(2) Income is fixed when it is to be paid in amounts definitely predetermined. Income is determinable whenever there is a basis of calculation by which the amount to be paid may be ascertained. The income need not be paid annually if it is paid periodically; that is to say, from time to time, whether or not at regular intervals. The fact that a payment is not made annually or periodically does not, however, necessarily prevent its being fixed or determinable annual or periodical income. That the length of time during which the payments are to be made may be increased or diminished in accordance with someone's will or with the happening of an event does not make the payments any the less determinable or periodical. A salesman working by the month for a commission on sales which is paid or credited monthly receives determinable periodical income. The share of the fixed or determinable annual or periodical income of an estate or trust from sources within the United States which is required to be distributed currently, or which has been paid or credited during the taxable year, to a nonresident alien beneficiary of such estate or trust constitutes fixed or determinable annual or periodical income. Such items as taxes, interest on mortgages, or premiums on insurance paid to or for the account of a nonresident alien landlord by a tenant, pursuant to the terms of the lease, constitute fixed or determinable annual or periodical in

come.

(3) Income derived from the sale in the United States of property, whether real or personal, is not fixed or determinable annual or periodical income. However, the consideration received from the transfer of property is fixed or determinable annual or periodical income if for purposes of the income tax the consideration is treated as rentals or royalties and not as the proceeds of a sale of property.

(b) Amounts considered to be gains from the sale or exchange of capital assets. Withholding is also required on the gross amount of the items described in section 402(a) (2), relating to treatment of total distributions from certain employees' trusts; in section 631 (b) and (c), relating to treatment of gain on disposal of timber or coal with a retained economic interest; in section 1235, relating to treatment of gain on

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sale or exchange of patents; and after September 2, 1958, in section 403 (a) (2), relating to treatment of payments under certain employee annuities, each of which items is considered to be gain from the sale or exchange of capital assets. § 1.1441-3 Exceptions and rules of special application.

(a) Income from sources without the United States. To the extent that items of income constitute gross income from sources without the United States, they are not subject to withholding under § 1.1441-1. For rules governing the determination of the sources of income, see part I (section 861 and following), subchapter N, chapter 1 of the Code, and the regulations thereunder.

(b) Corporate distributions-(1) Nontaxable portion. The tax shall be withheld at the source under § 1.1441-1 on the gross amount of any distribution made by a corporation other than—

(i) A nontaxable distribution payable in stock or stock rights, and

(ii) A distribution which is treated as a distribution in part or full payment in exchange for stock.

This rule shall apply without regard to any claim that all or a portion of the distribution is not taxable under section 871 or 881. The tax shall be withheld on the gross amount of the distribution even though the payee may be entitled to the benefits of section 34, relating to the credit for dividends received by individuals, or section 116, relating to partial exclusion of dividends received by individuals. Appropriate adjustment, if any, will be made upon the payee's filing of a claim for refund, together with appropriate supporting evidence, in accordance with paragraph (h) of this section.

(2) Dividends paid by a foreign corporation. No withholding under § 1.1441-1 is required in the case of dividends paid by a foreign corporation unless (i) the corporation is engaged in trade or business within the United States, and (ii) more than 85 percent of the gross income of the corporation for the 3-year period ending with the close of its taxable year preceding the declaration of the dividends (or for such part of such period as the corporation has been in existence) was derived from sources within the United States as determined under the provisions of part

Page 345

I (section 861 and following), subchapter N, chapter 1 of the Code, and the regulations thereunder.

(3) Dividends paid by a China Trade Act corporation. Withholding is required under § 1.1441-1 on dividends paid by a corporation organized under the China Trade Act of 1922 (15 U. S. C., c. 4) if the dividends are treated as income from sources within the United States under part I (section 861 and following), subchapter N, chapter 1 of the Code, and are distributed to

(i) A nonresident alien other than a resident of Formosa or Hong Kong at the time of the distribution, or

(ii) A nonresident partnership composed in whole or in part of nonresident aliens (other than a partnership resident in Formosa or Hong Kong), or

(iii) A nonresident foreign corporation (other than a corporation resident in Formosa or Hong Kong).

(4) Dividends paid to shareholder whose status is not definite. When a payer corporation or any other person, including a nominee, having the control, receipt, custody, disposal, or payment of dividends has no definite knowledge of the status of a shareholder, the tax shall be withheld under § 1.1441-1 if the shareholder's address is outside the United States. If the shareholder's address is within the United States, it may be assumed for the purpose of withholding on dividends that the shareholder is a citizen or resident of the United States. Unless the name and style of the shareholder are such as to indicate clearly that he is a nonresident alien, an address in care of another person in the United States does not of itself warrant treating the shareholder as a nonresident alien for such purpose. If a shareholder changes his address from a place without the United States to a place within the United States, the tax shall be withheld on dividends unless proof is furnished showing that he is a citizen or resident of the United States. For general provisions for claiming United States citizenship or residence, see § 1.1441-5.

(c) Interest-(1) Government obligations. Withholding is required under § 1.1441-1 in the case of interest paid on obligations issued on or after March 1, 1941, by the United States or any agency or instrumentality thereof. See section 103 and the regulations thereunder, re

lating to the taxation of such interest, and 1.1461-1, relating to ownership certificates.

(2) Assumed obligations. If, in connection with the sale of a corporation's property, payment of the bonds or other obligations of the corporation is assumed by the assignee, the assignee, whether an individual, partnership, or corporation, shall deduct and withhold such taxes under § 1.1441-1 as would be required to be withheld by the assignor had no such sale or transfer been made.

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(3) Defaulted interest coupons. The tax shall be withheld at the source under § 1.1441-1 on the gross amount of interest without regard to whether or not the payment constitutes a return of capital or the payment of income within the meaning of section 61. Thus, for example, the tax shall be withheld in accordance with § 1.1441-1 from faulted interest payments upon bonds which were purchased flat at quotations representing the price of both the bonds and the defaulted matured interest coupons. Appropriate adjustment, if any, will be made upon the payee's filing of a claim for refund, together with appropriate supporting evidence, in accordance with paragraph (h) of this section.

(4) Unknown owner. Withholding is required under § 1.1441-1 in the case of interest upon all bonds or securities the owners of which are not known to the withholding agent unless such bonds or securities were issued by a corporation before January 1, 1934, contain a taxfree covenant, and do not have a maturity date which was extended on or after that date. For withholding under section 1451 in the case of unknown owners, see paragraph (a) (2) of § 1.1451-1.

(5) Tax-free covenant bonds—(i) Issued on or after January 1, 1934. Withholding is required under § 1.1441-1 in the case of interest upon bonds or other corporate obligations issued on or after January 1, 1934, and containing a taxfree covenant.

(ii) Issued before January 1, 1934. Withholding is not required under §1.1441-1 in the case of interest upon bonds or other corporate obligations issued before January 1, 1934, containing a taxfree covenant, and not having a maturity date which was extended on or after that date. A domestic or resident fiduciary is required, however, to withhold tax under § 1.1441-1 in the case of so much of such interest as is properly allocable under

section 652 or 662 to a nonresident alien beneficiary. See paragraph (f) of this section and of § 1.1451-1. For general rules respecting the withholding of tax under section 1451 in the case of such interest, see § 1.1451-1.

With

(iii) Extended maturity date. holding is required under § 1.1441-1 in the case of interest upon bonds or other corporate obligations issued before January 1, 1934, and containing a taxfree covenant, if the maturity date of the bonds or obligations has been extended on or after that date. See paragraph (c) of § 1.1451-1.

(iv) Special rate of 271⁄2 percent. The rate of tax to be withheld at the source under § 1.1441-1 shall not exceed 272 percent in the case of interest on bonds, mortgages, or deeds of trust, or other similar obligations of a corporation if—

(a) The liability assumed by the debtor exceeds 272 percent of the interest, and

(b) The interest would be subject to withholding under the provisions of subsections (a), (b), and (c) of section 1451 except for the fact that the maturity date of the obligations has been extended on or after January 1, 1934. See paragraph (c) of § 1.1451-1.

(d) Amounts considered to be gains from the sale or exchange of capital assets. (1) If, in the case of the amounts enumerated in paragraph (b) of § 1.1441-2 which are considered to be gains from the sale or exchange of capital assets, the withholding agent does not know the amount of recognized gain, he is required to deduct and withhold such amount under § 1.1441-1 as may be necessary to assure that the tax withheld will not be less than 30 percent of the recognized gain. For this purpose the recognized gain shall be determined without regard to the deduction allowed by section 1202 in respect of capital gains. The amount so withheld shall not exceed 30 percent of the gross proceeds from the transaction giving rise to the recognized gain, except that the gross proceeds may be determined by excluding the net unrealized appreciation described in section 402 (a) (2). Appropriate adjustment, if any, will be made upon the payee's filing of a claim for refund, together with appropriate supporting evidence, in accordance with paragraph (h) of this section.

(2) The withholding agent may rely upon the written statement of the per

son entitled to the income described in this paragraph as to the amount of gain recognized on the transaction involved. This statement shall show the computation of the gain and shall be furnished to the withholding agent in duplicate. The duplicate copy of the statement shall be forwarded with a letter of transmittal to the District Director of Internal Revenue, Baltimore 2, Maryland; except that on and after January 1, 1957, such copy shall be forwarded to the Director of International Operations, Internal Revenue Service, Washington 25, D.C.

(e) Personal exemption. (1) The taxation of nonresident alien individuals is provided for in part II (section 871 and following), subchapter N, chapter 1 of the Code. Section 874(a) makes the filing of a return a prerequisite to the allowance of deductions, including deductions of personal exemptions. Except in the circumstances described in subparagraph (2) of this paragraph, personal exemptions do not serve to reduce the amount of tax to be withheld under § 1.1441-1.

(2) In the determination of the tax to be withheld at the source under § 1.1441-1 from remuneration paid for labor or personal services performed within the United States by a nonresident alien, the benefit of the deduction for one personal exemption provided in section 151 shall be allowed, prorated upon a daily basis for the period of employment during any portion of which labor or personal services are performed within the United States by the alien. The proration is on the basis of $1.70 per day. Thus, if A, a nonresident alien seaman employed by X Shipping Corporation, is paid in 1955 upon the termination of a voyage covering 100 days and A performs personal services within the United States during, or incident to, the voyage, the amount of $170 will be allocated as the portion of the deduction to be allowed against the remuneration for personal services performed within the United States during that voyage; and withholding at 30 percent shall be applied against the balance, if any, of the remuneration. If, for example, the total remuneration paid to A for that voyage is $2,000, of which the amount of $800 is allocable to sources within the United States, a tax in the amount of $189 is required to be withheld under

§ 1.1441-1. As to what constitutes remuneration for labor or personal services performed within the United States, see section 861 (a) (3) and the regulations thereunder.

(f) Fiduciaries. Resident or domestic fiduciaries are required to withhold the tax at source under § 1.1441-1 on all items of income specified in § 1.1441-2 of nonresident alien beneficiaries, to the extent that such items constitute gross income from sources within the United States. Such income paid to a nonresident alien fiduciary is subject to withholding under § 1.1441-1 even though the beneficiaries of the estate or trust are citizens or residents of the United States.

(g) Trust income taxable to grantor. The income of a trust created by a nonresident alien individual and taxable to the grantor under the provisions of subpart E, part I, subchapter J, chapter 1 of the Code, is subject to withholding under § 1.1441-1, even though the fiduciary or beneficiaries of the trust are citizens or residents of the United States and regardless of whether the beneficiaries are exempt from income tax.

(h) Claims for refund. Notwithstanding § 301.6402-2 of this chapter (Regulations on Procedure and Administration), any claim for refund referred to in paragraphs (b), (c), and (d) of this section which is filed on and after January 1, 1957, shall be filed with the Director of International Operations, Internal Revenue Service, Washington 25, D.C. For special rules permitting the use of the income tax return as a claim for refund, see § 301.6402-3 of this chapter (Regulations on Procedure and Administration).

(i) Rents paid to foreign tax-exempt organizations. For the rule for withholding on rents paid to foreign taxexempt organizations, see § 1.1443-1. § 1.1441-4 Exemptions from withholding.

(a) Interest-(1) Interest on bank deposits. Interest on deposits with persons carrying on the banking business paid to persons not engaged in business in the United States is not subject to withholding under § 1.1441-1.

(2) Sale of bonds between interest dates. The tax is not required to be withheld under § 1.1441-1 on accrued interest paid by the buyer in connection

with the sale of bonds between interest dates, even though the interest is subject to tax under section 871 or 881. The exemption from withholding granted by this subparagraph is not a determination that the accrued interest is not fixed or determinable annual or periodical income.

(b) Compensation for personal services (1) Exemption under section 1441. The salary or other compensation for personal services of a nonresident alien individual who enters and leaves the United States at frequent intervals shall not be subject to withholding of tax under § 1.1441-1 if—

(i) The nonresident alien is a resident of Canada or Mexico, or

(ii) The nonresident alien is engaged in agricultural labor as defined in section 3121 (g) and the regulations thereunder.

(2) Withholding of tax under section 3402. For collection of the income tax at source under section 3402 upon remuneration paid for services performed by a nonresident alien individual who is a resident of Canada or Mexico and who enters and leaves the United States at frequent intervals, see section 3401 (a) (7) and the regulations thereunder.

(3) Proration of personal exemption. For provisions allowing the benefit of the deduction for the personal exemption on a prorated basis, see paragraph (e) of § 1.1441-3.

(c) Dividends paid by China Trade Act corporations. Withholding is not required under § 1.1441-1 upon dividends distributed by a corporation organized under the China Trade Act of 1922 (15 U.S.C., ch. 4) to or for the benefit of a resident of Formosa or Hong Kong and which are exempt from taxation by section 943.

(d) Inhabitants of Virgin Islands— (1) Allowance of exemption. No withholding is required under § 1.1441-1 upon any item of income paid to any person who at the time of payment reasonably expects to satisfy his income tax obligations with respect to that item under section 28 (a) of the Revised Organic Act of the Virgin Islands (48 U.S.C. 1642). That section provides that all persons whose permanent residence is in the Virgin Islands "shall satisfy their income tax obligations under applicable taxing statutes of the United States by paying their tax on income derived from all sources both within and outside the Vir

gin Islands into the Treasury of the Virgin Islands." For the purpose of this paragraph, the term "person" shall include an individual, partnership, and corporation.

(2) Claiming exemption. To avoid withholding of tax at source under § 1.1441-1, the payee of the income shall notify the withholding agent by letter in duplicate that he expects to satisfy his income tax obligations under section 28 (a) of the Revised Organic Act of the Virgin Islands with respect to all income to be paid to him by the withholding agent during the current calendar year. This letter of notification shall constitute authorization to the payer of the income to pay income to the payee during that year without deduction of the tax at source under § 1.1441-1.

(3) Disposition of letter. The duplicate copy of each letter of notification shall be forwarded with a letter of transmittal to the District Director of Internal Revenue, Baltimore 2, Maryland; except that on and after January 1, 1957, such copy shall be forwarded to the Director of International Operations, Internal Revenue Service, Washington 25, D.C.

(e) Per diem of certain alien trainees. Effective with respect to payments made on and after July 18, 1956, withholding is not required under section 1441 (a) or § 1.1441-1 in the case of amounts of per diem for subsistence paid by the United States Government (directly or by contract) to any nonresident alien individual who is engaged in any program of training in the United States under the Mutual Security Act of 1954, as amended (22 U. S. C. ch. 24). This rule shall apply even though such amounts are subject to tax under section 871.

§ 1.1441-5 Claiming United States citizenship or residence.

(a) Individuals. For purposes of chapter 3 of the Code, an individual's written statement that he is a citizen or resident of the United States may be relied upon by the payer of the income as proof that such individual is a citizen or resident of the United States. This statement shall be furnished to the withholding agent in duplicate. An alien may claim residence in the United States by filing Form 1078 with the withholding agent in duplicate in lieu of the above statement.

(b) Partnerships and corporations. For purposes of chapter 3 of the Code a

written statement from a partnership or corporation claiming residence in the United States may be relied upon by the payer of the income as proof that such partnership or corporation is a resident of the United States. This statement shall be furnished to the withholding agent in duplicate. It shall contain the address of the taxpayer's office or place of business in the United States and shall be signed by a member of the partnership or by an officer of the corporation. The official title of the corporate officer shall also be given.

(c) Disposition of statement and form. The duplicate copy of each statement and form filed pursuant to this section shall be forwarded with a letter of transmittal to the Director of International Operations, Internal Revenue Service, Washington 25, D.C.

(d) Definitions. As to who are nonresident alien individuals, see sections 871, 7701, and the regulations thereunder. As to what partnerships and corporations are deemed to be nonresident, see sections 881, 882, 7701, and the regulations thereunder.

(e) Effective date. This section shall apply with respect to payments made after December 31, 1956. The provisions of 26 CFR (1939), 39.143-3 (a) and 39.144-2 (Regulations 118) corresponding to the provisions of this section, which were made applicable to chapter 3 of the Code by Treasury Decision 6091 (19 F.R. 5167, C.B. 1954–2, 47), shall be deemed to apply under such chapter with respect to all payments made after December 31, 1954, and before January 1, 1957. Nothing in this section shall be construed, however, to require the renewal of a statement of citizenship or residence, or of a Form 1078, which was filed in accordance with prior regulations in effect at the time of the filing, if such statement or form has been actively and continuously used, since such time, as a basis for determining the United States citizenship or residence of the payee involved.

§ 1.1442 Statutory provisions; withholding of tax on foreign corporations. SEC. 1442. Withholding of tax on foreign corporations. In the case of foreign corporations subject to taxation under this subtitle not engaged in trade or business within the United States, there shall be deducted and withheld at the source in the same manner and on the same items of income as is provided in section 1441 or section 1451 a tax equal to 30 percent thereof; except that, in