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 contract or 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, 1919.5 (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

See page 815.

nonresident aliens as defined under T. D. 2794? Should the tax have been withheld on this basis during 1918?

"2..

"3.

"4. What should be done with form 1078 when signed by alien? Should the employer retain it as authority for not withholding tax, or should it be sent to the collector, and if so, when?"

Referring to your first inquiry you are advised that employers will be held liable for the deduction of income tax from salaries, wages, or other fixed or determinable income paid to non-resident aliens since September 17, 1915, the date of issuance of T. D. 2242, defining a non-resident alien and prescribing certificate of residence, form 1078. Employers should be governed by articles 311 to 316, inclusive, Regulations 45, as to liability to withhold income tax during 1918 from wages paid to alien employees.

Referring to your fourth inquiry you are advised that every employer with whom affidavits of claim of form 1078 are filed by employees, should make a record thereof and forward the certificates to the Commissioner of Internal Revenue, Sorting Division, Washington, D. C., not later than the twentieth day of the month succeeding that during which such certificates were received. (Letter to The Corporation Trust Company, signed by Commissioner Daniel C. Roper, and dated May 21, 1919.)

COLLECTION OF TAX FOR PREVIOUS YEARS.—

RULING. Reference is made to your letter dated March 25, 1919, transmitting a copy of your letter dated February 28, 1919, in which the following questions are submitted with respect to the duty of operators of bituminous coal mines to withhold income tax from salaries, wages and other compensation paid to non-resident aliens employed in this country.

"1. For what years will the Department attempt to make collection of such items?

"2. In the absence of any record now existing as to the nationality or intentions of employees who have left the service of a person or corporation which employed them during past years, what action on the part of the employers will be necessary to relieve them from any further liability for this tax? Is not the burden of proof on the government in this case?

"3. Will a canvass of the present employees with a view to ascertaining their nationality or intentions of becoming resident taxpayers, and a collection of the taxes due from them be a satisfactory solution of the case. If so, how far back should employers attempt to make this collection?

"4. It is customary in a great many mining districts to let out a certain portion of a mine to some miner who is usually termed a con

tractor who employs additional labor in the production of coal from the section of the mine assigned to him. These men, usually termed 'back hands' sometimes do not appear upon the pay-roll and are very frequently not officially known to the operator or employer. Who is responsible for the collection in this case, the operator or the contractor? The operator frequently does not know the amount of the earnings of the 'back hand' or laborer employed by the contractor and the latter usually keeps no books of account.

"5. Many employees, not only in the mining industry but in other industries, are known only by number. Will it be necessary to ascertain their names and intentions as to residence?

"6. Does the failure of the employer to make such collections make him liable for the full amount of the tax? If so, how far back of the present will the department attempt to make collections, and in the absence of specific information as to the nationality of past employees, upon what evidence will they base their action during the past period?"

In reply to your first inquiry you are advised that the Department is not limited as to years in regard to investigations relative to the liability of employers.to deduct income tax at the source from fixed or other determinable income paid to non-resident aliens as provided by the Revenue Act of 1918 and the acts for prior years. No effort will be made to hold employers of non-resident aliens liable for tax prior to the issuance of T. D. 2242, September 17, 1915, which defined a non-resident alien and not then if such non-resident alien had been employed continuously by the same person or corporation for a period of three months or more.

In reply to your second inquiry you are advised that aliens employed in the United States are prima facie regarded as non-resident aliens, and in case where withholding has not occurred it will be necessary for the employer to furnish written proof of facts which overcome that presumption. The burden of proof is on the employer. The records of a corporation, such as the canceled checks representing payment to its employees, and the pay-rolls, are held to constitute written proof.

Referring to your third inquiry you are advised that 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 an individual resident in the United States or by a resident corporation in the same city or county for as much as three months immediately prior to any payment by the employer, he may be treated as a resident in deciding as to the necessity of withholding part of such payment, provided. no facts are known to the employer showing that he is in fact a transient. The facts with regard to the length of time the alien has thus lived in this country or has been so regularly employed may