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income to our corporation and be subject to a tax thereon?
A. The tax so paid by the vendee in behalf of the vendor constitutes additional taxable income to the corporation which must be reported in its income tax return and will be subject to a tax thereon.
Q. If a business sustains a net loss in any year, may it deduct such net loss from its income for the preceding or following year?
A. This question is answered by two questions and answers on page 21.
COLLECTION AT THE SOURCE. Q. Is any tax required to be withheld and deducted from interest on bonds containing so-called “Tax-free" or “Tax exempt” covenants?
A. Yes, a tax of 2% is required to be withheld and deducted from the interest on such bonds payable to a non-resident alien individual or to an individual citizen or resident of the United States or to a partnership or to a foreign corporation not engaged in business and not having any office or place of business within the United States, and also (if the Commissioner authorizes) in the case of income or securities the owners of which are not known to the withholding agent.
Q. May I prevent deduction of the tax by claiming exemption?
A. The statute provides that deduction and withholding shall not be required in the case of a citizen or resident if he files with the withholding agent on or before February. Ist a signed notice in writing claiming the benefit of the personal exemptions and credits allowed an individual; nor in the case of a non-resident alien individual if so provided for in Treasury Regulations.
Q. When must returns be filed and the tax paid?
A. Returns of the tax deducted must be filed on or before March 1st and the tax paid on or before June 15th.
INFORMATION AT SOURCE.
A. On or before March 15th of each year or at such other time as may be prescribed by Treasury Regulations.
Q. Who are required to file reports of income paid by them to others?
A. In all cases where the interest, rent, salaries, etc., paid amounts to $1,000 or more, in any taxable year.
Such information is required regardless of amounts payable, in the case of corporate interest payments, and certain foreign payments.
This provision does not apply, however, to the payment of interest on obligations of the United States.
NON-RESIDENT ALIENS. Individuals, Partnerships and Corporations Q. On what income are non-resident alien individuals and foreign corporations subject to tax?
A. On all income 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.
Q. Are foreign partnerships subject to tax?
A. No, except in the case of interest paid to a foreign partnership upon bonds or other obligations of domestic or resident foreign corporations containing a so-called tax-free covenant clause when a tax of 2% is required to be withheld.
The individual members of a foreign partnership, however, are subject to a tax individually on their share of the profits derived by the partnership from sources within the United States.
Q. Who is a non-resident alien individual?
A. An individual (a) whose residence is not within the United States and (b) who is not a citizen of the United States. Q. What is a non-resident foreign corporation?
A. A foreign corporation not engaged in trade or business within the United States and not having any office or place of business therein.
Q. What is a resident foreign corporation?
A. A foreign corporation engaged in trade or business within the United States and having an office or place of business therein.
Q. Must a non-resident alien individual make or have made a complete return of his income received from sources within the United States regardless of amount?
A. Yes, unless the tax on such income has been fully paid at the source. If, however, it appears on the filing of a return that a non-resident alien is not liable for tax, but nevertheless a tax has been withheld at the source, such non-resident alien may obtain refund of the tax withheld upon filing with the return a statement showing accurately the amounts of tax withheld with the names and post office addresses of all withholding agents.
Q. Must a foreign corporation receiving income from sources within the United States file a return?
A. Yes. If such corporation, however, has no office or place of business here but has a resident agent, the agent must make the return.
Q. May a non-resident alien receive the benefit of similar deductions and credits allowed citizens and residents of the United States?
A. Yes, to the extent shown in answer to next question, but only by filing or causing to be filed a true and accurate return of his total income from all sources, corporate or otherwise, in the United States.
Q. What are the deductions and credits allowed a non-resident alien individual referred to in the preceding question?
A. In computing net income a non-resident alien individual is entitled to the following deductions:
DEDUCTIONS (1) Business expenses, taxes imposed by a foreign country, losses in trade, bad debts, depreciation, amortization, depletion and loss in inventory are allowed only if and to the extent that they are connected with income arising from a source within the United States.
(2) Interest paid or accrued proportionate to his income from sources within the United States.
(3) Losses incurred in any transaction entered into for profit, or arising from casualty or theft, are confined to transactions and property within the United States.
(4) Contributions or gifts made to domestic corporations or to the vocational rehabilitation fund not in excess of 15 per centum of the taxpayer's net income as computed without the benefit of this paragraph.
For the purpose of the normal tax a non-resident alien individual is entitled to credit dividends from domestic or resident foreign corporations and interest on obligations of the United States.
A personal exemption of $1,000, if single, or $2,000 if the head of a family or a married person living with husband or wife and $200 for each dependent, if such dependent is under 18 years of age or is incapable of self-support because mentally or physically defective, is allowed only if the country of which he is a citizen or subject imposes no income tax or if it imposes an income tax allows a similar exemption or credit for dependents to citizens of the United States not residing in such country.
Q. What deductions and credits are allowed foreign corporations in computing their net income arising from sources within the United States?
A. The same deductions are allowed foreign corporations from their gross income arising from sources within the United States as are allowed to domestic corporations to the extent that such deductions are connected with such gross income
at such are all income
except that interest paid on the corporate indebtedness can only be deducted in the proportion which the amount of its gross income from sources within the United States bears to the amount of its gross income from all sources within and without the United States and that full deduction may be made for taxes imposed by the United States or any of its possessions or by any state, territory, or political subdivision thereof, except taxes for local benefits, and income, war-profits and excess-profits taxes.
A foreign corporation is also allowed to credit against its net income, before computing the income tax, the amount of any war-profits and excess-profits tax assessed against it for the same taxable year and the amount of non-exempt interest received upon obligations of the United States and bonds of the War Finance Corporation. It is not allowed the specific exemption of $2,000 allowed a domestic corporation.
Q. What exemption is allowed a non-resident alien individual or a foreign corporation, partnership or association, not engaged in business in the United States beneficially owning bonds, notes and certificates of indebtedness of the United States and bonds of the War Finance Corporation?
A. Such securities so held are exempt both as to principal and interest from any and all taxation now or hereafter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority.
Q. Is any tax required to be withheld from income received by foreign corporations from sources within the United States?
A. Yes, in the case of foreign corporations not engaged in trade or business within the United States and not having any office or place of business therein, a tax equal to 10% is required to be withheld from fixed or determinable, annual or periodical income (other than dividends from corporations liable to the income tax, and interest upon corporate bonds containing a tax-free covenant clause) payable to such foreign corporations, and a tax of 2% in the case of interest payable to such foreign