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(but not including taxes accrued) by such foreign corporation during the taxable year to any foreign country or to any possession of the United States upon income derived from sources without the United States, which the amount of any dividends (not deductible under section 234) 23 received by such domestic corporation from such foreign corporation during the taxable year bears to the total taxable income of such foreign corporation upon or with respect to which such taxes were paid: Provided, That in no such case shall the amount of the credit for such taxes exceed the amount of such dividends (not deductible under section 234) received by such domestic corporation during the taxable year.

DOMESTIC CORPORATION AFFILIATED WITH FOREIGN CORPORATION.

REGULATION. A domestic corporation which owns a majority of the stock of a foreign corporation shall not be permitted or required to include the net income or invested capital of such foreign corporation in a consolidated return, but for the purpose of section 238 of the statute a domestic corporation which owns a majority of the voting stock of a foreign corporation shall be entitled to credit its income, war profits and excess profits taxes with any income, war profits or excess profits taxes paid (but not including taxes accrued) by such foreign corporation during the taxable year to any foreign country or to any possession of the United States upon income derived from sources without the United States in an amount equal to the proportion which the amount of any dividends (not deductible under section 234) received by such domestic corporation from such foreign corporation during the taxable year bears to the total taxable income of such foreign corporation upon or with respect to whïch such taxes were paid. But in no such case shall the amount of the credit for such taxes exceed the amount of such dividends (not deductible under section 234) received by such domestic corporation during the taxable year. A domestic corporation seeking such credit must comply with those provisions of subdivision (a) of article 383 which are applicable to credits for taxes already paid, except that in accordance with article 611 the form to be used is form 1118 instead of form 1116. (Art. 636.)

CONSOLIDATED RETURNS-TWO DOMESTIC CORPORATIONS, THE ONE OWNING A FOREIGN CORPORATION AND THE OTHER OWNED BY TIIAT FOREIGN CORPORATION.

Ruling. Receipt is acknowledged of your letter dated April 11, 1919, in which you state: “A client of mine, a New Jersey cor

"See page 479.

poration, owns all of the outstanding stock in a foreign corporation, which in turn owns all of the outstanding stock in a New York corporation. Although under article 636 of Regulations 45 relating to the income tax a domestic corporation is not required or permitted to file a consolidated return with a foreign corporation, it seems to me that the New Jersey and New York corporations above mentioned are affiliated as that term is defined in article 633, and that, on that account the New Jersey corporation should file a consolidated return for both, under the provisions of section 240 of the Revenue Act. Kindly advise me at your earliest convenience whether in the opinion of your office I am correct in this interpretation of the law."

In reply you are advised that in accordance with section 240 of the Revenue Act of 1918 it will be necessary for the New Jersey corporation and the New York corporation above mentioned to file a consolidated return, excluding the foreign corporation. (Letter to a subscriber of the Corporation Trust Co., signed by Acting Deputy Commissioner P. S. Talbert, and dated April 23, 1919.)

Time and place for filing returns.

Law. Section 241. (a) That returns of corporations shall be made at the same time as is provided in subdivision (a) of section 227.24

(b) Returns shall be made to the collector of the district in which is located the principal place of business or principal office or agency of the corporation, or, if it has no principal place of business or principal office or agency in the United States, then to the collector at Baltimore, Maryland.

Extension of time for filing returns.—The Commissioner of Internal Revenue is authorized to grant a reasonable extension of time beyond March 15, in meritorious cases, for filing returns of income by non-resident aliens who are unable to file their returns on or before the date required. Application for such extension of time should be made through the collector of the district in which the return will be filed.

Commencing in February, 1917 (before the 1916 returns were due), the Commissioner of Internal Revenue extended the time in which non-resident alien individuals and corporations and American citizens residing or traveling abroad were

"See page 63.

required to make returns of income for the year 1916. The Treasury recognized the impracticability of requiring returns where war conditions made it impossible to secure all necessary data, but the extension does not apply unless there is a good and sufficient cause for the delay.

The latest ruling is as follows:

EXTENSION OF TIME IN THE CASE OF PERSONS ABROAD.

REGULATION. In view of the disturbed conditions abroad and the consequent interference with the usual channels of communication, an extension of time for filing returns of income for 1918 and subsequent years and for paying the tax is hereby granted in the case of nonresident alien individuals and nonresident foreign corporations, or their proper representatives in the United States, and of American citizens residing or traveling abroad, including persons in military or naval service on duty outside the United States, for such period as may be necessary, not exceeding ninety days after the proclamation by the President of the end of the war with Germany. The whole tax shown to be due must be paid at the time of filing the return. In all such cases an affidavit must be attached to the return, stating the causes of the delay in filing it, in order that the Commissioner may determine whether the failure to file the return in time was due to a reasonable cause and not to willful neglect. If the showing justifies the conclusion that the failure to file the return in time was excusable, no penalty will be imposed. (Art. 445.)

Taxes may be paid in instalments in accordance with the provisions of section 250. (See Chapter VII, page 176.)

Return by agent.-Section 239 provides that "if any foreign corporation has no office or place of business in the United States, but has an agent in the United States, the return shall be made by the agent.” (See article 625, page 846.)

Foreign Partnerships, Foreign Governments and

Citizens of United States Possessions Foreign partnerships.—The provision of section 218 (a), “that individuals carrying on business in partnership shall be liable for income tax only in their individual capacity,” ap

plies equally to foreign partnerships. Although not subject to tax, partnerships are required to make returns, and, according to instructions in form 1065, this requirement is applicable to every foreign partnership doing business in the United States.

Income of foreign governments tax exempt.

Law. Section 213. . . . . (b) .... (5) The income of foreign governments received from investments in the United States in stocks, bonds, or other domestic securities, owned by such foreign governments, or from interest on deposits in banks in the United States of moneys belonging to such foreign governments, or from any other source within the United States;

REGULATION. The exemption of income of foreign governments applies also to their political subdivisions. Any income collected by foreign governments from investments in the United States in stocks, bonds or other domestic securities, which are not actually owned by but are loaned to such foreign governments, is subject to tax. The income of foreign ambassadors and ministers from investments in bonds and stocks and from interest on bank balances, and the fees of foreign consuls, are exempt from tax, but income of such foreign officials from any business carried on by them in the United States would be taxable. The compensation of citizens of the United States who are officers or employees of a foreign government is, however, not exempt from tax. (Art. 83.)

Ruling. Ownership certificate form 1001 should be used in connection with interest payments upon domestic bonds owned by foreign governments. (Telegram to The Guaranty Trust Company, New York, N. Y., signed by J. H. Callan, Assistant to the Commissioner, and dated July 7, 1919.)

Citizens of United States possessions taxed as non-resident aliens.

Law. Section 260. That any individual who is a citizen of any possession of the United States (but not otherwise a citizen of the United States) and who is not a resident of the United States, shall be subject to taxation under this title only as to income derived from sources within the United States, and in such case the tax shall be computed and paid in the same manner and subject to the same conditions as in the case of other persons who are taxable only as to income derived from such sources.

REGULATION. A citizen of a possession of the United States, who is not otherwise a citizen or a resident of the United States, including only the States, the Territories of Alaska and Hawaii, and the District of Columbia, is treated for the purpose of the tax as if he were a nonresident alien individual. .... His income from sources within the United States is subject to withholding. .... (Art. 1121.)

Non-residents of Porto Rico or the Philippine Islands.

Law. Section 261. That in Porto Rico and the Philippine Islands the income tax shall be levied, assessed, collected, and paid in accordance with the provisions of the Revenue Act of 1916 as amended.

Returns shall be made and taxes shall be paid under Title I of such Act in Porto Rico or the Philippine Islands, as the case may be, by (1) every individual who is a citizen or resident of Porto Rico or the Philippine Islands or derives income from sources therein, and (2) every corporation created or organized in Porto Rico or the Philippine Islands or deriving income from sources therein. An individual who is neither a citizen nor a resident of Porto Rico or the Philippine Islands but derives income from sources therein, shall be taxed in Porto Rico or the Philippine Islands as a nonresident alien individual, and a corporation created or organized outside Porto Rico or the Philippine Islands and deriving income from sources therein shall be taxed in Porto Rico or the Philippine Islands as a foreign corporation. For the purposes of section 216 and of paragraph (6) of subdivision (a) of section 234, a tax imposed in Porto Rico or the Philippine Islands upon the net income of a corporation shall not be deemed to be a tax under this title.

The Porto Rican or Philippine Legislature shall have power by due enactment to amend, alter, modify, or repeal the income tax laws in force in Porto Rico or the Philippine Islands, respectively.

Section 1400. .... Title I of the Revenue Act of 1916 as amended by the Revenue Act of 1917 shall remain in force for the assessment and collection of the income tax in Porto Rico and the Philippine Islands, except as may be otherwise provided by their respective legislatures.

REGULATION. In Porto Rico and the Philippine Islands the Revenue Act of 1916, as amended, is in force and the Revenue Act of 1918 is not. . . . . No credit against net income is allowed individuals and no deduction from gross income is allowed corporations with respect to dividends received from a foreign corporation (foreign with respect to the United States) taxed in Porto Rico or the Philippines, but having no income from sources within the United States. (Art. 1131.)

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