RULING. Reference is made to your letter of May 19, 1919, in which you present the following inquiry: "As article 1072, Regulations 45, appeared in the preliminary draft, it contained two sentences not included in the revised and complete regulations. Are we to understand from the omission of the last two sentences that living quarters and board are to be ignored in making returns of information?" It is assumed that the article of the regulations to which you have reference is article 1072, which relates to the filing of returns of information in regard to payments made to employees. The portion of article 1072 of the preliminary Regulations 45, to which you refer, was omitted from the last edition of the regulations for the reason that the subject treated in this part of the original article is now covered by article 338 which was not contained in the preliminary edition. As stated in the first part of article 1072, returns of information are required for "all employees to whom payments exceeding $1,000 a year are made, whether such total sum is made up of wages, salaries, commissions or compensation in any other form," which includes those cases where board and lodging are considered a part of the compensation for the services rendered. (Letter to The Corporation Trust Company, signed by Commissioner Daniel C. Roper, and dated June 2, 1919.)

In view of the foregoing, employees should be advised of the tax to which they are subject.

Return of information by partnerships, personal service corporations and fiduciaries.

REGULATION. Partnerships and personal service corporations shall prepare reports on form 1099 (revised) for each member of the partnership or personal service corporation, and fiduciaries shall prepare such reports for each beneficiary of the estate or trust, showing in every case the distributive shares of the members or beneficiaries, whether or not actually distributed. The words "Partnership," "Personal service corporation" or "Fiduciary," as the case may be, should be entered on the blank line of the form under "Kind of income paid." Such reports on form 1099 (revised) are to be filed with the collector with the returns of income of such partnerships, personal service corporations or fiduciaries, instead of being transmitted to the Commissioner accompanied by form 1096 (revised). (Art. 1073.)

See page 283.

[Former Procedure] Returns mentioned above for 1918 were handled like returns of payments to others than members or beneficiaries, that is, transmitted to the Commissioner accompanied by form 1096 (revised).

Where no return of information required.

LAW. Section 256. . . . . The provisions of this . . . . . . . shall not apply to the payment of interest on obligations of the United States.

REGULATION.

No ownership certificates need be filed in the case of interest payments on bonds the income from which is not included in gross income, nor in the case of any obligations of the United States.1 10 .... (Art. 364.)

There has been added to the specific list of payments not required to be reported payments of dividends (other than personal service corporations) and payments by a broker to his customers.11

REGULATION. Payments of the following character, although over $1,000, need not be reported in returns of information on form 1099 (revised): (a) payments of interest on obligations of the United States; (b) dividends paid by domestic or resident foreign corporations (other than distributions by personal service corporations); (c) payments by a broker to his customers; (d) payments made to corporations; (e) bills paid for merchandise, telegrams, telephone, freight, storage and similar charges; (f) payments to employees for board and lodging while traveling in the course of their employment; (g) annuities representing the return of capital; (h) payments of rent made to real estate agents (but the agent must report payments to the landlord if they amount to $1,000 or more annually); (i) payments made by branches of business houses located in foreign countries to alien employees serving in foreign countries; and (j) payments made by the United States Government to sailors and soldiers and to its civilian employees. (Art. 1074.)

The law, section 256, would seem to require that payments to corporations must be reported, and form 1099 (page 109) also can be interpreted the same way. But the above regulation distinctly states that payments made to corporations need not be reported. As stated elsewhere (page 68), extensions of time for certain returns of income have been

19See page 227.

"[Former Procedure] T. D. 2670, March, 1918, also specified: "Interest accrued on bank deposits, before it has been passed to the credit of the individual depositor.

"Salary, wages, and other compensations for services rendered in December, 1917, but paid in 1918, unless the amount was fully due and passed to the credit of the individual in December, 1917.”

granted for a period not exceeding ninety days after the proclamation of peace. Article 446, which relates to enemies, provides: "This extension, however, does not authorize any delay in filing returns of information."

Bond interest and foreign dividend payments not limited to payments of $1,000.

LAW. Section 256. . . . . Such returns may be required, regardless of amounts, (1) in the case of payments of interest upon bonds, mortgages, deeds of trust, or other similar obligations of corporations, and (2) in the case of collections of items (not payable in the United States) of interest upon the bonds of foreign countries and interest upon the bonds of and dividends from foreign corporations by individuals, corporations, or partnerships, undertaking as a matter of business or for profit the collection of foreign payments of such interest or dividends by means of coupons, checks, or bills of exchange.

REGULATION. In the case of payments of interest, regardless of amount, upon bonds and similar obligations of domestic or resident foreign corporations, the original ownership certificates, when duly filed, shall constitute and be treated as returns of information. If a bondholder files no ownership certificate in the case of payments of interest on registered bonds, the withholding agent shall make out such a certificate in each instance and file it with his monthly return. . . . 12 (Art. 1075.)

....

The reporting of bond interest13 seems to have been a subject of difficulty to many recipients of interest, due principally to two causes: first, the fact that the forms prescribed were variously known as "old" and "revised," and sometimes required changes to be made by the bondholder; second, the withholding requirements for the so-called tax-free covenant bond interest tended to complicate this subject.

The regulations now have clarified this apparently complicated matter, and if it is remembered that there are only

It is the custom of many large paying agents to send out cheques for registered interest with a notation printed on the cheque that said cheque will not be honored unless accompanied by a properly executed ownership certificate. This procedure is followed in order to avoid the frequent substitutions of certificates which take place where they are executed by the paying agents themselves.

13 For forms used when withholding is required, see Appendix.

three forms used, viz., forms 1000, 1001 and 1001A (revised) and that one or the other of which is prescribed to meet every particular case described in the regulations, there should be little trouble in reporting properly.

Certificates required where there is no withholding.—

REGULATION. Form 1001 (revised) shall be used (a) by citizens or residents of the United States when personal exemption is claimed against interest on bonds containing a tax-free covenant and when presenting coupons from bonds not containing a tax-free covenant; (b) by domestic corporations; (c) by partnerships, resident or nonresident, in the case of bonds not containing a tax-free covenant; and (d) by foreign corporations engaged in trade or business within the United States or having an office or place of business therein, whether or not such bonds contain a tax-free covenant. In case a citizen or resident alien individual receives interest on bonds containing a taxfree covenant in excess of the amount of personal exemption which the individual may claim, any such excess must be reported on form 1000 (revised). (Art. 366.)

Substitute certificates.

REGULATION. Resident collecting agents and responsible banks and bankers, receiving interest coupons for collection with ownership certificates attached, may present the coupons with the original certificates to the debtor corporation or its duly authorized withholding agent for collection or may detach and forward the original certificates directly to the Commissioner, provided each such collecting agent shall substitute for such original certificates its own certificates (form 1058 (revised) or form 1059 (revised)) and shall keep a complete record of each transaction, showing (a) serial number of item received; (b) date received; (c) name and address of person from whom received; (d) name of debtor corporation; (c) class of bonds from which coupons were cut (whether containing a tax-free covenant or not); and (ƒ) face amount of coupons. For the purpose of identification the substitute certificates shall be numbered consecutively and corresponding numbers given the original certificates of ownership. ... (Art. 367.)

Substitute certificates apply only to the collection of items other than "foreign."

"See page 30. Substitute certificates apparently are favored by certain individuals and brokers to conceal the identity of the ownership of securities from the debtor corporation and paying agent.

Ownership certificates to be used by fiduciaries and joint

owners.

REGULATION. When fiduciaries have the control and custody of more than one estate or trust, and such estates and trusts have as assets bonds of corporations and other securities, a certificate of ownership shall be executed for each estate or trust, regardless of the fact that the bonds are of the same issue. When bonds are owned jointly by several persons, a separate ownership certificate must be executed in behalf of each of the owners. (Art. 374.)

Interest coupons presented without ownership certifi

cates.

REGULATION. Where interest coupons are received unaccompanied by certificates of ownership the first bank shall require of the payee an affidavit showing the name and address of the payee, the name and address of the debtor corporation, the date of the maturity of the interest, the name and address of the person from whom the coupons were received, the amount of the interest, and a statement that the owner of the bonds is unknown to the payee. Such affidavit shall be forwarded to the collector with the monthly return on form 1012 (revised). The first bank receiving such coupons shall also prepare a certificate on form 1000 (revised), crossing out "owner" and inserting "payee" and entering the amount of interest in the space provided for a foreign corporation having no office or place of business within the United States, and shall stamp or write across the face of the certificate "Affidavit furnished," adding the name of the bank. (Art. 368.)

RULING. When interest coupons are unaccompanied by ownership certificates affidavits should be secured by first bank as provided in article 368, Regulations 45. Such affidavit should accompany the ownership certificates to debtor corporation or withholding agent and should be forwarded to collector of internal revenue in accordance with usual procedure. Separate affidavit required with respect to each interest payment upon bonds of different issue and with respect to each different due date of same. (Telegram to Boissevain & Co., New York, N. Y., signed by Commissioner Daniel C. Roper, and dated September 18, 1919.)

The effect of this ruling is that the affidavit referred to should accompany the ownership certificate to the debtor corporation instead of being forwarded by the first bank to the collector with the monthly return on form 1012 (revised), as stated in article 368 above.