come of that branch is subject to tax, and this would seem to be true even though a portion of that income may be received by the branch from business done in foreign countries, but the precise point is as yet unsettled. If two or more branches are established here, the total net income from all is taken together for purposes of assessment. The income of all branches should be reported by the principal branch in its district, the other branches not being assessable in their respective districts.15

DIVIDENDS. Non-resident aliens are not subject to the normal tax on income received as dividends from a corporation taxable under the law upon its net income. They are also not subject to the normal tax on amounts received as dividends from a personal service corpóration out of earnings or profits upon which income tax has been imposed. They must, however, in order to secure the credit of such dividends, file a return of their total net income received from all sources, corporate or otherwise, in the United States including the dividends in question.16 If the total taxable income of all kinds from sources within the United States, together with such dividends and interest as are allowed to be credited for purposes of the normal tax, and together with any personal exemption which may be allowed, exceeds $5,000, the surtax must be paid at the prescribed rates.17 The exemption of dividends from the normal tax applies not only to dividends received direct from a corporation, but also to dividends received through the medium of fiduciaries or partnerships.18 Dividends of non-resident foreign corporations, that is, corporations not engaged in trade or business within the United States and not having any office or place of business in this country, are not taxable in the hands of a non-resident alien, even though such dividends may be payable in this country.19 Dividends on stock of corpo

15 Generally, the rules applying to foreign corporations as to income from business done in this country apply equally to non-resident alien individuals. See Chapter 12.

16 Revenue Act of 1918, §§ 216 and 217.

17 See Chapter 2.

18 See Chapter 19 for a further discussion of this subject.

19 Revenue Act of 1918, § 213 (c). See also T: D. 2012, T. D. 2030, T. D. 2313, T. D. 2325; Letter from Treasury Department dated April 5, 1916, I. T. S. 1919, ¶ 687. In two provisions of the 1916 Law (Revenue Act of 1916, §§ 1 (b) and 8 (b)) non-resident aliens were excepted from the require

rations organized in the United States, but doing no business in the United States and owning no property therein, are held not to be taxable when paid to non-resident aliens.20

INTEREST. Non-resident aliens are taxable upon all interest on bonds, notes or other interest-bearing obligations of residents of this country, corporate or otherwise, but for the purpose of the normal tax they are entitled to a credit of any amount received as interest upon obligations of the United States and bonds issued by the War Finance Corporation which is included in gross income.21 In order to obtain such credit, they must file a return of their total income received from all sources, corporate or otherwise, in the United States.22 Interest received from a non-resident, corporate or otherwise, is not taxable. Interest upon obligations of corporations organized in the United States, but doing no business and owning no property therein, is not taxable when paid to non-resident aliens.23

Interest

INTEREST UPON OBLIGATIONS OF THE UNITED STATES. received on and after March 3, 1919, on bonds, notes and certificates of indebtedness of the United States, and bonds of the War Finance Corporation, while beneficially owned by a nonresident alien individual, or a foreign corporation, partnership ments of making reports on and paying the surtax on "such income (income derived from dividends on the capital stock or from the net earnings of any corporation) derived from sources without the United States." Although this language was not construed by the courts or by any regulation, it undoubtedly applied to dividends received from foreign corporations where the earnings of such foreign corporations were derived from sources without the United States even though the dividends were payable in this country, and there seems to be ground for the contention that it also applied with equal force whether the corporation was foreign or domestic. Under the present law it is provided (Revenue Act of 1918, § 213 (c)) that in the case of nonresident aliens " 'gross income includes only the gross income from sources within the United States, including and including dividends from

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resident corporations." It may, therefore, be said that this language removes the doubt existing under the provisions of the 1916 Law, and places the taxability of non-resident aliens in respect to dividends on the ground of the residence of the corporation paying the dividends.

20 Reg. 45, Art. 92. The English law taxes an English company which has permanently located its business and seat of management abroad only with respect to the profits of the English shareholders.

21 Revenue Act of 1918, §§ 213 (c) and 216 (b).

22 Revenue Act of 1918, § 217.

23 Reg. 45, Art. 92.

or association, not engaged in business in the United States is exempt from all income and war-profits and excess-profits taxes.24

INTEREST ON BANK DEPOSITS. Where banking houses located in this country carry deposits for non-resident aliens, the interest thereon must be included in the non-resident alien's income tax return for the year in which he receives the interest or in which it is credited to an account against which he may draw 25 The bank is required to withhold the normal tax of 8% on such interest when paid to non-resident aliens.26

SALARIES FOR EXTRA-TERRITORIAL SERVICES PAID BY RESIDENT EMPLOYERS. It is held that salaries, wages, and commissions paid by domestic business enterprises to non-resident alien employees for services rendered entirely in a foreign country are not subject to income tax in the hands of the recipient as from sources within the United States.27

WAGES OF ALIEN SEAMEN. While resident alien seamen are taxable like citizens on their entire income from whatever sources derived, non-resident alien seamen are taxable only on income from sources within the United States. Ordinarily, wages received for services rendered inside the territorial United States are to be regarded as from sources within the United States. The wages of an alien seaman earned on a coastwise vessel are from sources within the United States, but wages earned by an alien seaman on a ship regularly engaged in foreign trade are not to be regarded as from sources within the United States, even

24 Reg. 45, Art. 93; Act of July 9, 1918 (Public No. 192), Sec. 3, as amended by Act of March 3, 1919, § 4. This is true notwithstanding the provisions of the Second Liberty Bond Act (Act of September 24, 1917, Public No. 43), the Third Liberty Bond Act (Act of April 4, 1918, Public No. 120), and the War Finance Corporation Act (Act of April 5, 1918, Public No. 121).

25 Reg. 45, Art. 91.

26 T. D. 2652. Letter from Treasury Department dated February 4, 1918; I. T. S. 1918, ¶3077. Prior to the above ruling, banks were not required to withhold tax on such interest or to make any return of the amount paid thereon to any depositor. (Letter from Treasury Department dated June 29, 1917; I. T. S. 1918, ¶ 177.)

27 Reg. 45, Art. 92. Under the 1913 Law it was held that compensation paid to non-resident aliens for services rendered in a foreign country, including business and traveling expenses, was not taxable. (T. D. 2152.) The 1916 Law by imposing a tax on "income from all sources within the United States'' raised a question as to the taxability of such compensation. (Reg. 33, Rev., Art. 32.)

though the ship flies the American flag, or although during a part of the time the ship touched at United States ports and remained there a reasonable time for the transaction of its business. The presence of a seaman aboard a ship which enters a port for such purposes of foreign trade is merely transitory and wages earned during that period by a non-resident alien seaman are not taxable. There is no withholding from the wages of alien seamen unless they are non-residents.28 An employer is, however, required to render a return of information in all cases where he has made payment of $1,000 or over of wages to resident alien seamen in any taxable year.29

INCOME RECEIVED FROM FIDUCIARIES.

Where a non-resident

alien is the beneficiary of a trust, or of the estate of a deceased person, or is the recipient of income from any property held by another, such income is taxable to the extent that it arises from sources within the United States. The intervention of an agent, trustee or other fiduciary between the non-resident alien and the source of the income does not render income subject to taxation, which otherwise would not be taxable, nor does it serve to relieve from taxation income which otherwise would be taxed.30 Dividends, for instance, would not be subject to the normal tax for the reason that they are paid to a trustee and by him distributed to non-resident aliens.31 Similarly, interest upon 434% notes of the Fifth Liberty Loan is not made taxable by passing through the hands of a fiduciary to the beneficiary.32 One important class of exempt income from estates is gifts, legacies, bequests, etc., the principal thereof being exempt, but the income therefrom being taxable.33

28 Reg. 45, Art. 92a. As to the status of alien seamen as residents or nonresidents, see Reg. 45, Art. 312a and page 48.

29 Letter from Treasury Department dated September 20, 1919; I. T. S. 1919, ¶3609.

30 Letter from Treasury Department dated March 25, 1915; I. T. S. 1918, ¶110.

31 Letter from Treasury Department dated April 5, 1916; I. T. S. 1918, ¶¶ 32, 62, and 873.

32 Exempt income is not reported by the fiduciary as income accruing to the estate for the purpose of tax. See Revenue Act of 1918, §§ 219 (b), 212 (a) and 213.

33 See Chapter 20. See also Revenue Act of 1918, § 213 (a) 3.

INCOME FROM PARTNERSHIPS. Non-resident aliens, who are members of partnerships deriving all their income from sources within this country, are taxable on their entire distributive shares.34 If a partnership derives only part of its income from sources within the United States, non-resident alien partners are taxable only on that part of their respective distributive shares of the partnership profits which represent income of the partnership from such sources.35

INCOME FROM THE SALE OF PROPERTY. Non-resident aliens are taxable on profits and gains from the sale of real or personal property located in the United States.36 Where sales of intangible personal property, for example, stocks, bonds, notes, etc., of domestic corporations or residents are made in the United States, the profit is held to be taxable and the custodian of the securities here is charged with the duty of reporting the profit of the non-resident alien, for which purpose he must place himself in possession of all the facts necessary to an accurate determination of the amount of profit in the transaction.37 If a sale of such intangible personal property is made in a foreign country by a non-resident alien, it does not seem that the seller would be taxable on the gain or profit therefrom.

INCOME FROM ROYALTIES. Royalties paid to non-resident aliens under an agreement for the purchase of certain patent rights, the patents being based upon the quantity of goods produced by the use of such patents, have been held to be income accruing to non-resident aliens by reason of property owned or business carried on within the United States.38

INCOME FROM RENT. Rent paid to non-resident aliens by domestic business enterprises for property located in a foreign

34 Revenue Act of 1918, § 218. See Chapters 8 and 9.

35 This is one of the many questions on which the Treasury Department has not as yet made any clear public statement of its position. The status of a partner differs materially from that of a stockholder in a corporation, since in the case of a partnership no separate entity is interposed between the recipient of the income and its original source. See U. S. v. Coulby, 251 Fed. 982, affirmed 258 Fed. 27.

36 Revenue Act of 1918, § 213 (a) (c). See Chapter 17, for the method of computing taxable gains on the sale of property.

37 Letter from Treasury Department dated May 31, 1916; I. T. S. 1918, ¶104.

38 T. D. 2137; Reg. 45, Art. 91.

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