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aliens of rent, salary, interest on debts of the estate and of other fixed or determinable income, he acts in the capacity of a withholding agent and, like any other payer of similar income, he is authorized to accept the same ownership certificates and is required to file the same annual list returns. For a description of his duties in this capacity, see pages 108, 224, 228, 235, 814, dealing with the collection of the tax at the source on miscellaneous income payable to non-resident aliens.

In his capacity as a fiduciary, when he pays the net income or profits of the estate to the non-resident alien beneficiaries he proceeds as indicated on page 838 of Chapter XXXIII, “NonResident Aliens.” It is not his duty to deduct the tax on payments to citizens or resident beneficiaries. When the fiduciary pays over any part of the principal or corpus of the estate no tax is due. The tax is deducted only on income payments. Property coming to the estate by gift, bequest, devise or descent may be distributed among the beneficiaries without regard to the tax, since such income is expressly declared to be exempt from the law. Gains or income from such property, however, are taxable.

On payments to non-resident aliens the tax should be deducted regardless of the amount paid, unless a claim for exemption is filed in accordance with section 217. See page 815 for the procedure to be followed by beneficiaries.

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.)

Information at the source.-In accordance with the provisions of section 256, fiduciaries are required to make returns of information regarding all payments of interest, rent, salaries, wages, premiums, annuities, compensation, remunerations, emoluments or other fixed or determinable gains, profits and income (other than payments described in sections 254 and 255) of $1,000 or more in any taxable year.19

This obligation is reasonable and can be readily fulfilled by fiduciaries. It is vastly simpler than the cumbersome and annoying system of deduction at the source.

It is incumbent upon fiduciaries not only to furnish the information required but also to assist as far as possible in the securing of returns from beneficiaries, so that no tax shall be lost through the abolition of deduction at the source.

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Return forms.—The forms used at present are as follows:
Fiduciary return for estate.....

.No. 1041
Return for minor, etc......

1040 Report of information.....

1099 Annual information return..

1096 Tax withheld ........

1098 Annual return of tax withheld.......

" 1042 Copies of the above forms will be found in the Appendix.

Returns for beneficiaries.-As a general rule, a fiduciary completes his duty as to reporting when he files form 1041. The beneficiary then files on his own behalf form 1040, including therein, among other items, the amount he has received from the estate. It should be borne in mind that, although the fiduciary may not have been required to file form 1041, because the payment to each beneficiary was less than $1,000, the beneficiary must nevertheless include the amount he receives from the estate, no matter how small, in his own return.

The fiduciary may, of course, file form 1040, for his beneficiary if he has knowledge of all the income of the beneficiary from the estate and other sources, provided he has been appointed as agent or attorney-in-tact by the beneficiary for the purpose. In doing so he acts in an entirely separate capacity, performs no duty as a fiduciary and is not thereby relieved from any responsibility as a fiduciary.

19 See Chapter IX, “Information at the Source,” for full text of this section.

CHAPTER XXXV

INSURANCE COMPANIES

The problem of taxing insurance companies in an equitable manner under the income and excess profits tax provisions which govern corporations was considered at length when the 1918 law was being formulated. The Senate committee proposed and the Senate adopted an entirely new plan for taxing these companies, but the proposal was lost because the House conferees refused to concur.'

REGULATION. Insurance companies include both stock and mutual companies, as well as mutual benefit insurance companies. A voluntary unincorporated association of employees formed for the purpose of relieving sick and aged members and the dependents of deceased members is an insurance company, whether the fund for such purpose is created wholly by membership dues or partly by contributions from the employer. But a corporation which merely sets aside a fund for the insurance of its employees is not required to file a separate return for such fund if the income and disbursements

""A new basis is recommended for the taxation of life insurance companies (Part IV, sections 245, 246, 247). The tax is in form an income tax, but is imposed upon a net income defined with special reference to the peculiar conditions of the business of life insurance. Roughly, it consists of the gross income from interest, dividends and rents, less tax-free interest, investment expenses and taxes and other expenses paid exclusively in connection with real estate owned by the company. In the case of a domestic life insurance company there is also a specific deduction of $2,000. Thus the tax falls upon the true income of the company; that is, its income from investments; and the rate is so fixed that this tax takes the place of the income tax, war excess profits tax, capital stock tax and the tax on the issuance of policies. It will yield considerably more revenue than the taxes which it is designed to replace, and has the great merit of simplicity and certainty. Above all, it avoids the almost insuperable difficulty of defining the invested capital of a life insurance company for purposes of the war excess profits tax.” (Report to Senate, by Senator Simmons, December 6, 1918, page 9.)

"Your conferees did not think that its scheme would be equitable or satisfactory if the deductions were eliminated, and, after much controversy and much discussion, reflection and investigation-for we did investigate a good deal to see if we could not reach a basis of compromise-finding ourselves unable to come to any satisfactory adjustment with reference to the Senate scheme, the Senate receded." (Senator Simmons, February 11, 1919, Congressional Record, page 3777.)

therefrom are included in the corporation's own return, .... (Art. 1508.)

The 1918 law as enacted imposes income and excess profits taxes upon insurance companies as follows:

Gross Income

Law. Section 233. (a) That in the case of a corporation subject to the tax imposed by section 230 the term "gross income” means the gross income as defined in section 213 [income of individuals], except that:

(1) In the case of life insurance companies there shall not be included in gross income such portion of any actual premium received from any individual policyholder as is paid back or credited to or treated as an abatement of premium of such policyholder within the taxable year.

(2) Mutual marine insurance companies shall include in gross income the gross premiums collected and received by them less amounts paid for reinsurance.

REGULATION. The gross income of insurance companies consists of their total revenue from the operation of the business and of their income from all other sources within the taxable year, except as otherwise provided by the statute.2 Gross income includes net premiums (that is, gross premiums less returned premiums on policies cancelled and premiums on policies not taken), investment income, profits from the sale of assets, and all gains, profits and income reported to the State insurance departments, except income specifically exempt from tax. Premiums received by mutual marine insurance companies which are paid out for reinsurance should be eliminated from gross income and the payments for reinsurance from disbursements. Deposit premiums on perpetual risks received and returned by fire insurance companies should be treated in the same manner, as no reserve will be recognized covering liability for such deposits. The earnings on such deposits must be included in the investment income. A net decrease in reserve funds required by law within the taxable year must be included in the gross income. .... (Art. 548.)

DECISION. Under the provisions of paragraph G, subdivision (b) of section 2 of the act of October 3, 1913, that “life insurance companies shall not include as income in any year such portion of any.

'[Former Procedure] In a decision under the 1909 law the court decided that premiums actually received in cash constitute income "received." Premiums accrued or becoming due and not paid do not constitute income "received." (Lumber Mutual Fire Insurance Co. v. Malley, 256 Fed. 380.)

actual premium received from any individual policyholder as shall have been paid back or credited to such individual policyholder within such year,” a life insurance company is not entitled to exclude from its total income during the taxable year, for the purpose of ascertaining its gross income, any dividends paid or credited to policyholders from whom it did not receive any premium during that year; and as to such policyholders as it did receive premiums from that year it is entitled to exclude only such part of the dividends paid to those policyholders as did not exceed the amount received from them, respectively, by way of premiums during that year.

None of the cash dividends paid by a life insurance company to its policyholders which represent redundancies in previous premium payments are deductible from gross income in annual tax returns as "sums other than dividends paid within the year on policy .... contracts." [Lederer, Collector, v. Penn Mutual Life Insurance Co. (247 Fed. 559), United States Circuit Court of Appeals for the Third Circuit. (T. D. 2899, July 24, 1919.)]

The effect of this decision is that part of the “dividends" paid by insurance companies, even though mere returns of over-assessments of premiums in the past, are not allowable deductions. The court did not defend the law as being equitable, but held that Congress specified the items which could be deducted and that no provision was made for the deduction of payments to policyholders from whom premiums equal to the return premiums were not received during the taxable year.

What need not be included in gross income.

REGULATION. A life insurance company shall not include in gross income such portion of any actual premium received from any individual policyholder as is paid back or credited to or treated as an abatement of premium of such policyholder within the taxable year. (a) “Paid back" means paid in cash. (6) "Credited to" means held to the credit of, including dividends applied to pay renewal premiums, to purchase additional paid-up insurance or annuities, or to shorten the endowment or premium-paying period. It does not include dividends provisionally ascertained and apportioned upon deferred dividend policies. (c) “Treated as an abatement of premium" means of the premium for the taxable year. Where the dividend paid back is in excess of the premium received from the policyholder within the taxable year there may be excluded from gross income only the amount of such premium received, and where no premium

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