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foreign country as soon as he has accumulated a sum of money sufficient to provide for his journey abroad is to be considered a transient, provided his expectation in this regard may reasonably, considering the rate of his saving, be fulfilled within a comparatively short time. (Art. 313.)

LOSS OF RESIDENCE BY ALIEN.

REGULATION. It will be presumed that an alien who has established a residence in the United States, as outlined above, continues to be a resident until he or his family evidence an intention to change their residence to another country by starting to remove. Thus, alien residents who, following the armistice agreement of November 11, 1918, take steps toward returning to their native countries, as by applying for passports, may for the purpose of withholding be regarded as residents for that portion of the taxable year which elapsed up to the time such step was taken. But the status of the alien on the last day of his taxable year or period determines his liability to tax for such year or period as a resident or nonresident. .... (Art. 314.)

DUTY OF EMPLOYER TO DETERMINE STATUS OF ALIEN EMPLOYEE. —

REGULATION. Aliens employed in the United States are prima facie regarded as nonresidents. If wages are paid without withholding the tax, except as permitted in the following article, the employer should be provided with written proof of facts which overcome the presumption that such alien is a nonresident. Such facts include the following: (a) If an alien has been living in the United States for as much as one year immediately prior to the time he entered the employment of the withholding agent, or if he has been regularly employed by a resident individual or corporation in the same county for as much as three months immediately prior to any payment by the employer, he may be treated as a resident in the absence of facts known to the employer showing that he is in fact a transient, such as one of the types mentioned under article 312. The facts with regard to the length of time the alien has thus lived in the country or county and has been so regularly employed may be established by the certificate of the alien. (b) The employer may also obtain evidence to overcome the prima facie presumption of nonresidence by securing from the alien form 1078 (revised) 3 or an equivalent certificate of the alien establishing residence. Having secured such evidence from the alien, the employer may rely thereon unless the statement of the alien was false and the employer has reasonable cause to believe it false, and may continue to rely thereon

*See Appendix for form.

until the alien ceases to be a resident under the provisions of article 314. An employer who seeks to account for failure to withhold in the past, if he did not at the time secure form 1078 (revised) or its equivalent, is permitted to prove the former status of the alien by any material evidence. (Art. 315.)

Employer not required to obtain form 1078 each year.

Ruling. It is noted that you have been advised by the Collector of Internal Revenue at Baltimore that it will be necessary for the employer to obtain form 1078 for each year that a non-resident alien was employed.

In reply you are advised that when form 1078 is filed with the employer, the alien may be treated as a resident of the United States in so far as withholding of income tax at source is concerned and it is not necessary for the employer to secure from the alien employees new certificates, form 1078, for each taxable year. The ruling contained in the article quoted herein will govern, namely, that when form 1078 is filed, the employer may continue to rely thereon until the alien ceases to be a resident under the provisions of article 314.

You are further advised that employers with whom forms 1078 are filed, should make a record of the certificates and forward them to the Commissioner of Internal Revenue, Sorting Division, Washington, D. C., not later than the twentieth day of the month succeeding that during which the certificates were received. (Letter to W. B. Reed, Accounting Secretary, National Coal Association, Washington, D. C., signed by Commissioner Daniel C. Roper, and dated July 9, 1919.)

Non-Resident Individuals Method of collecting the tax.—There are two methods by which the tax is collected from non-resident aliens: first, by deducting the normal tax at the source on all payments of interest, rent and other fixed or determinable income; second, by requiring annual returns of net income direct from the non-resident alien. Non-resident alien individuals receive the benefit of the various deductions and credits only by filing a return, and in the event of their failure to do so, all property belonging to them is liable to distraint. Fiduciaries are required to withhold the amount of the normal tax on income, paid to non-resident alien beneficiaries, other than from United States government bonds, state and municipal bonds, tax-free bonds and dividends of domestic corporations. Under former revenue laws representatives having the receipt, custody, control or disposal of taxable income of non-resident alien individuals were required to pay the normal tax and surtax due thereon unless the taxes were paid by the owner of the income. This provision is not carried into the 1918 law, but when the method of collecting the tax is not specifically prescribed in the act the Commissioner of Internal Revenue is given authority to collect it in such manner as he shall designate. Presumably under this authority a record owner of stock of which a non-resident alien individual is the actual owner is required to make return for the actual owner, regardless of the amount of income, and to pay any surtax found by such return to be due. (See article 405, page 838.)

Withholding of tax at the source.

LAW. Section 221. (a) That all individuals, corporations and partnerships, in whatever capacity acting, including lessees or mortgagors of real or personal property, fiduciaries, employers, and all officers and employees of the United States, having the control, receipt, custody, disposal, or payment, of interest, rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income, of any nonresident alien individual (other than income received as dividends from a corporation which is taxable under this title upon its net income) shall (except in the cases provided for in subdivision (b) and except as otherwise provided in regulations prescribed by the Commissioner under section 217) deduct and withhold from such annual or periodical gains, profits and income a tax equal to 8 per centum thereof: Provided, That the Commissioner may authorize such tax to be deducted and withheld from the interest upon any securities the owners of which are not known to the withholding agent.

(b) In any case where bonds, mortgages, or deeds of trust, or other similar obligations of a corporation contain a contractor provision by which the obligor agrees to pay any portion of the tax imposed by this title upon the obligee, or to reimburse the obligee for any portion of the tax, or to pay the interest without deduction for any tax which the obligor may be required or permitted to pay thereon or to retain therefrom under any law of the United States, the obligor shall deduct and withhold a tax equal to 2 per centum of the interest upon such bonds, mortgages, deeds of trust, or other

obligations, whether such interest is payable annually or at shorter or longer periods and whether payable to a nonresident alien individual or to an individual citizen or resident of the United States or to a partnership: Provided, That the Commissioner may authorize such tax to be deducted and withheld in the case of interest upon any such bonds, mortgages, deeds of trust or other obligations, the owners of which are not known to the withholding agent. Such deduction and withholding shall not be required in the case of a citizen or resident entitled to receive such interest, if he files with the withholding agent on or before February 1, a signed notice in writing claiming the benefit of the credits provided in subdivisions (c) and (d) of section 216; nor in the case of a nonresident alien individual if so provided for in regulations prescribed by the Commissioner under section 217. [See next paragraph.]*

Section 217. That a nonresident alien individual shall receive the benefit of the deductions and credits allowed in this title only by filing or causing to be filed with the collector a true and accurate return of his total income received from all sources corporate or otherwise in the United States, in the manner prescribed by this title, including therein all the information which the Commissioner may deem necessary for the calculation of such deductions and credits: Provided, That the benefit of the credits allowed in subdivisions (c) and (d) of section 216 may, in the discretion of the Commissioner, and except as otherwise provided in subdivision (e) of that section, be received by filing a claim therefor with the withholding agent. In case of failure to file a return, the collector shall collect the tax on such income, and all property belonging to such nonresident alien individual shall be liable to distraint for the tax.

REGULATION. In general withholding is required (a) of a tax of 8 per cent in the case of 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 a nonresident alien individual; (b) of a tax of 10 per cent in the case of 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 a foreign corporation not engaged in trade or business within the United States and not having any office or place of business therein; and (c) of a tax of 2 per cent in the case of

"Withholding in the case of payments described in section 221 (a) (salaries, rent, etc.) is at the rate of 8 per cent, that being the normal tax rate prescribed by law for 1919 and subsequent years. Withholding of tax on interest on so-called tax-free bonds, however, is only at the rate of 2 per cent. (Rulings on withholding and a table showing the proper form of ownership certificate to use are given in Chapter IX, “Information at the Source,” page 232.

interest payable to an individual or a partnership, whether resident or nonresident; or to a foreign corporation not engaged in trade or business within the United States and not having any office or place of business therein, upon bonds or other obligations of domestic or resident foreign corporations containing a so-called tax-free covenant clause. Withholding in all cases at the highest applicable rate is also required from interest on bonds or other securities where the owner of such securities is unknown to the withholding agent. Bonds issued under a trust deed containing a tax-free covenant are treated as if they contained such a covenant. A foreign corporation having a fiscal agency in this country is required to withhold a tax of 2 per cent upon the interest on its tax-free covenant bonds. .... (Art. 361.) (See also Art. 362, page 824.)

It should be noted that withholding does not apply to foreign partnerships except in the case of interest on so-called tax-free bonds.

WITHHOLDING FROM NON-RESIDENT ALIENS AT 1917 RATES PRIOR TO FEBRUARY 25, 1919.

REGULATION. In the case of payments made prior to February 25, 1919, where a withholding agent pursuant to the Revenue Acts of 1916 and 1917 withheld only 2 per cent from the income of nonresident alien individuals, he need return only such sum. In all such cases where a withholding agent withheld the tax pursuant to the Revenue Acts of 1916 and 1917 from the income of foreign corporations not engaged in trade or business within the United States and not having any office or place of business therein, he need return only the sum withheld, to an amount not in excess of the aggregate sum required to be withheld by the terms of the Revenue Act of 1918 from the income paid over by the withholding agent. In the case of every payment made after February 24, 1919, the withholding agent must withhold at the rates prescribed by the present statute from the whole payment, not merely from that part which applies to the period after February 24, 1919. (Art. 371.)

DUTIES AND OBLIGATIONS OF EMPLOYERS, IN CONNECTION WITH WITHHOLDING, IN THE CASE OF NON-RESIDENT ALIENS EMPLOYED IN THE UNITED STATES.—

RULING. Reference is made to your letter dated April 15, 1919, containing the following inquiries:

"1. From what date are employers responsible for deductions on

5 See page 815.

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