relating to such returns are dealt with in another chapter.66 Special Returns. In addition to the above mentioned returns citizens and residents are required to file certain special returns annually or at such times as the Commissioner may request, as follows: INFORMATION AT THE SOURCE. Persons, in whatever capacity acting including lessees or mortgagors of real or personal property, fiduciaries,67 and employers making payment to any individual, corporation or partnership of interest, rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments or other fixed or determinable gains, profits and income (other than payments described in the following paragraph) of more than $1,000 in any taxable year, are required to make returns in regard thereto under regulations of the Treasury Department, setting forth the amount of such payments and the names and addresses of the recipients.68 This return is for the purpose of supplying the Treasury Department with information to be used in auditing the returns of the taxpayers to whom the income is paid, and is more fully discussed in a later chapter.69 REPORTS BY BROKERS. Those doing business as brokers 70 are required when called upon by the Commissioner of Internal Revenue to make a return showing the names of their customers with such details as to the profits, losses or other information which the Commissioner may 66 See Chapter 34 on Returns. 67 The term "fiduciary" means a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in any fiduciary capacity for any person, trust or estate. The term "person" includes individuals, partnerships and corporations. The term "corporation" includes associations, joint-stock companies and insurance companies (Revenue Act of 1918, §§ 1 and 200). See Chapter 8 on Fiduciaries. 68 Revenue Act of 1918, § 256; Reg. 45, Arts. 1071-1079. 69 See Chapter 39 on Information at the Source. 70 The Revenue Act of 1916 applied only to "brokers on any exchange or board of trade or other similar place of business."' require as to each of such customers as will enable the Commissioner of Internal Revenue to determine whether all income tax due on the profits or gains of such customers has been paid." This report is for the purpose of information at the source and is more fully discussed in a later chapter.72 Payment of Tax. The rules in regard to the assessment and payment of taxes in the case of citizens or residents are discussed in another chapter.73 Examination of Books. The books, papers, records or memoranda of taxpayers are subject to examination by any revenue agents or inspectors designated by the Commissioner of Internal Revenue for the purpose of ascertaining the correctness of returns which have been made, or making a return where none has been made in accordance with and subject to rules which are discussed at length in another chapter.74 Penalties. Penalties for failing or refusing to make returns, supply information, pay or collect any tax, or for wilfully attempting in any manner to defeat or evade the income tax are discussed in another chapter.75 Tax Not Withheld at Source. The tax is not withheld at the source on payments to citizens and residents. A provision of the law requires withholding at the source in the case of corporate bonds and mortgages containing a so-called "tax-free covenant.” 76 This, however, is not intended as a provision requiring withholding, but is intended to require the corporation to assume the burden of a part of the tax for the bondholder. Consequently in such cases no tax is actually deducted, but the corporation assumes for the bondholder the payment of the normal tax to the extent of 2% of such interest, which 71 Revenue Act of 1918, § 255; Reg. 45, Art. 1061. 72 See Chapter 39 on Information at the Source. 73 See Chapter 35 on Assessment and Payment of the Tax. 74 See Chapter 37 on Examination of Taxpayer's Books. 75 See Chapter 36 on Penalties and Compromises. 76 Revenue Act of 1918, § 221 (b). amount the bondholder reports as though the tax had been actually withheld, the remainder of the normal tax being reported as not having been withheld. A further discussion of collection at the source is contained in the chapter on that subject.77 Duty to Withhold Tax at Source. A citizen or resident paying fixed or determinable gains, profits or income (a) to non-resident alien individuals or (b) to foreign corporations not engaged in trade or business within the United States and not having any office or place of business in this country, is required to withhold 8% in the case of payments under (a) and 10% in case of payments under (b) as set forth in a subsequent chapter.78 Collection of Foreign Items. Citizens or residents undertaking as a matter of business or for profit, the collection of foreign items, are required to obtain a license from the Commissioner of Internal Revenue as indicated in a later chapter.79 77 See Chapter 40. 78 Revenue Act of 1918, §§ 221 and 237. See Chapter 40. 79 See Chapter 39. CHAPTER 5 NON-RESIDENT ALIENS The law imposes a tax upon the net income received by non-resident alien individuals "from sources within the United States, including interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise, dividends from resident corporations, and including all amounts received (although paid under a contract for the sale of goods or otherwise) representing profits on the manufacture and disposition of goods within the United States." The term "non-resident aliens," as used in several places in the 1916 Law, was not defined therein, but clearly referred to individuals only and not to partnerships, corporations, or associations. The Revenue Act of 1918, however, removes all doubt by using the expression "non-resident alien individuals."1 The expression "non-resident aliens" is used in this chapter to mean only non-resident alien individuals. Ordinarily it is a simple matter to determine whether an individual is or is not a non-resident alien; he falls into this class if he is neither a citizen nor a resident. Any individual who is a citizen of any possession of the United States (but not otherwise a citizen of United States) and who is not a resident of the United States is subject to taxation for income tax purposes, as to income derived from sources within the United States, and his tax is computed and paid in the same manner and subject to the same conditions as non-resident aliens who are citizens or subjects of foreign countries.2 The term "non 1 Revenue Act of 1918, §§ 210 and 213 (c); Reg. 45, Art. 3. 2 Revenue Act of 1918, § 260. Income of citizens and residents of Porto Rico or the Philippines is taxed in those jurisdictions in ac resident alien," therefore, is used in this chapter to include any non-resident citizens of any possession of the United States. Difficulty may arise in determining whether an individual is or is not a non-resident alien, where a non-resident citizen naturalized or native has resided abroad for a period sufficient to raise a presumption that he has abandoned his citizenship, and again where an alien has resided in this country for a period so long as to raise a presumption of residence. In either of these cases the intent of the individual is important. The Treasury Department holds that the status of a non-resident native or naturalized citizen remains unchanged until some affirmative action is taken, or the right to citizenship is forfeited by some overt act. When any naturalized citizen has left the United States and resided for two years in the foreign country from which he came, or for five years in any other foreign country, he is presumed to have lost his American citizenship; but this pre cordance with the provisions of the Revenue Act of 1916, as amended, the legislatures of Porto Rico and the Philippines having power to amend, alter, modify or repeal that law in their respective jurisdictions (Revenue Act of 1918, § 261). 3 The Act of March 2, 1907, provides, briefly, that any American eitizen becomes an alien by becoming naturalized in a foreign state or taking an oath of allegiance to any foreign state. A naturalized eitizen residing for two years in the country from which he came or for five years in any other foreign country, is presumed to have renounced his American citizenship in the absence of satisfactory evidence to the contrary. A woman assumes the nationality of her husband, but may resume her original citizenship on becoming a widow; she assumes or retains her American citizenship as a widow if, living abroad, she registers with a United States consul, or without formal action if she resides here. Minor children of naturalized citizens are deemed to be citizens from the time they begin to reside permanently in this country. Children born outside of the United States of citizens, and continuing to reside abroad must at the age of 18 declare their intention as to citizenship. Determination of citizenship by the State Department under this Act is not conclusive upon the Treasury Department; other factors may also be considered, as indicated in the text. 4 T. D. 2135. F. T.-5 |