. 211-4. Loss of residence by alien.-An alien who has acquired residence in the United States retains his status as a resident until he abandons the same and actually departs from the United States. An intention to change his residence does not change his status as a resident alien to that of a nonresident alien. Thus an alien who has acquired a residence in the United States is taxable as a resident for the remainder of his stay in the United States.

ART. 211-5. Duty of employer to determine status of alien employee.If wages are paid to aliens without withholding the tax, except as permitted in article 214-2, the employer should be prepared to prove the status of the alien as provided in the foregoing articles. An employer may rely upon the evidence of residence afforded by the fact that an alien has filed Form 1078, or an equivalent certificate of the alien establishing residence. An employer need not secure Form 1078 from the alien if he is satisfied that the alien is a resident alien. An employer who seeks to account for failure to withhold in the past, if he had not at the time secured Form 1078 or its equivalent, is permitted to prove the former status of the alien by any competent evidence. The written statement of the alien employee may ordinarily be relied upon by the employer as proof that the alien is resident of the United States.

ART. 211-6. Gross income of nonresident alien individuals. In the case of nonresident alien individuals "gross income " means only the gross income from sources within the United States, determined under the provisions of section 119. (See articles 119–1 to 119–14.) The items of gross income from sources without the United States and therefore not taxable to nonresident aliens are described in section 119 (c). As to who are nonresident alien individuals see articles 211-1 to 211-5.

Income received by a resident alien from sources without the United States is taxable though such person may become a nonresident alien subsequent to its receipt and prior to the close of the taxable year. Conversely, income received by a nonresident alien from sources without the United States is not taxable though such person may become a resident alien subsequent to its receipt and prior to the close of the taxable year.

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