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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.)

INDIVIDUALS.

REGULATION. (a) A citizen of the United States who resides in Porto Rico, and a citizen of Porto Rico who resides in the United States are taxed in both places, but the income tax in the United States is credited with the amount of any income, war profits and excess profits taxes paid in Porto Rico. . . . . (b) A resident of the United States who is not a citizen of Porto Rico is taxable in Porto Rico as a nonresident alien individual on any income derived from sources within Porto Rico, but the income tax in the United States is credited with the tax paid in Porto Rico. (c) A resident of Porto Rico who is not a citizen of the United States is taxable in the United States as a nonresident alien individual on any income derived from sources within the United States, and receives no credit. . . . . The same principles apply in the case of the Philippine Islands. (Art. 1132.)

CORPORATIONS.

REGULATION. (a) A United States corporation which derives income from sources within Porto Rico, (b) a Porto Rico corporation which derives income from sources within the United States, and (c) a corporation of a foreign country which derives income both from sources within Porto Rico and from sources within the United States, are all taxed in both places. In the case of the United States corporation the income, war profits and excess profits taxes in the United States are credited with the amount of any income, war profits and excess profits taxes paid in Porto Rico. In the case of the Porto Rico corporation there is no such credit. . . . . The corporation of the foreign country deriving income from both places is subject to no double taxation so far as the United States and Porto Rico are concerned. For the purpose of withholding a Porto Rico corporation is a foreign corporation. . . . . . The same principles apply in the case of the Philippine Islands. (Art. 1133.)

[Former Procedure]

Under the 1913 law non-resident alien individuals were taxable "on income from property owned or business carried on in the United States." The normal tax rate was I per cent, and the surtax rates were the same as in the case of citizens or residents.

Royalties were considered taxable income; but, under a ruling of the Treasury based on an opinion of the Attorney-General, income from stocks and bonds of domestic corporations was not taxable.

The specific exemption allowed in the case of citizens and residents was not allowed to non-resident alien individuals. Responsible heads, agents or representatives of non-resident aliens in charge of property or business in the United States were required to make return for their non-resident principals.

[Former Procedure-Continued]

In T. D. 2313, dated March 21, 1916, based on the decision of the Supreme Court of the United States in Brushaber v. Union Pacific, it was ruled that interest on bonds and dividends on stock were taxable income, and that non-resident aliens were subject to the liabilities and requirements of all administrative, special and general provisions of the law. T. D. 2324, dated April 24, 1916, provided for withholding from July 1, 1916; and T. D. 2317, dated April 4, 1916, provided that the individual liability of non-resident aliens for tax would be effective as of January 1, 1916.

Foreign corporations were taxable upon the net income from business transacted and capital invested in the United States. Buying and selling through agents was held to be transacting business within the meaning of the law. There was no provision for withholding in the case of corporations.

Corporations were required to file returns and they were allowed to take as deductions the deductions allowed to domestic corporations, but only in the proportion that the gross income from sources within the United States bore to the gross income from all sources. There was an exception to this in the case of interest on indebtedness, which was subject to the further restriction that it could not be deducted on an amount of indebtedness in excess of one-half the sum of the interest-bearing indebtedness and the paid-up capital, in the ratio that gross income from the United States was to gross income from all

sources.

Under the 1916 law non-resident alien individuals and foreign corporations were taxable on the entire net income from all sources within the United States. The normal tax in the case of individuals and the corporation tax were raised from I per cent to 2 per cent. Individuals were subject to the same increased surtaxes as citizens or residents. Dividends were excluded from taxation for the purpose of the normal tax, and deductions were allowed in so far as they related to income from sources within the United States, except in the case of interest on indebtedness. In such case individuals were allowed a deduction in the ratio of gross income within the United States to gross income from all sources, and a corporation was allowed a deduction on an amount of indebtedness equal to the sum of its capital plus one-half its interestbearing indebtedness, in the ratio which its gross income from sources within the United States bore to its total gross income.

Individuals were allowed a credit for tax withheld, in addition to the credit for dividends, and were also allowed the same specific exemption as citizens, but only by filing a return. Return was not required if the net income was under $3,000 but it could be filed to get the benefit of a refund where tax had been withheld in excess of the amount due.

Foreign corporations were subject to withholding on dividends

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