source, the Treasury Department will issue instructions to the withholding agents (whose names and addresses should be given by the non-resident alien in his return) to release at once the proper amounts.88 After the tax has been assessed against the withholding agents by the Government, abatement may be claimed, and after the tax has been paid, refund may be claimed in the manner outlined in a later chapter.89

88 Revenue Act of 1918, § 221 (d); Reg. 45, Art. 369. Telegram from Treasury Department dated January 25, 1917; I. T. S. 1918, ¶ 91.

89 See Chapter 38 on Abatement and Refund.

CHAPTER 6

RESIDENT AGENTS FOR NON-RESIDENT ALIENS, FOREIGN CORPORATIONS AND FOREIGN PARTNERSHIPS

The 1916 Law expressly provided for the collection at the source of the tax on payment of certain specified forms of income to non-resident aliens and non-resident foreign corporations. The persons required to withhold and account for the tax were designated in the regulations as withholding agents. The Treasury Department, in addition, evolved a method of collecting the tax on income which might pass out of its jurisdiction, by impressing upon residents, under certain circumstances, the duty of filing returns and accounting for the normal tax and the surtax on any and all income of non-resident aliens and non-resident foreign corporations over which they had custody or control. Such persons were held to be agents of the non-residents and to stand in the place of their principals. One who was a withholding agent under the provisions for collecting the tax at the source might, or might not, (depending on the circumstances) also be an agent within the meaning of this chapter. Agents for foreign partnerships were not required to make any returns or pay any tax for the foreign partnership unless and until they were so instructed by the Commissioner.* 1 See Chapter 40 on Collection of the Tax at the Source.

2 The Department evidently based its authority for this on Revenue Act of 1916, §9 (g), which provided that the tax should be paid by the owner of the income or the proper representative having the receipt, custody, control or disposal of the same." T. D. 2452. 3 T. D. 2135.

4 T. D. 2401. This was because a partnership was not itself subject to a tax or required to make returns. See Chapter 11 on Foreign Partnerships.

Ruling Under 1918 Law. The responsible representatives of non-resident aliens in connection with any sources of income which such non-resident aliens may have within the United States shall make a return of such income, and shall pay any and all tax, normal and additional, assessed upon the income received by them in behalf of their nonresident alien principals, in all cases where the tax on income so in their receipt, custody or control shall not have been withheld at the source. The agent of a nonresident alien is responsible for a correct return of all income accruing to his principal within the purview of the agency. The agency appointment will determine how completely the agent is substituted for the principal for tax purposes.5

Application of Former Rulings to Present Law. The Revenue Act of 1918 does not contain any provision expressly making an agent liable for the surtaxes imposed upon his principal with respect to income passing through the hands of such agent. The 1916 Law expressly provided that: "The intent and purpose of this title is that all gains, profits, and income of a taxable class, as defined by this title, shall be charged and assessed with the corresponding tax, normal and additional prescribed by this title, and said tax shall be paid by the owner of such income, or the proper representative having the receipt, custody, control, or disposal of the same." The rulings under the 1916 Law are stated below without attempting to indicate to what extent they may be inapplicable to the present law.

DEFINITION. In order to simplify the discussion in the following pages of this chapter the term "non-residents" will be used to include non-resident aliens, foreign corporations having no office or place of business in this country, and foreign partnerships having no office or place of business in this country.7

5 Reg. 45, Art. 403.

6 Revenue Act of 1916, § 9 (g).

7 For definition of "foreign corporations" as used in this book

WHO WERE RESIDENT AGENTS. A resident corporation, partnership or individual, might be an agent within the meaning of this chapter. Any residents acting by power of attorney for non-residents were such agents. Responsible heads or representatives who were in charge of property owned or business carried on by non-residents in this country were such agents. Resident nominal stockholders who held stock in their names for non-resident actual owners were such agents. Residents who had custody of securities of non-residents, on which they collected the income, were agents not only with respect to the income, but also with respect to any profits made from the sale of the securities of which they were custodians, and for the purpose of reporting the latter they were required to obtain all facts necessary to ascertain the profit in any transaction.10 Residents, purchasing patent rights from nonresidents and paying royalty thereon, were held to be agents.11 Real-estate agents who managed buildings owned by non-residents were such agents.12

WHO WERE NOT SUCH AGENTS. Corporations paying interest on their own bonds, or dividends on their own stock, to non-residents, bondholders or stockholders, were not held to be agents within the meaning of this chapter, although they were withholding agents for the purpose of collection at the source. Resident debtors, individual or partnership were not held to be agents, but were required to withhold the tax at the source on interest paid to nonresident aliens. Banks were not agents for their non-resi dent depositors, where the relation was merely that of bank

see Chapter 14. For definition of "foreign partnership" as used in this book see Chapter 11.

8 Reg. 33, Art. 8; T. D. 2313.

9 See Chapter 7 on Nominal Stockholders.

10 Letter from Treasury Department dated May 31, 1916; I. T. S. 1918, 105.

11 T. D. 2137.

12 Letter from Treasury Department dated January 19, 1915; I. T. S. 1918,

99.

and depositor 13 and the same has been held where a bank received interest and dividends direct from domestic corporations to be credited to the accounts of non-resident depositors.14 A bank holding, for account of foreign banks and bankers, securities on which it collected interest and disbursed the same to the foreign banks and bankers, was not held to be an agent,15 but where a bank acted as custodian of securities for non-residents other than banks, the rule seemed to be that it was an agent.16 An individual, partnership or corporation occupying or standing in the ordinary relation of broker toward a non-resident as client was held not to be an agent within the meaning of this chapter, but was required to withhold the tax as a withholding agent. In the hypothetical case upon which this ruling was based, the non-resident client maintained an account with the broker, occasionally buying some securities on margin and selling some from time to time, interest being charged on balances due and dividends as paid on the stocks carried and credited to the account. All dealings were in response to directions from the non-resident.17

DUTIES AND LIABILITIES OF RESIDENT AGENTS. The responsible heads or representatives of non-resident aliens in connection with any sources of net income which said nonresident aliens might have within the United States, were required to make a full and complete return of such income and to pay any and all tax, normal and additional, assessed upon the income received by them in behalf of their non-resident alien principals, in all cases where the income tax on income so in their receipt, custody, or con

13 Banks were not held to be withholding agents with respect to interest paid on deposits. Reg. 33, Art. 67.

14 Letter from Treasury Department dated February 8, 1917; I. T. S. 1918, ¶ 106.

15 Letter from Treasury Department dated April 10, 1916; I. T. S. 1918, ¶ 200.

16 The rulings were not clear or consistent on this point, but it seems that the rulings bore out the conclusions in the text.

17 Letter from Treasury Department dated April 17, 1918; I. T. S. 1918, ¶ 3323.