trol was not withheld at the source.1 18 They were under no duty to inquire into or report any income of the nonresident principal received from other sources in this country, but could, if authorized by the non-resident principal, make a complete return of all income from this country. Where the same non-resident had several agents, none of whom was authorized and enabled to make a return of all the principal's income, each agent reported separately the income coming into his hands, and the Treasury Department took into consideration the aggregate amount of net income, covered by all of the returns, in assessing the tax, giving credit for the amount assessed on each return, and making a further assessment to cover the surtax which might be due on the aggregate income in the case of individuals.19 Of course, if the non-resident principal filed a return of all of his income from sources within this country, the agents were not also required to file returns. Resident agents, therefore, ascertained in due time what their non-resident principals intended to do as to reporting and paying the tax, and governed themselves accordingly.

PROCEDURE IN COLLECTING INCOME FOR NON-RESIDENTS. In collecting income subject to withholding of the tax at the source, the resident agent was required to execute the ownership certificate required of his non-resident principal, signing it with the name of the principal and affixing his own signature as agent.20 In brief, with respect to such income, he was required to proceed as was required of the non-resident principal, in whose place he stood for the purpose of the income tax. The fact that the non-resident had an agent here did not relieve his income from withholding at the source when paid to such agent.

MAKING RETURNS FOR NON-RESIDENT PRINCIPAL. The agent of a non-resident alien was responsible for a correct return of all income accruing to his principal within the

18 Reg. 33 Rev., Art. 32.

19 Letter from Treasury Department dated March 6, 1917; I. T. S. 1918, ¶ 114.

20 See Chapter 40 on Collection at the Source.

purview of the agency, and the agent was held responsible for a complete return of all such income. The agency appointment determined how completely the agent was substituted for the principal for income tax purposes.21 In making the annual return for his non-resident principal the resident agent was required to use the same form as would be used by the principal 22 and follow the provisions of the law and the regulations relating to non-resident aliens or foreign corporations, as the case might be, in claiming deductions. The same forms were used for residents and non-residents alike, and, when used by or for a non-resident alien, required certain changes in wording, such as a statement at the beginning that the return covered only income from sources within the United States. In the affidavit at the end of the individual's form, to be executed by the agent, a statement was required to be made that the return covered only the income received by the agent, or that it covered all of the income of the principal from sources within the United States, as the case might be. The affidavit on the corporation's form was prepared for execution by two officers of the corporation. When the return was signed by an agent for a foreign corporation, an affidavit that he was the properly authorized agent, and that the report covered income from all sources within the United States, or income passing through his hands, as the case might be, was required to be attached to the return and duly executed. The return might be filed in the district in which the agent resided or had his principal place of business.

PAYING THE TAX FOR NON-RESIDENT PRINCIPAL. After filing the return, the agent in due course received a notice of assessment showing the amount of tax assessed on the income reported.23 The tax became due and payable at

21 Reg. 33 Rev., Art. 32.

22 Form 1040, in the case of Individuals; Form 1030 or 1030A, in the case of insurance companies, and Form 1031, in the case of other corporations.

23 A special ruling was made to cover cases in 1916, where the

the same time and in the same manner as the tax assessed on the income of a resident, and could be paid in the same way.24 Upon paying the tax, the agent could demand a separate receipt for the amount paid on behalf of his nonresident principal, and such receipt was sufficient evidence to justify the agent in withholding the amount therein. expressed from his next payment to the principal, if he had not already withheld a sufficient amount to satisfy the tax. The principal could demand this receipt from the agent upon giving him a full written receipt acknowledging the payment of the tax as a satisfaction of the agent's debt to that extent.25

ABATEMENT AND REFUND. Taxes improperly or illegally assessed or collected might be abated or refunded in the manner indicated in the chapter dealing with that subject.26

agent for a non-resident alien had received income from corporate interest or dividends and paid the same over to his principal prior to September 8. In such cases, if the agent did not have, between September 8 and the end of the year, any income of the non-resident alien from which to pay the tax he was relieved from liability, leaving the tax a charge against the non-resident alien to be collected direct from him by the Treasury Department. (T. D. 2402.) A like special ruling was made to cover cases in 1917 where the agent for a nonresident alien had received income and paid the same over to his principal prior to October 3d. In such cases if the agent did not have, between October 3d and the end of the year, any income of the non-resident alien from which to pay the tax, he was relieved from liability, leaving the tax a charge against the non-resident alien to be collected from him by any means at the disposal of the Commissioner of Internal Revenue; but where the agent received the income of his principal subsequent to October 3d he was obliged to pay the total tax due for the entire year 1917 and subsequent years. (Reg. 33 Rev., Art. 32.)

24 See Chapter 35 on Assessment and Payment of the Tax.

25 Revenue Act of 1916, § 17.

26 See Chapter 38 on Refund and Abatement.

CHAPTER 7

NOMINAL STOCKHOLDERS

For convenience in handling financial transactions, stock certificates are sometimes issued in the names of others than the actual owners of the stock. The individuals, partnerships or corporations so holding the nominal title to the stock are known as nominal stockholders or stockholders of record. A nominal stockholder is not necessarily an agent for the actual owner, but if the actual owner is a nonresident alien individual, a resident nominal stockholder may be an agent in the sense in which that term is used in the preceding chapter. A nominal stockholder is not a withholding agent, although under the 1916 Law he might have been one if the actual owner was a non-resident foreign corporation. The distinction between a nominal stockholder and a fiduciary lies in the fact that the latter holds legal title to stock (if that is the subject of the trust), while a nominal stockholder may hold no title at all, the stock merely standing in his name on the books of the corporation. Nominal stockholders may acquire their status by arrangement with the actual owners, as where a broker carries in his name the stock of a customer, in which event the name and status of the actual owner is known; but in some cases the names of the actual owners may not be known to the nominal stockholder as, for instance, where the actual ownership is evidenced by bearer certificates, and the procedure under the 1916 Law applicable to such situations is indicated at the end of this

1 They are generally called "owners of record" in the regulations. 2 Reg. 33 Rev., Arts. 32 and 201.

chapter. In other cases, notably when large amounts of stock are left in the names of stock exchange houses, one may become a nominal stockholder without knowing the identity of the actual owner. Thus, stock certificates endorsed in blank by an actual owner, and sold on the market, may pass by delivery to several consecutive purchasers before the stock is transferred on the books of the corporation. In such cases, the original transferor remains the record owner until the transfer is made on the corporate books, and, as such, he is presumed to be the real owner of dividends declared on the stock, unless he proves that actual ownership of the stock does not rest in him.3 If, however, a nominal stockholder not only parts with the certificate of stock, endorsed in blank, but also gives the corporation a "dividend order" to pay dividends to another, his responsibility for tax on such dividends ceases, and the one to whom the corporation pays the dividend becomes liable for any tax thereon, unless he in turn shows that actual ownership does not rest in him. A nominal stockholder receiving dividends and paying them over to one claiming to be the actual owner, was required under the 1916 Law to ascertain the name and address of such elaimant and proceed as indicated below.4

Application of Present Law to This Chapter. The Treasury Department based its authority for the rules and regulations discussed in this chapter in regard to withholding on dividend income against non-resident foreign corporations on the basis of apparent ownership, upon the provision of the 1916 Law that "all the provisions of this title relating to the tax authorized and required to be deducted and withheld and paid to the officer of the United States Government authorized to receive the same from the

3 Letter from Treasury Department dated Dec. 28, 1916; I. T. S. 1918, ¶ 274.

4 The regulations on this subject refer only to dividends on domestic corporations and resident foreign corporations. (Reg. 33 Rev., Arts. 32, 200, 201; T. D. 2374, 2386, 2388, 2401 and 2402.)

5 Revenue Act of 1916, § 13 (f).