provided by treaty with such country; and such tax shall be returned and paid in the same manner and subject to the same conditions as provided in that section: Provided, That in the case of interest described in subsection (1) of that section (relating to tax-free covenant bonds) the deduction and withholding shall be at the rate specified in such subsection.

PAR. H. Section 901 of the Revenue Act of 1938 provides in part:

(a) When used in this Act

(1) The term "person" means an individual, a trust or estate, a partnership, or a corporation.

(2) The term "corporation" includes associations, joint-stock companies, and insurance companies.

(3) The term "partnership" includes a syndicate, group, pool, joint venture, or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on, and which is not, within the meaning of this Act, a trust or estate or a corporation; and the term "partner" includes a member in such a syndicate, group, pool, joint venture, or organization.

(4) The term "domestic" when applied to a corporation or partnership means created or organized in the United States or under the law of the United States or of any State or Territory.

(5) The term "foreign" when applied to a corporation or partnership means a corporation or partnership which is not domestic.

(6) The term "fiduciary" means a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in any fiduciary capacity for any person.

(7) The term "withholding agent" means any person required to deduct and withhold any tax under the provisions of section 143 or 144.

(b) The terms "includes" and "including" when used in a definition contained in this Act shall not be deemed to exclude other things otherwise within the meaning of the term defined.

Pursuant to the provisions of section 62 of the Revenue Act of 1938 the following regulations are hereby prescribed to carry into effect the quoted provisions of the Convention between the United States of America and Canada under the Revenue Act of 1938 (the provisions of T. D. 4766, 1937-2 Cum. Bull. 158, applicable under the Revenue Acts of 1936 and 1937, remaining in full force and effect as to taxable years beginning prior to January 1, 1938):

ARTICLE 1. Rate of tax.—The Convention was ratified and became effective August 13, 1937. Under the terms of the Convention, the provisions of which are retroactive to January 1, 1936, the tax at the rate of 10 percent imposed by section 211(a) is reduced to 5 percent with respect to the amount received from sources within the United States as interest (except interest on deposits with persons carrying on the banking business), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income, by every nonresident alien individual not engaged in trade or business within the United States and not having an office or place of business therein, provided he is a resident of Canada.

Under the terms of the Convention the tax at the rate of 10 percent imposed by section 231 (a) is reduced to 5 percent with respect to the amount received from sources within the United States as dividends, by every foreign corporation not engaged in trade or business within the United States and not having an office or place of business therein, provided it is organized under the laws of Canada.

ART. 2. Withholding in general.-The items of income from sources within the United States enumerated in sections 211 (a) and 231 (a) are subject to the withholding provisions of sections 143 and 144, at the rates specified therein, with the exception that all items of fixed or determinable annual or periodical income paid to nonresident alien individuals who are residents of Canada (other than the compensation for personal services received by such residents who enter and leave the United States at frequent intervals) and dividends paid to nonresident foreign corporations which are organized under the laws of Canada are subject to withholding at the reduced rate of 5 percent.

ART. 3. Resident of Canada or corporation organized under the laws of Canada. For the purpose of withholding, every individual whose address is in Canada (including a nonresident alien individual, fiduciary, or partnership) shall be considered by United States withholding agents as a resident of Canada, and every corporation whose address is in Canada shall be considered by such withholding agents as a corporation organized under the laws of Canada. These provisions relative to Canadian residents and Canadian corporations are based upon the assumption that the payee is the actual owner of the property from which the income is derived and consequently is the person liable to the tax upon such income.

A person receiving income which is distributable to an organization exempt from Federal income tax under section 101 of the Revenue Act of 1938, or corresponding sections of prior revenue acts, shall be considered merely a conduit through which the income flows and not a taxable entity. In preparing ownership certificate, Form 1001, the person receiving the income should make a notation thereon substantially as follows:

As this organization has been held to be exempt from the payment of income tax by the Commissioner of Internal Revenue under date of the interest on this certificate is not subject to withholding, giving the date of the official letter in which the organization was held to be exempt. A similar statement made with respect to other items of fixed or determinable annual or periodical income which are subject to withholding will relieve the withholding agent from liability to withhold the tax.

ART. 4. Recipient not actual owner.—If the recipient in Canada is a nominee or agent through whom the income flows to a person who is not entitled to the reduced rate of 5 percent, i. e., a nonresident alien

individual who is not a resident of Canada, or a nonresident foreign corporation not organized under the laws of Canada, the recipient in Canada from whom a tax of only 5 percent was withheld, becomes in turn a withholding agent, and is required to withhold an additional tax of 5 percent (10 percent on income other than dividends received for such foreign corporation) before transmitting the income.

(a) Fiduciaries and partnerships.-Fiduciaries and partnerships with an address in Canada are liable to have 5 percent income tax deducted at the source. If the fiduciary or partnership is acting as a nominee or agent receiving the income for and on behalf of a person other than a resident of Canada or a corporation organized under the laws of Canada, an additional tax of 5 percent or 10 percent, as the case may be, must be deducted by such Canadian fiduciary or partnership and remitted to the United States Treasury. If the fiduciary or partnership receives the income in its own right and distributes its income under a trust deed or partnership agreement, then no further tax in Canada need be deducted.

(b) Tax-free covenant bonds.—No additional withholding is required with respect to interest on so-called tax-free covenant bonds issued prior to January 1, 1934, where the liability assumed by the obligor exceeds 2 percent but under section 143 (a) of the Revenue Act of 1938 only 2 percent income tax is required to be withheld at the source. An additional tax of 5 percent or 10 percent, as the case may be, is required to be withheld, however, by Canadian withholding agents as above provided, (1) where the bonds were issued prior to January 1, 1934, and the liability assumed by the obligor does not exceed 2 percent; (2) where the bonds were issued on or after January 1, 1934, irrespective of the liability assumed by the obligor; (3) where the bonds do not contain a tax-free covenant, regardless of the date of issue.

ART. 5. Return of tax withheld from persons whose addresses are in Canada.-Every United States withholding agent shall make and file with the collector, in duplicate, an information return on Form 1042B, for the calendar year 1938 and each subsequent calendar year, in addition to withholding return, Form 1042, with respect to the items of income from which a tax of only 5 percent was withheld from persons whose addresses are in Canada. There shall be reported on Form 1042B not only such items of income listed on Form 1042, but also such items of interest listed on monthly returns, Form 1012, including items of interest where the liability for withholding is only 2 percent. In the case of corporations whose addresses are within Canada, only the fixed or determinable annual or periodical income from sources within the United States consisting of dividends should be reported. ART. 6. Returns filed by Canadian withholding agents.-Form 1042 is the form to be prepared annually for the calendar year 1938 and each subsequent calendar year by persons in Canada who receive for the

account of any person (other than a resident of Canada or a corporation organized under the laws of Canada) fixed or determinable annual or periodical income from sources within the United States which is subject to tax at the rate of 10 percent or 15 percent, as the case may be, but from which only 5 percent has been withheld as a result of the Convention. Annual withholding return, Form 1042, should be forwarded to the Collector of Internal Revenue, Baltimore, Md., accompanied by the tax shown to be due in United States dollars. An extension of time to June 15 is hereby granted to Canadian withholding agents in which to file such returns.

The following table of withholding rates under the Revenue Act of 1938 and the tax convention between the United States and Canada has been prepared for the purpose of making a summary of such rates readily available to withholding agents:

Withholding rates under the Revenue Act of 1938

1 Salary or compensation for personal services

15

5

15

5

5

15

15

10

rendered in the United States is not subject to withholding in the case of nonresident aliens, residents of Canada or Mexico, who enter and leave the United States at frequent intervals.

GUY T. HELVERING, Commissioner of Internal Revenue.

Approved January 16, 1939:

JOHN W. HANES,

Acting Secretary of the Treasury.

[Filed with the Division of the Federal Register January 17, 1939, 3:47 p. m.]

(T. D. 4884)

Prescribing regulations under the internal-revenue code

TREASURY DEPARTMENT, February 11, 1939.

To Collectors of Internal Revenue and Others Concerned:

All regulations (including all Treasury decisions), prescribed by, or under authority duly delegated by, the Secretary of the Treasury, applicable under any provision of law on the date of the enactment of the internal-revenue code, to the extent such provision of law is superseded by the code, are hereby prescribed under, and made applicable to, the provisions of the code corresponding to the provision of law so superseded, insofar as any such regulation is not inconsistent with the code.

These regulations are issued under authority of the provisions of sections 1928, 2559 and 2606 of the internal-revenue code and under such other provisions of the code as correspond with the several provisions of law under which any regulation or Treasury decision hereby prescribed and made applicable was issued.

H. MORGENTHAU, Jr.,
Secretary of the Treasury.

Filed with the Division of the Federal Register February 11, 1939, 1:53 p. m.]

(T. D. 4885)

Prescribing regulations under the internal-revenue code

TREASURY DEPARTMENT,

OFFICE OF COMMISSIONER OF INTERNAL REVENUE,

Washington, D. C.

To Collectors of Internal Revenue and Others Concerned:

All regulations (including all Treasury decisions), prescribed by the Commissioner of Internal Revenue and approved by the Secretary of the Treasury, applicable under any provision of law on the date of the enactment of the internal-revenue code, to the extent such provision of law is superseded by the code, are hereby prescribed under, and made applicable to, the provisions of the code corresponding to the provision of law so superseded, insofar as any such regulation is not inconsistent with the code.

These regulations are issued under authority of the provisions of section 3791 of the internal-revenue code and under such other provi