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after notice and demand therefor, the penalty is 5 per cent of the amount of the tax unpaid and interest at the rate of 1 per cent per month upon such tax from the time the same became due, except

from the estates of insane, deceased, or insolvent persons. 247 Payment of taxes.—An excess payment of tax in one year can no

be offset against an assessment of tax for a subsequent year. 248 Status of income tax.-Tax due on income has the status of a det:

due to the United States. Persons receiving property charged with

such indebtedness must answer for the debt. 249 Art. 40. Section 1009, act of October 3, 1917, provides that tal

payers liable for income and excess-profits tax may make payments of such taxes in advance, in installments or in whole of an amount not in excess of the estimated taxes which will be due from them and upon determination of the taxes actually due any amount paid in excess shall be refunded as taxes erroneously collected, and credit against such tax so paid in advance may be allowed of an amount not exceeding 3 per cent per annum calculated upon the amount so paid from the date of such payment to the date now fixed by law for such payment; but no such credit shall be allowed on payments in excess of taxes determined to be due, nor on payments made after four and one-half months after the close of the taxable year. In case of under taking to pay tax in installments and default of any installment the

penalty for failure to pay tax when due will attach. 250 Rules for calculation of the 3 per cent credit on account of advance

payment of tax, or a reduction otherwise of the amount of tax assessable on a return of income by means of advance payment, have been prescribed by the Secretary of the Treasury by special regula

tion. (T. D. 2622.) 251 Art. 41. In the payment of income tax a fractional part of a

cent shall be disregarded unless it amounts to a half cent or more, in

which case the fraction shall be increased to 1 cent. 252

Form 17.-Collectors should issue Form 17 for the purpose of fixing definitely the date when the 5 per cent penalty accrues and interest at 1 per cent per month begins to run, and a copy of this notice should be filed as provided by act of August 17, 1912, amending section 3186, Revised Statutes.

PROCEDURE IN CASES OF DELINQUENCY.

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Art. 42. In cases of refusal or neglect to make return and in cases of erroneous, false, or fraudulent returns the Commissioner of Internal Revenue shall, upon the discovery thereof, at any time within three years

after said return is due or has been made make a return of income upon information obtained as provided for by law, or require the necessary corrections to be made, and the assessment

made by the Commissioner of Internal Revenue thereon shall be paid by such person or persons immediately upon notification of the amount of such assessment. If the amount of such assessment remains unpaid for 10 days after notice and demand therefor by the collector, there shall be added the sum of 5 per cent on the amount of tax unpaid and interest at the rate of 1 per cent per month upon such tax from the time the same became due, except from the estates of insane, deceased, or insolvent persons.

WITHHOLDING.

Art. 43. The withholding provisions of the income-tax law (secs. 254 9 (6) and (c) apply

(a) To the normal income tax levied upon the entire net income 255 of nonresident aliens, of a fixed or determinable annual or periodical class, as interest, rent, salary, wages, etc., received by them from all sources within the United States. This tax is 2 per cent under the act of September 8, 1916 (there is no exemption and none can be claimed).

(6) To the normal income tax of citizens and resident aliens, 256 only when derived from interest on bonds and mortgages, deeds of trust, or other similar obligations of corporations, associations, etc., which have a “tax-free covenant clause (i. e., a contract or provision by which the obligor agrees to pay any portion of the tax imposed by this title upon the obligee or to reimburse the obligee in any portion of the tax or to pay the interest without deduction for any tax which the obligor may be required or permitted to pay thereon or to retain therefrom under any law of the United States), regardless of the amount and period of payment.

The amount to be withheld is 2 per cent on the amount of pay-257 ment, unless the person entitled to receive such interest shall file with the withholding agent, on or before February 1, a signed notice in writing claiming the benefit of an allowable exemption under section 7, act of September 8, 1916, as amended.

(c) The tax to be deducted and withheld from nonresident alien 258 individuals in accordance with section 9 (6) and (c) for 1917 and subsequent tax years is the 2 per cent normal tax imposed by the act of September 8, 1916, as amended.

On and after January 1, 1918, the normal tax of 2 per cent im- 259 posed by the act of October 3, 1917, is the tax to be deducted and withheld from citizens or residents of the United States in accordance with section 9 (c).

Tax withheld from income other than bond interest will be ac- 260 counted for on income-tax Form 1042, and separate reports of the

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payments entered on Form 1042 will be made on Form 1098. Tas withheld from bond interest will be accounted for monthly on incometax Form 1012, and an annual summary of these will be made or

income-tax Form 1013. The annual return only will be verified. 261 Ownership certificates.—The owners of bonds of domestic and resi

dent corporations shall, when presenting interest coupons ment, file a certificate of ownership for each issue of bonds, showing the name and address of the debtor corporation, the name and address of the owner of the bonds, whether the payee is married or the

head of a family, and the amount of interest. 262 Tax to be paid at the source.-Form 1000, revised, shall be used (a)

when no personal exemption is claimed against interest on bonds containing a “tax-free" covenant by citizens or residents of the United States; (b) by nonresident alien individuals, foreign corporations having no office or place of business in the United States whether or not such bonds contain a “tax-free” covenant; and (c) in the case where coupons are received not accompanied by certificates of ownership. The first bank receiving coupons not accompanied by ownership certificates will make a certificate crossing out“ owner and

inserting "payee" and will enter the amount of interest on line 4. 263 Tax not to be paid at the source.-Form 1001, revised, shall be used

(a) when personal exemption is claimed against interest on bonds containing a “tax-free” covenant by citizens or residents of the United States, also when presenting coupons from bonds not containing a “tax-free” covenant; (6) by domestic partnerships, corporations, or associations; (c) by nonresident alien partnerships; and (a) by foreign corporations having an office or place of business in the United States, whether or not such bonds contain a “tax-free"

covenant. 264 In case a citizen or resident individual receives interest on bonds

containing a “tax-free" covenant in excess of the amount of personal exemption which the individual may claim, any such excess

must be reported on Form 1000, revised. 265 Substitute certificates.—Collecting agents, responsible banks and

bankers receiving coupons for collection with ownership certificates attached may present the coupons with the original certificates to the debtor corporation or its duly authorized withholding agent for collection or the original certificates may be detached and forwarded direct to the Commissioner of Internal Revenue, provided such collecting agent shall substitute for such certificate its own certificate and shall keep a complete record of each transaction show

ing266

1. Serial number of item received. 2. Date received.

3. Name and address of person from whom received.
4. Name of debtor corporation.
5. Class of bonds from which coupons were cut.

6. Face amount of coupons. For the purpose of identification the substitute certificates shall 267 be numbered consecutively and corresponding numbers given the original certificates of ownership.

Substitute certificates by collecting agents, banks, and bankers, in 268 lieu of original certificates of ownership accompanying coupons presented for collection shall be discontinued with respect to ownership certificates presented with coupons for collection by nonresident alien individuals, firms, corporations, organizations, etc.

In all such cases the original certificates of ownership shall be 269 forwarded to the debtor corporation without substitution.

The debtor corporation or its duly authorized withholding agent 270 shall forward all certificates to the collector of internal revenue with its duplicate monthly list return, Form 1012, revised, and such collector shall forward the original return and the certificates to the commissioner, as heretofore.

Art. 44. Until January 1, 1918, withholding was required under 271 the act of September 8, 1916, as amended, at the rate of 2 per cent. On and after January 1, 1918, withholding provisions of the law as to citizens and resident aliens (sec. 9-c, act Sept. 8, 1916, as amended) will extend to the normal tax imposed by section 1, act October 3, 1917. Thereafter the exemption which may be claimed by citizens and resident aliens from withholding will be such as will be allowable under section 3, act October 3, 1917.

Art. 45. Withholding will at all times be limited to 2 per cent, 272 except in case of interest on corporate bonds owned by foreign corporations having no office or place of business in the United States, in which case deduction will be at the rate of 6 per cent.

Art. 46. Return is to be made for the tax withheld in manner and 273 on a form to be prescribed by the Commisisoner of Internal Revenue, with the approval of the Secretary of the Treasury. This return is to be made after February 1 and on or before March 1 annually. The return shall show the name and address of the withholding agent, character of income, and the name and address of the recipient or his agent, amount of income, exemption claimed, and the amount of tax at 2 per cent withheld thereon.

Art. 47. Any income withheld from a citizen or resident alien in 274 1917 prior to October 3, 1917, except in the case covered by section 9 (c) (from interest paid on securities having a tax-free covenant clause) of the act of September 8, 1916, as amended, shall be released by the withholding agent and paid over to the individual from whom it was withheld or his proper legal representative.

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The income upon which such tax was so deducted and released shall be included in the return, if any, of such individual for the purpose of assessment and collection of the income tax.

LICENSE.

276

Art. 48. All persons, corporations, partnerships, or associations undertaking as a matter of business or for profit the collection of foreign payments of interest or dividends by means of coupons, checks, or bills of exchange shall obtain a license from the Commissioner of Internal Revenue, and shall be subject to such regulations enabling the Government to obtain the information required under this title as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall prescribe; and whoever knowingly undertakes to collect such payments as aforesaid without having obtained a license therefor or without complying with such regulations, shall be deemed guilty of a misdeameanor and for each offense be fined in a sum not exceeding $5,000 or imprisoned for a term not exceeding one year, or both, in the discretion of the court. Such licensee shall write or stamp on the face of the item: "Information obtained and furnished by

(name of collecting agent)."

INTENT OF THE LAW.

277 Art. 49. The intent and purpose of the income-tax law is that all

gains, profits, and income of a taxable class shall be charged and assessed with the corresponding income tax, normal and additional, and such tax shall be paid by the owner of such income or the

proper representative thereof having the receipt, custody, control, or disposal of the same. In any case where the conditions which obtain do not appear to fall within the law and regulations for the assessment and collection of the income tax, the proper tax shall be assessed in the particular case by the Commissioner of Internal Rerenue upon his findings concerning the same. Ownership of income and liability for tax thereon shall be determined as of the year for which the return is required to be rendered.

RECORD TO BE KEPT.

278 Art. 50. Every individual, partnership, corporation, or association

liable to any tax imposed under the internal revenue laws of the United States or for the collection thereof shall keep such records and render such statements and returns, under oath, as shall be prescribed by the Commissioner of Internal Revenue.

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